Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13
or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1995 Commission File
Number 1-5558
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1277589
(State of Incorporation) (I.R.S. Employer
Identification No.)
6300 S. Syracuse Way, Suite 300, Englewood, Colorado
80111
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303)290-9300
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date.
Class Outstanding at June 30, 1995
Common stock, $1 par value 9,076,387<PAGE>
KATY INDUSTRIES, INC.
FORM 10-Q
JUNE 30, 1995
INDEX
Page No.
PART I FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994 2
Statements of Condensed Consolidated Operations
Three months and six months ended
June 30, 1995 and 1994 4
Statements of Condensed Consolidated Cash Flows
Six months ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Information 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
June 30, December 31,
1995 1994
(Thousands of Dollars)
CURRENT ASSETS:
Cash and cash equivalents $ 2,700 $ 8,475
Marketable securities - available for sale 28,062 23,756
Accounts receivable, trade, net of allowance
for doubtful accounts of $965 and $3,183 27,832 20,423
Notes and other receivables, net of allowance
for doubtful notes of $504 and $854 2,026 2,112
Inventories - Note 1 36,594 31,312
Other current assets 12,468 13,784
Total current assets 109,682 99,862
OTHER ASSETS:
Investments, at equity, in
unconsolidated subsidiaries - Note 3 47,440 45,310
Investments, at cost - Note 4 424 406
Investments in waste-to-energy facility 11,532 11,759
Notes receivable, net of allowance for
doubtful notes of $2,500 1,430 2,283
Miscellaneous (Note 2) 12,045 4,982
Total other assets 72,871 64,740
PROPERTIES, at cost:
Land and improvements 4,407 4,868
Buildings and improvements 33,829 25,152
Machinery and equipment 38,876 56,743
77,112 86,763
Accumulated depreciation ( 35,090) ( 48,223)
Net properties 42,022 38,540
$224,575 $203,142
See Notes to Condensed Consolidated Financial Statements.
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
June 30, December 31,
1995 1994
(Thousands of Dollars)
CURRENT LIABILITIES:
Notes payable - banks $ 24,353 $ 7,948
Accounts payable 8,218 6,807
Accrued compensation 2,789 6,180
Accrued expenses 26,632 25,060
Accrued interest and taxes 1,408 773
Current maturities, long-term debt 527 2,407
Dividends payable 646 646
Total current liabilities 64,573 49,821
LONG-TERM DEBT, less current maturities 9,763 10,572
OTHER LIABILITIES 34,469 31,759
MINORITY INTEREST 215 212
Total liabilities 109,020 92,364
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, authorized
25,000,000 shares, issued 9,821,329 shares 9,821 9,821
Additional paid-in capital 51,111 51,111
Foreign currency translation adjustment ( 1,674) 2,676
Unrealized holding gains, net of tax 7,069 4,426
Retained earnings 62,071 55,587
Treasury stock, at cost, 744,942 shares ( 12,843) ( 12,843)
Total stockholders' equity 115,555 110,778
$224,575 $203,142
See Notes to Condensed Consolidated Financial Statements.
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 1995 1994
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $ 49,609 $ 42,641 $ 87,967 $ 81,064
Costs and expenses:
Cost of goods sold 34,131 36,116 60,587 63,152
Selling, general and administrative 13,253 11,580 24,207 21,443
Depreciation and amortization 2,268 1,514 3,646 3,058
Interest expense 945 502 1,363 1,022
Interest income ( 380)( 1,294)( 656)( 2,519)
Other, net ( 1,066) 1,792 ( 829) 1,562
Write off of assets - Notes 4 and 6 - 2,708 - 9,288
Reversal of previously recorded
losses - Note 2 ( 4,920) - ( 4,920) -
44,231 52,918 83,398 97,006
Income (loss) from consolidated
operations before income tax credit 5,378 ( 10,277) 4,569 ( 15,942)
Income tax credit 2,477 1,739 1,849 3,603
Income (loss) from
consolidated operations 7,855 ( 8,538) 6,418( 12,339)
Equity in income of unconsolidated
subsidiaries (net of tax)- Note 3 500 691 1,200 1,304
Net income (loss) 8,355 ( 7,847) 7,618( 11,035)
Income (loss) per share $ .92($ .87) $ .84($ 1.22)
Average shares outstanding 9,076 9,017 9,076 9,017
Dividends per common share $ .0625 $14.0000 $ .1250 $14.0625
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Six Months Ended
June 30,
1995 1994
(Thousands of dollars)
Cash flows from operating activities:
Net income (loss) $ 7,618 ($ 11,035)
Write off of assets - 9,288
(Gain) loss on sale of assets ( 18) 76
Disposition of portion of investment in subsidiary( 7,902) -
Provisions for inventory valuation reserves - 5,072
Adjustments to reconcile net income to net cash
flows from operating activities ( 3,455) ( 124)
Net cash flows from operating activities 3,757 3,277
Cash flows from investing activities:
Proceeds from sale of assets 94 217
Collections of notes receivable 481 227
Acquisition of businesses, net of cash acquired ( 23,480) -
Other investments - ( 2,226)
Capital expenditures ( 5,317) ( 1,614)
Net cash flows from investing activities ( 28,222) ( 3,396)
Cash flows from financing activities:
Notes payable activity, net 23,063 ( 171)
Principal payments on long-term debt ( 1,662) ( 1,479)
Payment of dividends ( 1,135) ( 1,126)
Proceeds from issuance of long-term debt 5,938 -
Net cash flows from financing activities 26,204 ( 2,776)
Net increase (decrease) in cash and cash
equivalents ( 5,775) ( 2,895)
Cash and cash equivalents beginning of period 8,475 130,289
Cash and cash equivalents end of period $ 2,700 $127,394
See Notes to Condensed Consolidated Financial Statements.
(1) Significant Accounting Policies
Consolidation Policy
The financial statements include, on a consolidated basis,
the accounts of Katy Industries, Inc. and subsidiaries (Katy)
in which Katy has greater than a 50% interest or exercises
significant influence or control.
The information included herein reflects all known
adjustments which are, in the opinion of management, necessary
for a fair presentation of financial condition and results of
operations. Interim figures are subject to year-end audit
adjustments and may not be indicative of results to be realized
for the entire year.
Inventories
The components of inventories are as follows:
June 30, December 31,
1995 1994
(Thousands of Dollars)
Raw materials $ 14,447 $ 11,304
Work in process 6,442 7,137
Finished goods 15,705 12,871
$ 36,594 $ 31,312
(2) Acquisitions and Divestitures:
Effective March 31, 1995, Katy purchased all of the
outstanding shares of common stock of GC Thorsen, Inc. (GCT),
a leading value-added marketer and distributor of electronic
and electrical parts and accessories and nonpowered handtools.
The purchase price, including acquisition costs, was
approximately $24,000,000, of which $19,500,000 was financed
through Katy's bank line of credit. The acquisition has been
accounted for under the purchase method. The excess of the
purchase price over the fair value of the net assets acquired
of approximately $4,200,000 is included in Other Assets -
Miscellaneous on the accompanying balance sheet and is being
amortized over 20 years.
On June 30, 1995, Katy sold one half of its 75%
interest (90,000 shares) in Schoen & Cie, AG (Schoen) to
Pegasus Beteiligungen AG of Heidelberg, Germany. The sale,
which is irrevocable, was made on the basis of a contingent
price, whereby Katy will receive two-thirds of the amount
ultimately realized by Pegasus in any future sale of such
shares, or, under some circumstances, Katy will be entitled to
find a purchaser for two-thirds of such shares and receive the
proceeds of the sale thereof. Katy continues to hold 90,000
shares, or a 37.5% interest in Schoen. With the reduction in
its ownership interest and influence, Katy is reporting its
continuing investment in Schoen using the equity method of
accounting for this minority owned subsidiary effective June
30, 1995. In connection with the sale, Katy recorded a gain of
$4,920,000 reflecting the reversal of previously recorded
losses of Schoen and a deferred tax asset of $3,000,000.
(2) Acquisitions and Divestitures (Continued)
Katy has previously stated its intent to not fund future
operations of Schoen and has no legal liability for any of
Schoen's liabilities. Katy's investment in Schoen is recorded
at zero as of June 30, 1995.
The unaudited pro forma consolidated results of operations
of Katy for the six months ended June 30, 1995, reflecting the
allocation of the purchase and related costs of the GC Thorsen
transaction and the sale of 50% of Katy's interest in Schoen,
would have been as follows (in thousands except per share
amounts), assuming that the Thorsen acquisition and the Schoen
sale had taken place at the beginning of the period.
Six Months Ended
June 30, 1995
Net sales $ 76,979
Net income $ 5,596
Net income per common share $ .62
On July 14, 1995, Katy sold the assets of its B.M. Root
operation in York, Pennsylvania to a group headed by the
General Manager of the operation. The sale was at net book
value (approximately $700,000).
(3) Investments in Unconsolidated Subsidiaries, at Equity
Katy's investments in unconsolidated subsidiaries are
comprised of the following:
June 30, December 31,
1995 1994
(Thousands of Dollars)
Syratech Corporation $54,214 $38,325
Bee Gee Holding Company, Inc. 7,226 6,985
Schoen & Cie, AG -0- N/A
$47,440 $45,310
(3) Investments in Unconsolidated Subsidiaries, at Equity
(Continued)
The condensed financial information which follows reflects
Katy's proportionate share in the financial position and
results of operations of all of its unconsolidated
subsidiaries:
June 30, December 31,
1995 1994
(Thousands of Dollars)
Current assets $ 54,826 $ 40,474
Current liabilities ( 21,883) ( 16,196)
Working capital 26,943 24,278
Properties, net 30,763 27,590
Other assets 2,113 836
Long-term debt ( 7,860) ( 4,894)
Other liabilities ( 4,840) ( 3,086)
Stockholders' equity 47,119 44,724
Unamortized excess of cost
over net assets acquired 356 586
Investments, at equity, in
unconsolidated subsidiaries $ 47,440 $ 45,310
(3) Investments in Unconsolidated Subsidiaries, at Equity
(Continued)
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 1995 1994
(Thousands of Dollars)
Sales $14,687 $20,890 $40,038 $41,784
Cost and expenses ( 14,246)( 20,435) ( 38,334)( 40,010)
Net income from
continuing operations 441 455 1,704 1,774
Income from discontinued
operations - net of tax 680 1,002 680 1,002
Net income 1,121 1,457 1,024 2,776
Amortization of excess
of cost over net
assets required ( 127)( 198) ( 254)( 402)
Provision for income
taxes ( 494)( 568) ( 930)( 1,070)
Equity in net income
of unconsolidated
subsidiaries $ 500 $ 691 $ 1,200 $ 1,304
The financial statements of Syratech Corporation
included herein are for the six months ended March 31, 1995,
which is the latest date available, with results of
discontinued operations presented only for the three months
ending March 31, 1995 and 1994. On March 28, 1995, Syratech
sold its subsidiary, Syroco, Inc., for $140,000,000 resulting
in a gain of $30,451,000 which Syratech will report in the
quarter ended June 30, 1995. Syroco is shown above as a
discontinued operation. Katy will report its share of the gain
on sale (approximately $5,000,000 net of tax) in Katy's third
quarter ended September 30, 1995.
(4) Investments, at Cost
In April, 1994 management of Katy met with Katy's oil
exploration joint venture partners and, based on current facts
and circumstances, Katy has decided not to commit further funds
to the oil exploration project and will not participate in any
further activities on the site. Accordingly, in March, 1994
Katy wrote off its $6,580,000 investment.
(5) Special Dividend
On June 29, 1994, Katy's Board of Directors declared a
special cash dividend of $14.00 per share on Katy's common
stock, payable August 19, 1994 to stockholders of record at the
close of business on July 22, 1994.
(6) Nonrecurring Items
During the second quarter of 1994 Katy provided
$6,156,000 of inventory and other adjustments at certain
subsidiaries, which were primarily inventory adjustments within
the industrial machinery group. Katy management also concluded
that the value ($2,708,000) of the Seghers waste-to-energy
technology that was acquired in 1987 had been significantly
impaired and wrote it off in the second quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1995 working
capital decreased $5,134,000 compared to December 31, 1994.
Current ratios were 1.69 to 1.00 at June 30, 1995 and 2.00 to
1.00 at December 31, 1994, respectively. The decrease in
working capital and in the current ratio results from short-term borrowings
in connection with the acquisition of GC
Thorsen on March 31, 1995. Katy has authorized and expects to
commit an additional $4,000,000 for capital projects during the
remainder of 1995. Funding for these expenditures and for
working capital needs is expected to be accomplished
substantially through use of internally generated funds from
operations supplemented by short-term borrowing.
Effective March 31, 1995 Katy purchased all of the
outstanding shares of common stock of GC Thorsen, Inc. (GCT),
a leading value-added marketer and distributor of electronic
and electrical parts and accessories and nonpowered handtools.
The purchase price, including acquisition costs, was
approximately $24,000,000, of which $19,500,000 was financed
through Katy's bank line of credit. The acquisition has been
accounted for under the purchase method. The excess of the
purchase price over the fair value of the net assets acquired
of approximately $4,200,000 is being amortized over 20 years.
Effective June 30, 1995 Katy sold one-half of its
interest in Schoen & Cie, AG to a German investment company in
an irrevocable transaction. The purchaser, Pegasus
Beteiligungen AG of Heidelberg, Germany, acquired 90,000
shares, representing a 37.5% interest in Schoen. The sale was
made on the basis of a contingent purchase price, whereby the
amount Pegasus will pay Katy for the shares is dependent on the
amount ultimately realized by Pegasus in the future. Katy
continues to hold its remaining 90,000 shares, or a 37.5%
interest, in Schoen. As a result of the sale, Katy will no
longer consolidate the results of Schoen in Katy's financial
statements, and will use the equity method of accounting to
report Katy's continuing investment in Schoen. As a result of
the sale Katy recorded a gain in the second quarter from the
reversal of previously recorded losses of Schoen ($4,920,000)
and deferred tax benefits from the sale ($3,000,000).
The Company and certain of its current and former
direct and indirect corporate predecessors, subsidiaries and
divisions have been identified by the U.S. Environmental
Protection Agency and certain state environmental agencies and
private parties as potentially responsible parties ("PRP's") at
a number of hazardous waste disposal sites under the
Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund") and equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial
activities at these sites. Responsibility for cleanup and
other remedial activities at a Superfund site is typically
shared among PRPs based on an allocation formula. The means of
determining allocation among PRPs
is generally set forth in a written agreement entered into by
the PRPs at a particular site. An allocation share assigned to
a PRP is often based on the PRP's volumetric contribution of
waste to a site. The Company is also involved in remedial
response and voluntary environmental clean-up at a number of
other sites which are not currently the subject of any legal
proceedings under Superfund, including certain
LIQUIDITY AND CAPITAL RESOURCES (Continued)
of its current and formerly owned manufacturing facilities.
Based on its estimate of allocation of liability among PRPs,
the probability that other PRPs, many of whom
are large, solvent, public companies, will fully pay the costs
apportioned to them, currently available information concerning
the scope of contamination, estimated remediation costs,
estimated legal fees and other factors, the Company has an
accrual at June 30, 1995 for indicated environmental
liabilities in the aggregate amount of approximately
$7,150,000.
Although management believes that these actions in the
aggregate are not likely to have a material adverse effect on
Katy's consolidated financial position or results of
operations, further costs could be significant and will be
recorded as a charge to operations when such costs become
probable and reasonably estimable.
Katy also has a number of product liability and
workers' compensation claims pending against it and its
subsidiaries. With respect to the product liability and
workers' compensation claims, Katy has provided for its share
of expected losses beyond the applicable insurance coverage,
including those incurred but not reported. Such accruals are
developed using currently available claim information. The
incurred but not reported component of the liability was
developed using actuarial techniques.
On January 13, 1995, the Board of Directors adopted a
Stockholder Rights Plan in which Common Stock Purchase Rights
("Rights") were distributed as a dividend at the rate of one
Right for each share of Common Stock held as of the close of
business on January 24, 1995.
The Rights were designed to guard against (I) coercive
and abusive tactics that might be used in an attempt to gain
control of the Company without paying all stockholders a fair
price for their shares, or (ii) the accumulation of a
substantial block of stock without Board approval. The Rights
Plan will not prevent takeovers, but was designed to deter
coercive and abusive takeover tactics and to encourage anyone
attempting to acquire the Company to first negotiate with the
Board. Furthermore, the Rights also permit the Board to have
some input with respect to
possible future acquisitions of Company stock by the Carroll
family and certain investment funds managed by Mario J.
Gabelli.
As of January 13, 1995 the Carroll family beneficially
owned approximately 47% and the Gabelli group beneficially
owned approximately 21% of the Company's Common Stock. As of
August 14, 1995, the Carroll family beneficially owns
approximately 46% and the Gabelli group owns approximately
21.8%.
Such Rights only become exercisable, or transferable
apart from the Common Stock, ten business days after a person
or group (an "Acquiring Person") acquires beneficial ownership
of, or commences a tender or exchange offer for, 10% or more of
the Company's Common Stock. Any additional acquisition of
shares by the Carroll family or the Gabelli group which would
increase their beneficial ownership in the Company's Common
Stock by more than 1% above their holdings at January 13, 1995,
respectively, will also make the Rights exercisable.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Once exercisable, each Right not owned by an Acquiring
Person, or if the Carroll family or the Gabelli group acquires
additional shares, then that family or group, allows the
Rightholder to acquire one share of the Company's Common Stock
at an exercise price of $35, subject to adjustment.
Thereafter, upon the occurrence of certain events (for example,
if the Company is the surviving corporation of a merger with an
Acquiring Person), the Rights entitle holders other than the
Acquiring Person to acquire Common Stock having a value of
twice the exercise price of the Right. Alternatively, upon the
occurrence of certain other events (for example, if the Company
is acquired in a merger or other business combination
transaction in which the Company is not the surviving
corporation), the Rights would entitle holders other than the
Acquiring Person to acquire Common Stock of the Acquiring
Person having a value twice the exercise price of the Rights.
The Rights may be redeemed by the Company at a
redemption price of $.01 per Right at any time until the tenth
business day following public announcement that a 10% position
has been acquired (or an additional 1% if by the Carroll family
or Gabelli group) or ten business days after commencement of a
tender or exchange offer. The Rights will expire on January
24, 2005.
By its terms, the Rights Plan reserves for the Board of
Directors the right to amend the Plan and redeem the Rights.
All the terms of the Plan, including but not limited to the
exercise price of the Rights and the ownership percentages
leading to a triggering event, may be amended by the Board of
Directors of the Company at any time prior to the triggering of
the Rights Plan's "flip-over" and "flip-in" provisions.
At June 30, 1995, Katy had short and long-term
indebtedness for money borrowed of $34,643,000 of which
$24,000,000 represented short-term borrowings under Katy's
domestic bank line of credit, which borrowings were used
primarily for the acquisition of GC Thorsen, Inc. Total debt
was 23.1% of total debt and equity at June 30, 1995. Katy has
a line of credit with The Northern Trust Company in the amount
of $40,000,000. The line of credit may be used for letters of
credit, working capital and/or acquisitions.
Management continuously reviews each of its businesses.
As a result of these ongoing reviews, management may determine
to sell certain companies and may augment its remaining
businesses with acquisitions. When sales do occur, management
anticipates that funds from these sales will be used for
general corporate purposes or to fund acquisitions.
Acquisitions may also be funded through cash balances,
available lines of credit and future borrowings.
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995
Following are summaries of sales and operating income
for the six months ended June 30, 1995 and 1994 by industry
segment:
Sales
Increase (Decrease)
1995 1994 Amount Per Cent
(Thousands of Dollars)
Industrial Machinery $ 29,033 $ 31,368 ( $ 2,335) ( 7.4%)
Industrial Components 14,117 16,871 ( 2,754) (16.3 )
Consumer Products 44,817 32,825 11,992 36.5
Total sales $ 87,967 $ 81,064 ($ 6,903)( 8.5%)
Operating Income
Percent of Sales
1995 1994 1995 1994
(Thousands of Dollars)
Industrial Machinery ($ 1,900) ($ 5,550) ( 6.5%) ( 17.7%)
Industrial Components 1,995 270 14.1 1.6
Consumer Products 3,676 3,913 8.2 11.9
Total operating income $ 3,771 $ 1,367 4.3% ( 1.7%)
The decreased sales of the Industrial Machinery segment is
attributable to decreased sales of Schoen and its subsidiaries,
where operations continue to decline, partially offset by
increases of the manufacturers of machinery for the food
processing industry and for the wood processing industry. The
1995 operating loss reported for the segment was considerably
less than the loss reported in 1994, the result of 1994
adjustments to inventory values at certain locations, primarily
foreign operations, which did not recur in 1995.
The Industrial Components segment reported decreased
sales, primarily due to the sale of the business that refitted
machinery for the oil, gas petrochemical industries in the
fourth quarter of 1994. Sales increases were reported by the
Six Months Ended June 30, 1995 (Continued)
manufacturers of electrical equipment, specialty metals and
gauging and control systems. Operating income increased
primarily as the result of the sales increases, improved
margins in 1995 and 1994 adjustments to inventory values of a
foreign subsidiary.
The Consumer Products segment reported increased sales,
primarily due to the acquisition on March 31, 1995 of GC
Thorsen, a marketer of electronic parts and handtools.
Significant sales increases in the refrigeration and cold
storage business and the stain, coating and water repellant
business were largely offset by decreases in the filter
business. Operating income decreased due to lower sales and
margin levels at the filter and abrasives businesses, offset by
increased margins in the refrigeration and cold storage
business.
Selling, general and administrative expenses increased by
$2,765,000, primarily the result of the acquisition of GC
Thorsen and increased sales expenses due to higher sales in
1995.
Income before income taxes increased by $20,511,000
primarily the result of the reversal of previously recorded
losses of Schoen of $4,902,000 in 1995 and the write-off of
assets of $9,288,000 and reserves against inventories of
$6,156,000 in 1994.
The effective tax rate for the six months ended June 30,
1995 was a credit of 40.5% compared to 22.6% for 1994. The
1995 credit is due primarily to the deferred tax benefit
resulting from the sale of 50% of Katy's investment in Schoen
and the reversal of previously recorded losses of Schoen, which
does not require a tax provision since no benefit was provided
on such losses. The low effective rate in 1994 is due
primarily to foreign losses for which no tax benefit was
provided.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995
Following are summaries of sales and operating income for
the three months ended June 30, 1995 and 1994 by industry
segment:
Sales
Increase (Decrease)
1995 1994 Amount Per Cent
(Thousands of Dollars)
Industrial Machinery $ 15,296 $ 15,787 ($ 491) ( 3.1%)
Industrial Components 7,139 9,238 ( 2,099) ( 22.7 )
Consumer Products 27,174 17,616 9,558 54.3
Total sales $ 49,609 $ 42,641 $ 6,968 16.3%
Three Months Ended June 30, 1995 (Continued)
Operating Income
Percent of Sales
1995 1994 1995 1994
(Thousands of Dollars)
Industrial Machinery ($ 512) ($ 5,352) ( 3.3%)( 33.9%)
Industrial Components 1,080 ( 235) 15.1 ( 2.6 )
Consumer Products 1,656 2,161 6.1 12.3
Total operating income $ 2,224 ($ 3,426) ( 4.5%)( 8.0%)
In the Industrial Machinery segment, the decrease in sales
of Schoen and its subsidiaries was partially offset by
increased sales of the manufacturers of machinery for the food
processing industry and for the wood processing industry. The
1995 operating loss reported for the segment was considerably
less than the loss reported in 1994. The improvement was
attributable to 1994 adjustments to inventory values at certain
locations, primarily foreign operations which did not recur in
1995.
The Industrial Components segment reported decreased
sales, substantially due to the sale of the business that
refitted machinery for the oil, gas and petrochemical
industries in the fourth quarter of 1994. The manufacturer of
electrical equipment reported increased sales with higher
operating income, the result of higher profit margins in 1995.
The manufacturer of gauging and control systems experienced
higher sales and higher operating income due to improved
margins.
The Consumer Products segment reported increased sales due
to the acquisition of the marketer of electronic parts and
handtools. Increased sales by the refrigeration and cold
storage company were offset by lower sales of the filter and
stain businesses. Operating income declined due to lower sales
and margin levels at the filter and stain businesses.
Income before income taxes increased by $15,655,000,
primarily the result of the reversal of the previously recorded
losses of Schoen of $4,920,000 in 1995 and the write-off of
assets of $2,708,000 and reserves against inventories of
$6,156,000 along with costs of downsizing certain operations in
1994.
The effective tax rate for the three months ended June 30,
1995 was a credit of 46.1% compared to 16.9% for 1994. The
1995 credit is due primarily to the deferred tax benefit
resulting from the sale of 50% of Katy's investment in Schoen
and the reversal of previously recorded losses of Schoen, which
does not require a tax provision since no benefit was provided
on such losses. The low effective rate in 1994 is due
primarily to foreign losses for which no tax benefit was
provided.
KATY INDUSTRIES, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the quarter for which this
report is filed, there have been no
material developments in previously
reported legal proceedings, and no
other cases or legal proceedings,
other than ordinary routine
litigation incidental to Katy's
business and other non-material
proceedings, have been brought
against Katy.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - EX-99 (A) attached is our document for the Purchase of
GC Thorsen.
(b) Exhibits - EX-99 (B) attached is our document of the Sale of
Schoen.
(c) Reports on Form 8-K
On April 20, 1995, the Company filed a current report on
Form 8-K (Item 2) stating that the Company purchased for
cash all of the outstanding capital stock of GC Thorsen,
Inc., on April 5, 1995.
On June 15, 1995, the Company filed a current report on
Form 8-K/A (Item 7) providing information in response to
items 7(a) and 7(b) to Form 8-K with respect to audited
financial statements of GC Thorsen, Inc. for the year
ended December 31, 1994, unaudited interim financial
statements of GC Thorsen, Inc. for the three months ended
March 31, 1995 and 1994, and pro forma financial
statements of Katy Industries, Inc. for the year ended
December 31, 1994 and three months ended March 31, 1995
giving effect to the GC Thorsen, Inc. acquisition as
provided therein.
Signatures
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
KATY INDUSTRIES, INC.
Registrant
DATE: August 14, 1995
By /s/John R. Prann, Jr.
John R. Prann, Jr.
President,
Chief Executive Officer &
Chief Operating Officer
DATE: August 14, 1995
By /s/P. Kurowski
P. Kurowski
Secretary, Treasurer &
Chief Financial Officer
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2700
<SECURITIES> 28062
<RECEIVABLES> 31327
<ALLOWANCES> (1469)
<INVENTORY> 36594
<CURRENT-ASSETS> 109682
<PP&E> 77112
<DEPRECIATION> (35090)
<TOTAL-ASSETS> 224575
<CURRENT-LIABILITIES> 64573
<BONDS> 9763
<COMMON> 9821
0
0
<OTHER-SE> 105734
<TOTAL-LIABILITY-AND-EQUITY> 224575
<SALES> 87967
<TOTAL-REVENUES> 87967
<CGS> 60587
<TOTAL-COSTS> 88440
<OTHER-EXPENSES> (6405)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1363
<INCOME-PRETAX> 4569
<INCOME-TAX> (1849)
<INCOME-CONTINUING> 6418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7618
<EPS-PRIMARY> .84
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</TABLE>
STOCK PURCHASE AGREEMENT
between
ELGIN NATIONAL INDUSTRIES, INC.
("Seller")
and
Hallmark Holdings, Inc.
("Purchaser")
April 5, 1995
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . 1
"Accounting Conventions". . . . . . . 1
"Agreement" . . . . . . . . . . . . . 1
"Balance Sheet" . . . . . . . . . . . 1
"Benefit Plans" . . . . . . . . . . . 1
"BHC" . . . . . . . . . . . . . . . . 1
"Business". . . . . . . . . . . . . . 1
"Chicago Dearborn". . . . . . . . . . 1
"Closing" . . . . . . . . . . . . . . 1
"Closing Balance Sheet" . . . . . . . 1
"Closing Date". . . . . . . . . . . . 2
"Code". . . . . . . . . . . . . . . . 2
"Company" . . . . . . . . . . . . . . 2
"Confidentiality Agreement" . . . . . 2
"Continental" means Continental Bank N.A.
(currently Bank of America Illinois),
individually and as agent under the Credit
Agreement dated September 24, 1993.
"Elgin Consolidated Group". . . . . . 2
"Elgin Guarantees". . . . . . . . . . 2
"Elgin Plans" . . . . . . . . . . . . 2
"Employee Pension Benefit Plans". . . 2
"Environmental Laws". . . . . . . . . 2
"ERISA" . . . . . . . . . . . . . . . 3
"Escrow Account". . . . . . . . . . . 3
"Estimated Closing Balance Sheet" . . 3
"Financial Statements". . . . . . . . 3
"GAAP". . . . . . . . . . . . . . . . 3
"Hazardous Material". . . . . . . . . 3
"HMO" . . . . . . . . . . . . . . . . 3
"Household" . . . . . . . . . . . . . 3
"Household International Stock Purchase
Agreement". . . . . . . . . . . . . . 3
"HSR Act" . . . . . . . . . . . . . . 3
"Initial Purchase Price". . . . . . . 3
"Intellectual Property" . . . . . . . 3
"Inventory" . . . . . . . . . . . . . 4
"IRS" . . . . . . . . . . . . . . . . 4
"Jamison Noncompetition Agreement". . 4
"Jupiter" . . . . . . . . . . . . . . 4
"Jupiter Stock Purchase Agreement". . 4
"Law" . . . . . . . . . . . . . . . . 4
"Leased Real Property". . . . . . . . 4
"Life Investors". . . . . . . . . . . 4
"Loss" or "Losses". . . . . . . . . . 4
"Material Contracts". . . . . . . . . 4
"Multiemployer Plans". . . . . . . . . . 5
"Net Investment Value" . . . . . . . . . 5
"Net Investment Value Adjustment Escrow
Deposit" . . . . . . . . . . . . . . . . 5
"PBGC" . . . . . . . . . . . . . . . . . 5
"Permitted Exceptions" . . . . . . . . . 5
"Person" . . . . . . . . . . . . . . . . 5
"Post-Closing Adjustment". . . . . . . . 5
"Purchase Price" . . . . . . . . . . . . 5
"Purchaser". . . . . . . . . . . . . . . 5
"Purchaser Plans" . . . . . . . . . . . 5
"Real Property". . . . . . . . . . . . . 5
"Regulations". . . . . . . . . . . . . . 6
"Reports". . . . . . . . . . . . . . . . 6
"Ross Noncompetition Agreement". . . . . 6
"Securities Act" . . . . . . . . . . . . 6
"Seller" . . . . . . . . . . . . . . . . 6
"Seller Group" . . . . . . . . . . . . . 6
"Seller Tax Period". . . . . . . . . . . 6
"Stock". . . . . . . . . . . . . . . . . 6
"Taxes". . . . . . . . . . . . . . . . . 6
"Territory". . . . . . . . . . . . . . . 6
"Third Party Action" . . . . . . . . . . .7
"Title Commitment" . . . . . . . . . . . .7
"Title Company". . . . . . . . . . . . . 7
"Title Policy" . . . . . . . . . . . . . 7
"Use". . . . . . . . . . . . . . . . . . 7
ARTICLE II PURCHASE AND SALE . . . . . . 8
2.1 Acquisition of Stock. . . . . . . 8
2.2 Payment at Closing. . . . . . . . 8
2.3 Balance Sheet Reconciliation. . . 8
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF SELLER. . . . . . . . . . . . . . . . 11
3.1 Authority . . . . . . . . . . . . 11
3.2 Capitalization; Seller's Ownership
of Shares. . . . . . . . . . . . . . . . 12
3.3 The Company . . . . . . . . . . . 12
3.4 Subsidiaries. . . . . . . . . . . 13
3.5 Title to Properties . . . . . . . 14
3.6 Real Property . . . . . . . . . . 14
3.7 Leases. . . . . . . . . . . . . . 15
3.8 Intellectual Property . . . . . . 15
3.9 Financial Statements. . . . . . . 16
3.10 No Disposition of Assets. . . . . 16
3.11 No Adverse Change . . . . . . . . 16
3.12 Tax Matters . . . . . . . . . . . 17
3.13 Litigation. . . . . . . . . . . . 17
3.14 No Violations of Law. . . . . . . 18
3.15 ERISA and Related Matters . . . . 18
3.16 Contracts . . . . . . . . . . . . 21
3.17 Brokers, Etc. . . . . . . . . . . 21
3.18 Insurance . . . . . . . . . . . . 21
3.19 Employees . . . . . . . . . . . . 21
3.20 Environmental . . . . . . . . . . 22
3.21 Inventory . . . . . . . . . . . . 23
3.22 Affiliate Transactions. . . . . . 23
3.23 Accounts Receivable . . . . . . . 24
3.24 Condition of Assets . . . . . . . 24
3.25 Knowledge . . . . . . . . . . . . 24
3.26 Certain Contracts . . . . . . . . 24
3.27 Accuracy and Completeness of
Statements . . . . . . . . . . . . . . . 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PURCHASER . . . . . . . . . . . . . . 25
4.1 Authority of Purchaser. . . . . . 25
4.2 Brokers, Etc. . . . . . . . . . . 26
4.3 Knowledge . . . . . . . . . . . . 26
4.4 Securities. . . . . . . . . . . . 26
4.5 Financing . . . . . . . . . . . . 26
ARTICLE V COVENANTS OF SELLER . . . . . 26
5.1 Payment of Taxes. . . . . . . . . 26
5.2 Non-Competition, Non-Solicitation
and Confidentiality Covenants of Seller. 26
5.3 Real Property Requirements. . . . 28
5.4 Leased Real Estate Requirements . 29
ARTICLE VI COVENANTS OF PURCHASER . . . 30
6.1 Confidentiality . . . . . . . . . 30
6.2 Benefit Plans . . . . . . . . . . 30
6.3 Full Access . . . . . . . . . . . 30
6.4 Insurance . . . . . . . . . . . . 31
6.5 Use of Name . . . . . . . . . . . 31
ARTICLE VII CONDITIONS PRECEDENT TO
OBLIGATIONS
OF PURCHASER . . . . . . . . . . . . . 31
7.1 Warranties True . . . . . . . . . 31
7.2 Compliance with Agreements and
Covenants. . . . . . . . . . . . . . . . 31
7.3 Consents and Approvals. . . . . . 32
7.4 Injunctions . . . . . . . . . . . 32
7.5 Deliveries by Seller. . . . . . . 32
7.6 Continental Releases. . . . . . . 32
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER. . . . . . . . . . . . . . 32
8.1 Warranties True . . . . . . . . . 32
8.2 Compliance with Agreements and
Covenants. . . . . . . . . . . . . . . . 32
8.3 Consents and Approvals. . . . . . 32
8.4 Injunctions . . . . . . . . . . . 32
8.5 Deliveries by Purchaser . . . . . 33
8.6 Continental Releases. . . . . . . 33
ARTICLE IX CLOSING. . . . . . . . . . . 33
9.1 Closing . . . . . . . . . . . . . 33
9.2 Seller's Deliveries . . . . . . . 33
9.3 Purchaser's Deliveries. . . . . . 34
ARTICLE X SURVIVAL AND INDEMNIFICATION . 34
10.1 Survival. . . . . . . . . . . . . 34
10.2 Indemnification by Seller . . . . 35
10.3 Indemnification by Purchaser. . . 37
10.4 Calculations. . . . . . . . . . . 38
ARTICLE XI [INTENTIONALLY OMITTED]. . . 38
ARTICLE XII TAXES . . . . . . . . . . . 38
12.1 Filing Tax Returns; Payment of
Taxes. . . . . . . . . . . . . . . . . . 38
12.2 Tax Benefits. . . . . . . . . . . 39
12.3 Section 338(h)(10) Election . . . 40
12.4 Tax Cooperation . . . . . . . . . 40
ARTICLE XIII MISCELLANEOUS. . . . . . . 41
13.1 Expenses. . . . . . . . . . . . . 41
13.2 Amendment . . . . . . . . . . . . 41
13.3 Notices . . . . . . . . . . . . . 41
13.4 Waivers . . . . . . . . . . . . . 42
13.5 Counterparts. . . . . . . . . . . 42
13.6 Headings. . . . . . . . . . . . . 42
13.7 Applicable Law. . . . . . . . . . 42
13.8 Assignment. . . . . . . . . . . . 42
13.9 No Third Party Beneficiaries. . . 43
13.10 Forum . . . . . . . . . . . . . . 43
13.11 Schedules . . . . . . . . . . . . 43
13.12 Incorporation . . . . . . . . . . 43
13.13 Complete Agreement. . . . . . . . 43
13.14 Disclaimer. . . . . . . . . . . . 43
13.15 Knowledge Defined . . . . . . . . 44
SCHEDULES:
Schedule 3.1 -- Authority of Seller
Schedule 3.2 -- Title to Stock
Schedule 3.3 -- Incumbent Directors & Officers
Schedule 3.4 -- Subsidiaries
Schedule 3.5 -- Encumbrances, etc. to
Properties
Schedule 3.6 -- Real Property
Schedule 3.7 -- Leases
Schedule 3.8 -- Intellectual Property
Schedule 3.9 -- Financial Statements
Schedule 3.10 -- No Disposition of Assets
Schedule 3.11 -- No Adverse Change
Schedule 3.12 -- Tax Matters
Schedule 3.13 -- Litigation
Schedule 3.14 -- Compliance with Law
Schedule 3.15 -- ERISA and Related Matters
Schedule 3.16 -- Contracts
Schedule 3.18 -- Insurance
Schedule 3.19 -- Employees
Schedule 3.20 -- Environmental
Schedule 3.21 -- Inventory
Schedule 3.22 -- Affiliate Transactions
Schedule 3.23 -- Accounts Receivable
Schedule 4.1 -- Authority of Purchaser
Schedule 12.3 -- Allocation of Purchase Price
Schedule 13.15(a) Knowledge of Seller
Schedule 13.15(b) Knowledge of Purchaser
EXHIBITS:
Exhibit A -- Accounting Conventions
Exhibit B -- Confidentiality Agreement
Exhibit C -- [Intentionally Omitted]
Exhibit D -- Opinion of Seller's Counsel
Exhibit E-1 -- Assignment Re: Jupiter Stock Purchase
Agreement
Exhibit E-2 -- Assignment Re: Jamison Noncompetition
Agreement
Exhibit E-3 -- Assignment Re: Ross Noncompetition
Agreement
Exhibit F -- Opinion of Purchaser's Counsel
Exhibit G -- Waiver
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into on the
5th day of April, 1995, to be effective as of March 31,
1995, between Elgin National Industries, Inc., a Delaware
corporation ("Seller"), and Hallmark Holdings, Inc., a
Delaware corporation ("Purchaser").
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings:
"Accounting Conventions" means the accounting
procedures, assumptions, rules and permitted deviations from
GAAP acknowledged by the parties and set forth on Exhibit A
attached hereto, which Accounting Conventions were used by
Seller in connection with the preparation of the Balance
Sheet and are to be used by Seller in connection with the
preparation of the Estimated Closing Balance Sheet and the
Closing Balance Sheet.
"Agreement" means this Stock Purchase Agreement,
including all Schedules and Exhibits hereto, as it may be
amended from time to time in accordance with its terms.
"Balance Sheet" means the unaudited consolidated pro
forma balance sheet of the Company as of June 30, 1994,
including the notes thereto.
"Benefit Plans" means employee welfare benefit plans,
employee pension benefit plans and multiemployer plans as
defined in Sections 3(1), 3(2) and 3(37), respectively, of
ERISA.
"BHC" means Bowles Hollowell Conner & Co.
"Business" means the business of designing,
developing, manufacturing, marketing, promoting,
distributing and selling electronic parts and accessories
and non-powered hand tools, as such business is conducted by
the Company and its subsidiaries on the Closing Date.
"Chicago Dearborn" means The Chicago Dearborn Company.
"Closing" shall have the meaning set forth in Section
2.2 below.
"Closing Balance Sheet" shall have the meaning set
forth in Section 2.3 below.
"Closing Date" shall have the meaning set forth in
Section 9.1 below.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company" means GC Thorsen, Inc., a Delaware
corporation.
"Confidentiality Agreement" means that certain Letter
Agreement dated August 5, 1994, a copy of which is set forth
on Exhibit B attached hereto.
"Continental" means Continental Bank N.A. (currently
Bank of America Illinois), individually and as agent under
the Credit Agreement dated September 24, 1993.
"Elgin Consolidated Group" means the affiliated group
(as defined in Section 1504(a) of the Code) of which Seller,
the Company and its subsidiaries are members.
"Elgin Guarantees" mean the guarantees, agreements,
pledges, mortgages, letters of credits, bonds and similar
instruments of Seller guaranteeing or securing liabilities
of the Company or its subsidiaries and designated as such on
Schedule 3.22.
"Elgin Plans" shall have the meaning set forth in
Section 3.15 below.
"Employee Pension Benefit Plans" shall have the
meaning set forth in Section 3.15 below.
"Environmental Laws" mean all applicable Federal,
state or local Laws relating primarily to pollution or
protection of the environment, as such laws exist on the
Closing Date, including, without limitation, Laws relating
to emissions, discharges or releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes (including, without limitation,
Hazardous Materials) into the indoor or outdoor environment
(including, without limitation, ambient air, surface water,
ground water or land), or otherwise relating primarily to
the manufacture, use, treatment, storage, transportation or
disposal of Hazardous Materials, including, but not limited
to, the Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq., as amended; the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et
seq., as amended; the Toxic Substances Control Act, 15
U.S.C. 2601 et seq., as amended; the Clean Water Act, 33
U.S.C. 1251 et seq., as amended; the Clean Air Act, 42
U.S.C. 7401 et seq., as amended; state and federal super
lien and environmental cleanup programs; and U.S. Department
of Transportation regulations applicable to the
transportation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Escrow Account" shall have the meaning set forth in
this Article I within the definition of "Net Investment
Value Adjustment Escrow Deposit."
"Estimated Closing Balance Sheet" shall mean the
unaudited consolidated pro forma balance sheet of the
Company dated as of February 28, 1995, including the notes
thereto, which has been delivered to Purchaser.
"Financial Statements" means the Balance Sheet and the
unaudited pro forma statement of income of the Company for
the six-month period ended June 30, 1994, including the
notes thereto.
"GAAP" shall have the meaning set forth in Section 3.9
below.
"Hazardous Material" means any substance which is
defined as a hazardous substance, hazardous material,
hazardous chemical, hazardous waste, pollutant or
contaminant under any Environmental Law, or any substance
which is regulated under any Environmental Law.
"HMO" means HMO, Inc., a Delaware corporation, being
a wholly owned subsidiary of the Company.
"Household" means Household International, Inc., a
Delaware corporation.
"Household International Stock Purchase Agreement"
means that certain Stock Purchase Agreement entered into by
and between Household and Jupiter, dated as of June 30,
1989, as amended by the amendments thereto dated August 1,
1989 and December 18, 1989.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Initial Purchase Price" means an amount equal to
Twenty-Three Million Three Hundred Eighty Thousand Dollars
($23,380,000)
"Intellectual Property" means all of the Company's
(and its subsidiaries') domestic and foreign:
(a) trade names, trademarks, brand
names, copyrights and service marks, all applications
pertaining thereto and all goodwill associated
therewith, including, without limitation, any rights
to royalties and other payments with respect to, and
all rights to sue for past infringements of, any of
the foregoing;
(b) patents and patent applications, all
inventions pertaining thereto, any rights to royalties
and other payments with respect thereto, and all
rights to sue for past infringements of any of the
foregoing; and
(c) all registered and unregistered
copyrights, computer programs and data bases.
"Inventory" means all inventory of the Company and its
subsidiaries, including, without limitation, work-in-process, raw materials,
finished goods and supplies.
"IRS" means the Internal Revenue Service.
"Jamison Noncompetition Agreement" means that certain
Noncompetition Agreement dated as of September 24, 1993
between ENI Acquisition Corp., a Delaware corporation, and
C.H. Jamison, as amended by the amendment thereto dated June
15, 1994.
"Jupiter" means The Jupiter Corporation, a Delaware
corporation.
"Jupiter Stock Purchase Agreement" means that certain
Stock Purchase Agreement dated September 15, 1993 by and
between Jupiter and ENI Acquisition Corp., a Delaware
corporation, as amended by the amendments thereto dated
September 24, 1993 and June 15, 1994.
"Law" means any law, statute, regulation, ordinance,
rule, order, decree, judgment, consent decree, settlement
agreement or governmental requirement enacted, promulgated,
entered into, agreed to or imposed by any court or other
governmental authority or body.
"Leased Real Property" means the HMO office/warehouse
located at No. 12-29, Ding Liao, Pa Li Hsoing, Taipei,
Taiwan and the HMO general manager's residence located at
No. 22, Lane 130, Chung Chen Rd., Taipei, Taiwan.
"Life Investors" means Life Investors Insurance
Company of America.
"Loss" or "Losses" mean any and all damages, losses,
actions, proceedings, causes of action, obligations,
liabilities, claims, encumbrances, penalties, demands,
assessments, judgments, costs and expenses including,
without limitation, court costs and reasonable attorneys'
and consultants' fees and costs of litigation.
"Material Contracts" means all written or oral: (a)
loan agreements, guarantees, joint venture agreements,
purchase orders and any other purchase and sale agreements,
sales representative agreements, distributor agreements,
manufacturing or service agreements, employment agreements,
agreements or arrangements relating to containers in transit
and any other agreements of the Company or any of its
subsidiaries or by which any of them are bound; and (b) non-competition
agreements of the Company or any of its
subsidiaries or by which any of them are bound; provided,
however, that "Material Contracts" shall not include any of
the foregoing referred to in subsection (a) that in fact do
not, or that could not, by their terms, require or provide
for payment of an amount in excess of Fifty Thousand Dollars
($50,000).
"Multiemployer Plans" shall have the meaning set forth
in Section 3.15 below.
"Net Investment Value" means the Net Investment Value
of the Company and its consolidated subsidiaries set forth
on the Balance Sheet, the Estimated Closing Balance Sheet
and the Closing Balance Sheet, as the case may be,
calculated in accordance with GAAP as modified by the
Accounting Conventions.
"Net Investment Value Adjustment Escrow Deposit" means
One Million Dollars ($1,000,000) to be paid by Purchaser at
Closing into an interest-bearing joint dual signature
account (the "Escrow Account") at Bank of America Illinois,
the costs and fees of which shall be borne equally by Seller
and Purchaser.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Exceptions" shall have the meaning set
forth in Section 5.3(a).
"Person" means any individual, corporation,
partnership, association, limited liability company, trust,
governmental or quasi-governmental authority or body or
other entity or organization.
"Post-Closing Adjustment" shall have the meaning set
forth in Section 2.3 below. The Post-Closing Adjustment may
be a positive or negative amount (i.e., either running in
favor of Seller or Purchaser).
"Purchase Price" means the sum of, or the difference
between, as the case may be, the Initial Purchase Price and
the Post-Closing Adjustment.
"Purchaser" shall have the meaning specified in the
preamble hereof.
"Purchaser Plans" shall have the meaning set forth in
Section 6.2 below.
"Real Property" shall have the meaning set forth in
Section 3.6 below.
"Regulations" means the Treasury Regulations
promulgated under the Code.
"Reports" shall have the meaning set forth in Section
3.20 below.
"Ross Noncompetition Agreement" means that certain
Noncompetition Agreement dated as of September 24, 1993,
between ENI Acquisition Corp., a Delaware corporation, and
Edward W. Ross, as amended by the amendment thereto dated
June 15, 1994.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated
thereunder.
"Seller" shall have the meaning specified in the
preamble hereof.
"Seller Group" shall have the meaning set forth in
Section 5.2 below.
"Seller Tax Period" means the period (including all
prior taxable years) ending on and including the Closing
Date.
"Stock" means the 840 shares of common stock, $.01 par
value, of the Company, represented by certificate number 13,
comprising all of the issued and outstanding shares of
capital stock of the Company.
"Taxes" mean all taxes, charges, fees, duties, levies
or other assessments, including (without limitation) income,
gross receipts, capital stock, net proceeds, ad valorem,
turnover, real, personal and other property (tangible and
intangible), sales, use, franchise, excise, value added,
stamp, leasing, lease, user, transfer, fuel, excess profits,
occupational, interest equalization, windfall profits,
unitary, severance and employees' income withholding,
unemployment and Social Security taxes, duties, assessments
and charges (including the recapture of any tax items such
as investment tax credits), which are imposed by the United
States, or any state, local or foreign government or
subdivision or agency thereof, including, without
limitation, any interest, penalties or additions to tax
related thereto imposed by any taxing authority (including
any interest or penalties with respect to such Taxes), it
being understood that any Taxes, penalties or interest
attributable to the operations of the Company and its
subsidiaries (including, without limitation, penalties or
interest payable as a result of an audit of any tax return)
shall be deemed to have accrued in the period to which such
Taxes, penalties or interest are attributable.
"Territory" means (a) the United States (including
Alaska and Hawaii), (b) Taiwan, Canada and Mexico and (c)
any other country in which either the Company or one of its
subsidiaries has sold products of the Business during the
one (1) year period immediately preceding, and ending on,
the Closing Date; provided, that such sales in such country
during such one (1) year period resulted in gross revenues
to the Company or such subsidiary in excess of $25,000.
"Third Party Action" means any notice, inquiry,
investigation, cleanup, removal or remediation by any
Federal, state or local governmental authority or any other
third party (other than the Company or any of its affiliates
or employees)(hereinafter, "Third Parties") concerning the
presence of Hazardous Materials at any location whatsoever,
including, but not limited to, (i) placement of any real
property, site, or facility on the Comprehensive
Environmental Response and Liability Information System
("CERCLIS"), the National Priority List ("NPL"), any state
or local equivalent of CERCLIS or the NPL or any list of
facilities potentially subject to corrective action pursuant
to the Resource Conservation and Recovery Act or the state
equivalent or to underground storage tank release
investigation, removal or remediation requirements; (ii)
issuance to Purchaser, its affiliates, Seller, its
affiliates, the Company, or its affiliates by any Third
Party of any request for information pursuant to any
Environmental Law, including but not limited to requests
pursuant to 42 U.S.C. 9604(e) or 6927; (iii) commencement
by any Third Party of any inquiry, investigation, cleanup,
removal or remediation, or issuance by any Third Party of
any written notice in connection with Hazardous Materials at
any location whatsoever; and (iv) any written request made
by any Third Party to Purchaser, its affiliates, Seller, its
affiliates, the Company, or its affiliates to provide
information concerning the presence of Hazardous Materials
at any location or take any action to investigate, remove,
remediate or clean up Hazardous Materials at any location.
"Title Commitment" shall have the meaning set forth in
Section 5.3(a) below.
"Title Company" shall have the meaning set forth in
Section 5.3(a) below.
"Title Policy" shall have the meaning set forth in
Section 5.3(a) below.
"Use" shall have the meaning set forth in Section 3.20
below.
ARTICLE
ARTICLE II
PURCHASE AND SALE
2.1 Acquisition of Stock. All as provided herein
and subject to the terms and conditions hereof, at the
Closing Seller shall sell, assign and deliver to Purchaser,
and Purchaser shall purchase and take assignment and
delivery of, the Stock.
2.2 Payment at Closing. Subject to the terms and
conditions hereof, at the closing of the transactions
contemplated hereby (the "Closing"), Purchaser shall pay, by
wire transfer of same-day funds:
(a) $17,656,386.11 to Seller's account no. 73-04781 at Bank of America,
ABA # 0710000039;
(b) $348,861.24 to BHC's account no. 2070498150299
at First Union National Bank, ABA # 053000219 (such payment
being made on behalf of Seller);
(c) $4,374,752.65 to Life Investors' account
no. 71-01201 at Bank of America, ABA # 0710000039 (such wire
transfer shall reference loan number 4691) (such payment
being made at the direction of Seller); and
(d) the Net Investment Value Adjustment Escrow
Deposit into the Escrow Account.
2.3 Balance Sheet Reconciliation.
Closing Balance Sheet. Within 60 days following the
Closing Date, Seller shall deliver to Purchaser a pro forma
consolidated balance sheet for the Company and its
subsidiaries dated as of March 31, 1995 (as the same may be
adjusted pursuant to Section 2.3(b), the "Closing Balance
Sheet"). The Closing Balance Sheet shall be prepared by
Seller, at its own expense with the assistance of personnel
of the Company and its subsidiaries as may be reasonably
requested by Seller (so as not to unduly disrupt the normal
course of operations of the Company and its subsidiaries).
The Closing Balance Sheet shall be prepared in accordance
with the past practices of the Company and pursuant to and
in a manner consistent with the Accounting Conventions and
reviewed and reported on as a special purpose balance sheet
in accordance with the Accounting Conventions and this
Agreement by Seller's independent certified public
accountants. It is understood that the Estimated Closing
Balance Sheet and the Closing Balance Sheet shall value the
asset designated "Other Assets-Non-Compete" at Two Million
Three Hundred Fifteen Thousand Dollars ($2,315,000) and
shall not reflect any amounts that may be or become payable
under retention bonus agreements, notwithstanding that the
payment of such amounts shall be the responsibility of
Purchaser (and the Company) after the Closing. Seller shall
permit Purchaser's accountants and outside auditors access
to and review of all work papers and other pertinent
information requested from time to time and used in
connection with the preparation of the Closing Balance
Sheet. The Closing Balance Sheet shall fairly present the
consolidated financial condition of the Company and its
subsidiaries as of the close of business on March 31, 1995,
determined in accordance with GAAP, as modified by the
Accounting Conventions. Purchaser acknowledges that its
representatives witnessed the physical inventory count of
the Company conducted on October 27, 28, 29 and 30, 1994 and
agrees that the Company's normal book inventory determined
using procedures normally used for month end inventory
between physical inventories shall constitute the basis for
the inventory to be used in preparing the Closing Balance
Sheet. There has been no separate physical inventory count
conducted prior to Closing for the preparation of the
Estimated Closing Balance Sheet and the Closing Balance
Sheet.
(b) Disputes. If Purchaser notifies Seller in
writing within thirty (30) days after receipt of the Closing
Balance Sheet that Purchaser disagrees with the consolidated
Net Investment Value shown thereon and states with
reasonable specificity in such notice the basis for such
disagreement, Seller and Purchaser shall attempt in good
faith to resolve such dispute. In connection therewith,
Seller shall (i) deliver to Purchaser, at the time of the
delivery of the Closing Balance Sheet, all of its auditors'
work papers used in connection with the preparation of the
Closing Balance Sheet and (ii) promptly make available to
Purchaser any other pertinent information requested by
Purchaser. If the parties are unable to resolve such
dispute within twenty (20) days after Seller's receipt of
such notice, such dispute shall be submitted for arbitration
to a certified public accounting firm mutually acceptable to
Seller and Purchaser (or, if the parties cannot agree on
such an arbitrating accounting firm, to the Chicago office
of Price Waterhouse) for the purpose of resolving the
dispute set forth in such notice. Any portion of the Post-Closing Adjustment
that is not in dispute shall be paid as
set forth in subsection (c) below, regardless of the
pendency of such dispute. Such arbitrating public
accounting firm shall review and decide the issue or issues
which are the subject of such dispute as specified in such
notice within 30 days after such submission, and the
decision of such arbitrating accounting firm, which shall be
set forth in writing and delivered to Seller and Purchaser,
shall be final and binding on Seller and Purchaser, and the
Closing Balance Sheet and consolidated Net Investment Value
reflected thereon, as adjusted to reflect the
determination(s) of the arbitrating accounting firm, shall
be immediately deemed reissued, and shall constitute the
"Closing Balance Sheet" and consolidated "Net Investment
Value" as of March 31, 1995 immediately thereafter. The
fees and costs of such arbitrating public accounting firm
shall be borne equally by Purchaser and Seller.
(c) Adjustment. The Purchase Price shall be
increased by the amount that the consolidated Net Investment
Value as shown on the Closing Balance Sheet is greater, and
shall be reduced by the amount that the consolidated Net
Investment Value as shown on the Closing Balance Sheet is
less, than the consolidated Net Investment Value as shown on
the Estimated Closing Balance Sheet, in either case together
with simple interest thereon from the Closing Date through
the applicable date of payment at the rate of 10% per annum
(such increase or decrease, together with such interest,
being referred to herein as the "Post-Closing Adjustment").
Any such increase or reduction in the Purchase Price shall
be remitted by wire transfer of same-day funds, not later
than the fifteenth day after delivery to Purchaser of the
Closing Balance Sheet (unless, with respect to any disputed
amounts, Purchaser shall have timely notified Seller of a
dispute pursuant to Section 2.3(b)), to an account that
Seller shall designate to Purchaser or Purchaser shall
designate to Seller, as the case may be, in each case in the
manner set forth in clauses (d) (i), (ii) and (iii) below.
If Purchaser timely notifies Seller of a dispute pursuant to
Section 2.3(b), the disputed portion of such reduction or
increase shall be remitted by the appropriate party within
ten (10) days after delivery to the parties of the decision
of the arbitrating public accounting firm to which such
dispute is submitted pursuant to Section 2.3(b).
(d) Payment of Post-Closing Adjustment. The
payment of the Post-Closing Adjustment and disbursement of
the Escrow Account shall be made as follows:
(i) if the Post-Closing Adjustment is a
positive number (i.e., runs in favor of Seller), there
shall be disbursed to Seller the Net Investment Value
Adjustment Escrow Deposit together with the aggregate
amount of interest credited to the Escrow Account, and
Purchaser shall pay to Seller the amount of the Post-Closing Adjustment.
(ii) If the Post-Closing Adjustment is a
negative number (i.e., runs in favor of Purchaser),
there shall be disbursed to Purchaser from the Escrow
Account the amount of the Post-Closing Adjustment, in
satisfaction thereof. To the extent that any funds
remain in the Escrow Account after such disbursement
due to Purchaser, such remaining funds shall be
remitted to Seller. To the extent that the amount in
the Escrow Account is insufficient to pay the full
amount of the Post-Closing Adjustment due to
Purchaser, Seller shall pay any remaining amounts due
to Purchaser with respect to the Post-Closing
Adjustment from Seller's own funds.
(iii) Purchaser and Seller shall execute and
deliver the joint directions necessary to effect the
payments required under this Section 2, in accordance
with the provisions of any separate agreements (which
shall be acceptable to Purchaser and Seller) with Bank
of America Illinois, establishing the Escrow Account.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as
follows:
3.1 Authority. Seller is a corporation duly
organized, validly existing and in good standing under the
laws of the state of Delaware. Seller has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted, and to enter into this Agreement and to carry out
the transactions contemplated herein. The execution,
delivery and performance of this Agreement by Seller has
been duly authorized by all necessary corporate action.
This Agreement has been duly and validly executed and
delivered by Seller and constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in
accordance with its terms, except as may be limited by: (a)
applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect
which affect creditors' rights generally; or (b) legal and
equitable limitations on the availability of specific
remedies. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated
hereby and performance by Seller of its obligations
hereunder, assuming the receipt of consents and waivers
listed in Schedule 3.1, will not: (i) violate or conflict
with any term, condition or provision of: (A) the
Certificate of Incorporation or By-laws of Seller, the
Company or any of the Company's subsidiaries, (B) any
agreement, lease, instrument, mortgage, order, arbitration
award, judgment, license, franchise or decree to which
Seller, the Company or any of the Company's subsidiaries is
a party or by which any of their respective properties are
bound, or (C) any Law applicable to Seller, the Company or
the Company's subsidiaries; (ii) result in the creation of
any lien, charge, encumbrance or claim upon any of their
respective properties or give to others any interest or
right in any of their respective properties, including, but
not limited to, a right to purchase any of such properties;
or (iii) require the approval, consent or authorization of
any third party, federal, state or local court, governmental
authority or body, or creditor or give any party with rights
under any instrument, agreement, contract, mortgage,
judgment, award, order or other restriction the right to
terminate, modify or otherwise change any of the current
rights or obligations of the Company or any of the Company's
subsidiaries. Except as set forth in Schedule 3.1, the
failure of any Person not a party hereto to authorize or
approve this Agreement or the transactions contemplated
hereby will not give any Person the right to enjoin, rescind
or otherwise prevent or impede the sale of the Stock to
Purchaser in accordance with the terms of this Agreement or
to reach in any fashion the Stock in the hands of the
Purchaser following the Closing or to obtain damages from,
or any other judicial relief against, Purchaser as a result
of any transactions carried out in accordance with the
provisions of this Agreement.
3.2 Capitalization; Seller's Ownership of Shares.
(a) The Company's authorized capital stock
consists of one thousand (1000) authorized shares of common
stock, par value $.01 per share, of which 840 shares are
issued and outstanding.
(b) All of the Stock is duly authorized, validly
issued, fully paid and nonassessable.
(c) There are no, and there is no agreement or
arrangement not yet fully performed which would result in
the creation of, outstanding options, rights, warrants,
contracts or commitments for the issuance or sale by Seller
or the Company of, or any securities of the Company
convertible into or exchangeable for, any shares of capital
stock of the Company (whether treasury or issued and
outstanding).
(d) Seller owns and has, and at the Closing shall
transfer to Purchaser, good, marketable and indefeasible
title to the Stock, free and clear of all liens, claims and
encumbrances, mortgages, proxies, pledges, equities,
purchase arrangements, security interests, shareholders'
agreements, restrictions, redemption agreements and charges
of any nature, except for those set forth in Schedules 3.2
and 3.4 (all of which will be removed prior to or at
Closing), unless the obligations to which they relate are
specifically undertaken by Purchaser herein.
(e) Neither Seller nor any other Person has any
rights, including contingent rights, to acquire from Seller,
the Company or any other Person any additional shares of
capital stock of the Company.
(f) None of the Stock has been issued in violation
of any Laws pertaining to the issuance of securities, or in
violation of any rights, preemptive or otherwise, of any
past or present stockholder of the Company or any of the
Company's subsidiaries.
3.3 The Company. The Company is a corporation
duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite
corporate power to own, lease and operate its properties and
to carry on its business as now being conducted. The
Company is duly qualified to do business and in good
standing in each jurisdiction where the conduct of its
business or ownership of its properties requires such
qualification, except where the failure to qualify could not
reasonably be expected to result in any liability or
adversely affect the operation of the Company and its
subsidiaries, taken as a whole. The Stock constitutes all
the issued and outstanding capital stock of the Company.
Set forth on Schedule 3.3 is a true and complete list of the
incumbent directors and officers of the Company.
3.4 Subsidiaries. Set forth in Schedule 3.4 is a
list of each of the Company's subsidiaries. Each such
subsidiary is wholly owned by the Company and is a
corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware, with all
requisite corporate power to own, lease and operate its
properties and to carry on its business as now being
conducted. Each subsidiary is duly qualified to do business
and in good standing in each jurisdiction where the conduct
of its business or ownership of its properties requires such
qualification, except where the failure to qualify could not
reasonably be expected to result in any liability or
adversely affect the operation of the Company and its
subsidiaries, taken as a whole. Except as set forth in
Schedule 3.4, neither the Company nor any of its
subsidiaries owns, directly or indirectly, any capital stock
or other equity, ownership or proprietary interest in any
Person. A true and complete list of the incumbent directors
and officers of each such subsidiary is set forth on
Schedule 3.3. With respect to each of the Company's
subsidiaries:
(a) the authorized capital stock, par value per
share and number of shares issued and outstanding are set
forth in Schedule 3.4;
(b) all of the issued and outstanding shares of
capital stock of each of the subsidiaries are duly
authorized, validly issued and outstanding and fully paid
and nonassessable;
(c) except as disclosed in Schedules 3.2 and 3.4,
there are no, and there is no agreement or arrangement not
yet fully performed which would result in the creation of,
outstanding options, rights, warrants, contracts or
commitments for the issuance or sale by Seller, the Company
or any of the subsidiaries of, or any securities of any of
the subsidiaries convertible into or exchangeable for, any
shares of capital stock of any of the subsidiaries (whether
treasury or issued and outstanding);
(d) the Company owns and has, and at the Closing
shall continue to have, good, marketable and indefeasible
title to all of the issued and outstanding shares of each of
its subsidiaries, free and clear of all liens, claims,
encumbrances, mortgages, proxies, pledges, equities,
purchase arrangements, security interests, shareholders'
agreements, restrictions, redemption agreements and charges
of any nature, except for those set forth in Schedule 3.2
and 3.4 (all of which will be removed prior to Closing),
unless the obligations to which they relate are specifically
undertaken by Purchaser herein;
(e) neither Seller nor any other Person has the
rights, including contingent rights, to acquire from Seller,
the Company or any of the subsidiaries, any additional
shares of capital stock of any of the subsidiaries; and
(f) none of the shares of capital stock of any of
the Company's subsidiaries has been issued in violation of
any Laws pertaining to the issuance of securities, or in
violation of any rights, preemptive or otherwise, of any
present or past stockholder of any of such subsidiaries.
3.5 Title to Properties. Except as set forth in
the Balance Sheet or the notes thereto, and except for the
Leased Real Property, the Company and each of its
subsidiaries have good, marketable and indefeasible title to
their respective properties reflected in the Balance Sheet
or acquired after the date thereof (except properties sold
or otherwise disposed of since the date thereof in the
ordinary course of business consistent with past practices)
including, without limitation, (i) the items of Real
Property owned by the Company and the Company's subsidiaries
set forth in Schedule 3.6, (ii) all items of personal
property material to the conduct of their respective
businesses as presently conducted (except for leased
property set forth in Schedule 3.7), and (iii) all items of
Intellectual Property listed on Schedule 3.8, free and clear
of all liens, claims, charges, pledges, security interests
or other encumbrances except: (a) liens reflected in the
Balance Sheet; (b) liens arising by operation of law; (c)
the rights of customers and suppliers in the ordinary course
of business under general principles of commercial law; (d)
with respect to clauses (ii) and (iii) above, such
imperfections or irregularities of title, liens, easements,
charges or encumbrances as do not materially detract from or
materially interfere with the present use of the properties
or assets subject thereto or affected thereby, or otherwise
materially impair present business operations at such
properties; and (e) mortgages, liens, pledges, charges,
security interests, encumbrances or liens of public record
or listed in Schedule 3.5 or Schedule 3.6.
3.6 Real Property. Set forth in Schedule 3.6 is
a list of: (a) all real property owned in whole or in part
by the Company or any of its subsidiaries (the "Real
Property"); (b) the name of the record title holder thereof;
and (c) a list of all indebtedness secured by a lien,
mortgage or deed of trust thereon. The Real Property owned
by the Company and its subsidiaries is owned by them, free
and clear of all encumbrances, liens, charges or other
restrictions, except as set forth in Schedule 3.6. All of
the buildings, structures and appurtenances situated on the
Real Property are in operating condition and in a state of
maintenance and repair deemed adequate and suitable by the
management of the Company or its subsidiaries for the
purposes for which such buildings, structures and
appurtenances are presently being used. With respect to
each such building, structure and appurtenance, the Company
or one of its subsidiaries has adequate rights of ingress
and egress for operating the business of the Company or such
subsidiary in the ordinary course. Neither the Company nor
any of its subsidiaries has received any notice that any
such building, structure or appurtenance (y) violates any
restrictive covenant or any provision of any material
federal, state or local Law, or (z) encroaches on any
property owned by others. No condemnation or rezoning
proceeding is pending or, to Seller's knowledge, threatened
which would preclude or impair the use of any of the Real
Property by the Company or its subsidiaries for the purposes
for which it is currently used.
3.7 Leases. Schedule 3.7 hereto lists all leases
to which the Company or any of its subsidiaries is party and
includes the location of all property leased thereunder. As
of the date hereof, neither the Company nor any of its
subsidiaries has received any notice of default under any
such lease or has knowledge of a condition which, with the
giving of notice or the passage of time, or both, would
constitute a default thereunder, and all rentals currently
due under each have been paid. No side or other agreements,
written or oral, exist which impact upon any of the items
described in Schedule 3.7 nor does any modification,
amendment or waiver relating to any of the foregoing items
exist. Schedule 3.7 sets forth the consents required in
order to maintain each such lease in good standing after the
consummation of the transactions contemplated herein. Each
lease listed on Schedule 3.7 is (a) valid and binding on the
Company or its subsidiaries, as the case may be, and (b) to
the knowledge of the Company, valid and binding on the
counter-party to such lease.
3.8 Intellectual Property. Schedule 3.8 hereto
lists all Intellectual Property owned by the Company and its
subsidiaries and used by the Company and its subsidiaries in
the conduct of the Business. The Company or one of its
subsidiaries, as indicated in Schedule 3.8, owns all right,
title and interest in and to the Intellectual Property which
is listed in Schedule 3.8. Except as set forth in Schedule
3.8, (a) no claim adverse to the interests of the Company or
its subsidiaries in the Intellectual Property is pending or,
to Seller's knowledge, has been threatened, (b) neither the
Company nor any of its subsidiaries has received notice or
is otherwise aware of any infringement or other violation of
the Company's or any of its subsidiaries' right in any of
the Intellectual Property and (c) no litigation is pending
wherein the Intellectual Property is alleged to infringe or
violate the right of another.
3.9 Financial Statements. Copies of the Financial
Statements are attached hereto as Schedule 3.9. The
Financial Statements (i) were prepared in accordance with
generally accepted accounting principles ("GAAP"),
consistently applied, except as set forth in or contemplated
by the Financial Statements as modified by the Accounting
Conventions, and (ii) fairly present in all material
respects the financial condition and results of operations
of the Company and its subsidiaries for the periods and as
at the dates thereof, except as stated therein and except
for accounting for income taxes.
3.10 No Disposition of Assets. Except as set forth
in Schedule 3.10, there has not been, since the date of the
Balance Sheet, any sale, lease or other disposition or
distribution by the Company or any of its subsidiaries of
any of their respective assets, other than in the ordinary
course of business consistent with past practices.
3.11 No Adverse Change. Except as set forth in
Schedule 3.11, since the date of the Balance Sheet there has
not occurred: (a) any material adverse change in the
financial condition of the Company and its subsidiaries
taken as a whole; (b) any loss of or damage to any of the
properties of the Company or its subsidiaries that impairs
the ability of the Company or its subsidiaries to conduct
their respective businesses; (c) the receipt by Seller or
the Company of notice from any material supplier,
distributor or customer, and Seller is not otherwise aware,
that any such material supplier, distributor or customer
intends to discontinue or materially and adversely change
its relationship with the Company or a subsidiary; (d) any
lien, mortgage, pledge, security interest, claim, charge or
other encumbrance to any of the properties of the Company or
any of its subsidiaries, other than as permitted by Section
3.5; (e) any amendment to or change in the Certificate of
Incorporation or By-laws of the Company or any of its
subsidiaries; (f) any change in the accounting methods or
practices used by the Company or any of its subsidiaries;
(g) the execution and delivery by the Company or any of its
subsidiaries of any contract, other than (i) in the ordinary
course of business consistent with past practices, (ii) in
connection with the transactions contemplated hereby or
(iii) as otherwise scheduled; (h) any payment, discharge,
satisfaction or forgiveness by the Company or any of its
subsidiaries of any claim, liability, obligation or debt due
it or waiver or release by the Company or any of its
subsidiaries of any right or claim other than the payment,
discharge, satisfaction or forgiveness thereof in the
ordinary course of business or as reflected or reserved
against on the Balance Sheet; (i) any strike, work stoppage,
slowdown, or any threat of the foregoing by employees of the
Company or any of its subsidiaries; (j) any capital
expenditure by the Company or any of its subsidiaries in an
amount in excess of $50,000; (k) the entering into by the
Company or any of its subsidiaries of any collective
bargaining contract or other labor contract, except as
otherwise scheduled; (l) any change in the capital stock of
the Company or any of its subsidiaries as a result of
reclassification, subdivision, reorganization or otherwise;
(m) any sale, purchase or other acquisition of any capital
stock of the Company or any of its subsidiaries or any grant
or commitment to grant any option, warrant or other right to
subscribe for or purchase or otherwise acquire or encumber
the Stock or shares of any of the Company's subsidiaries;
(n) any failure by Seller to maintain any insurance in
effect on the date of the Balance Sheet with respect to the
assets and business of the Company and its subsidiaries,
other than in connection with ordinary course renewals
thereof; (o) any failure to maintain, or apply or reapply
for, necessary permits and licenses except in the ordinary
course of business consistent with past practices; or (p)
any agreement by the Company or its subsidiaries, or by
Seller with respect to the Company and its subsidiaries, to
effect any of the actions described in clauses (a) through
(o) of this Section 3.11. Except as set forth on Schedule
3.11 and 3.13, since October 1, 1994 there has not occurred
any amendment or termination of any Material Contract, other
than the expiration of any such Material Contract in
accordance with its terms.
3.12 Tax Matters. The Company and each of its
subsidiaries have filed, or as of the Closing Date will have
filed, all Federal, state, local and foreign tax returns and
reports required to have been filed by such date, except for
returns and reports the failure to file which do not and
will not, in the aggregate, have an adverse effect on the
business of the Company and its subsidiaries, taken as a
whole, and such returns are accurate and complete in all
material respects. The Company and each of its subsidiaries
have or will have paid all Taxes due and payable on or
before the Closing Date in respect of such returns and
reports, except for the portion of such Taxes being
contested in good faith that are identified and described on
Schedule 3.12. Except as set forth in Schedule 3.12,
neither Seller, the Company nor any of the Company's
subsidiaries has received notice of: (a) any audit or
examination of any tax return of the Company or any of its
subsidiaries by any Federal, state, local or foreign tax
authority; or (b) any adjustment proposed by the IRS or any
other agency of any liability for Taxes. The Company has
not executed any waiver of any statute of limitations
applicable to any such return. Neither the Company nor any
of its subsidiaries is a party to any tax sharing agreement.
3.13 Litigation. Except as set forth in Schedules
3.13 or 3.19, or as disclosed in the Financial Statements,
there is no suit, labor dispute, action or proceeding
pending, or, to Seller's knowledge, threatened, or, to
Seller's knowledge, is there any investigation or inquiry
pending or threatened, against the Company or any of its
subsidiaries or any of their respective officers, directors,
employees, stockholders, assets, properties or businesses
and relating to the business or properties of the Company
and its subsidiaries. Except as set forth in Schedule 3.13
or as disclosed in the Financial Statements, there is no
litigation or proceeding in which the Company or any of its
subsidiaries is a plaintiff or claimant. Except as
disclosed in Schedule 3.13, neither the Company nor any of
its subsidiaries is subject to any order, judgment, decree,
stipulation or consent of or with any court, governmental
body, agency or instrumentality which has, or which may
have, an adverse effect on the financial condition or the
results of operations of the Company or any of its
subsidiaries.
3.14 No Violations of Law. Except as set forth in
Schedule 3.13 or Schedule 3.14, neither Seller, the Company
nor any of its subsidiaries has received any written
notices, and no suits or judgments are currently pending or,
to the best knowledge of Seller, threatened, concerning any
unresolved violation or alleged violation by the Company or
any of its subsidiaries of any zoning, building,
occupational health and safety, fire, labor, health, safety,
or other applicable Law (other than any Environmental Law).
3.15 ERISA and Related Matters.
(a) Schedule 3.15 hereto lists all Benefit Plans
existing on the date hereof or that existed within three (3)
years prior to the Closing Date that are maintained,
contributed to or participated in by the Company or any of
its subsidiaries. None of the Benefit Plans is a
Multiemployer Plan as defined in Section 3(37) of ERISA.
(b) To the extent applicable, a true and correct
copy of each of the Benefit Plans listed in Schedule 3.15
(collectively, the "Elgin Plans"), as in effect on the date
hereof, and related trusts, any amendments to the Elgin
Plans or such trusts, summary plan descriptions, collective
bargaining agreements relating to such Elgin Plans,
favorable determination letters, Form PBGC-1, and the annual
reports most recently filed for the Elgin Plans have been
supplied to the Purchaser. In the case of any Elgin Plan
which is not in written form, Purchaser has been supplied
with an accurate description thereof as in effect on the
date hereof.
(c) As of the Closing Date, all the Elgin Plans
comply and have in the past complied in form and operation
in all material respects with all applicable requirements of
Law.
(d) As of the Closing Date, (1) all Elgin Plans
which are employee pension benefit plans, as defined in
Section 3(2) of ERISA ("Employee Pension Benefit Plans"),
which purport to comply with Section 401(a) of the Code,
have been determined to be so qualified by the IRS or
rulings respecting such qualification are pending with the
IRS and have been submitted within the time period
prescribed by the IRS to be within the purview of the
remedial amendment period, and nothing has occurred, since
the date of the last such determination which resulted or is
likely to result in the revocation of such determination,
and (2) all group health plans, as defined under Code
Section 5000(b)(1) maintained by or for the Company or any
of its subsidiaries comply in form and operation in all
material respects with the COBRA health continuation
coverage requirements under Section 4980B of the Code.
(e) There have been no "prohibited transactions"
(as described in Section 406 of ERISA or Section 4975 of the
Code) with respect to any of the Elgin Plans to which the
Company or any of its subsidiaries has been a party and
there have been no material changes in the financial
condition of the Elgin Plans from that stated in the annual
report (as described in Section 103 of ERISA) most recently
filed for each such Elgin Plan.
(f) As of the day before the Closing Date, as to
any Employee Pension Benefit Plan which is subject to Title
IV of ERISA, there have been no "reportable events" (as
described in Section 4043 of ERISA) for which notice to the
PBGC has not been waived, and no steps have been taken to
terminate any such plan under a distress termination.
(g) As of the Closing Date, to the knowledge of
Seller, nothing done or omitted to be done and no
transaction or holding of any asset under any Elgin Plan or
in connection therewith has made the Company or any of its
subsidiaries or any officer or director of the Company or
any of its subsidiaries subject to any liability under Title
I of ERISA or liable for any tax pursuant to Section 4972 or
Sections 4975 through 4980 of the Code.
(h) The Company or any of its subsidiaries has
not:
(1) incurred any liability under Section 4069 of
ERISA or any penalty under Section 4071 of
ERISA;
(2) withdrawn as a substantial employer so as to
become subject to the provisions of Section
4063 of ERISA;
(3) ceased making contributions on or before the
date of closing to any Employee Pension
Benefit Plan subject to the provisions of
Section 4064(a) of ERISA to which such entity
made or was obligated to make contributions
during any of the five years prior to the
date of this Agreement;
(4) received notice that the PBGC has instituted
proceedings to terminate any Employee Pension
Benefit Plan subject to Title IV of ERISA or
has permitted any event or condition to occur
which might constitute grounds under Section
4042 of ERISA for the termination of, or the
appointment of a trustee to administer any
such plan; or
(5) failed to pay any premium to the PBGC when
due.
(i) As of the Closing Date, neither the Seller nor
the Company has received notice pursuant to Section 4219 of
ERISA of any withdrawal liability with respect to any
Multiemployer Plan to which Seller contributes.
(j) Except as set forth on Schedule 3.15 or as
provided by Section 2.3, all accrued obligations of the
Company or any of its subsidiaries, whether arising by
operation of Law, by contract or by past custom, for
compensation, including bonuses, to its officers, directors,
employees, consultants or agents, for taxes and other
obligations to any government entity payable by the Company
or any of its subsidiaries in connection with such
compensation, and for payments with respect to any Elgin
Plan, have been paid, or adequate accruals for such
obligations have been and are being made by the Company or
any of its subsidiaries, and will be reflected in the
Closing Balance Sheet.
(k) None of the Elgin Plans is the subject of any
lawsuit, arbitration or other proceeding concerning any
benefit claim (other than routine claims for benefits and
qualified domestic relations orders) or any other matter,
whether brought by or against a participant or beneficiary,
a trustee, a plan administrator, the Seller, the Company or
any of its subsidiaries or any director, officer or employee
thereof.
(l) Except as set forth on Schedule 3.15, none of
the Elgin Plans provides for severance pay.
(m) The Seller will amend the Employee Pension
Benefit Plans which purport to comply with Section 401(a) of
the Code to fully vest the employees of the Company and its
subsidiaries who are participants in such plans in their
accrued benefits under such plans, determined as of the
Closing Date.
(n) Except as set forth on Schedule 3.15, no Elgin
Plan provides medical or death benefits (whether or not
insured) with respect to any current or former employee of
the Company or any of its subsidiaries which continue beyond
their retirement or other termination of service (other than
(i) coverage mandated by Law or (ii) death benefits or
disability benefits under any Employee Benefit Plan).
3.16 Contracts. Schedule 3.16 sets forth a
schedule of all Material Contracts to which the Company or
any of its subsidiaries is a party or is otherwise bound.
Neither the Company nor any of its subsidiaries is in
receipt of any claim of breach of any Material Contract
listed on Schedule 3.16 or has knowledge of any default by
the Company or such subsidiary thereunder, or condition
which, with the giving of notice or the passage of time, or
both, could constitute a default by the Company or such
subsidiary thereunder. No written agreements exist which
amend or purport to clarify or interpret any of the terms
and provisions of the Material Contracts, nor does any
modification, amendment or waiver exist relating to any of
the Material Contracts.
3.17 Brokers, Etc. Except for BHC, the fees and
expenses of which shall be the responsibility of Seller, no
agent, broker, investment banker or other Person acting on
behalf of Seller, the Company or any of the Company's
subsidiaries or under the authority of any of them is or
will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from
Purchaser (or any affiliate of Purchaser) in connection with
any of the transactions contemplated herein. Purchaser
shall have no liability for any commission, fee or expense
to BHC arising from the transactions contemplated herein.
3.18 Insurance. Schedule 3.18 sets forth a listing
of the insurance policies currently in effect and at any
time in effect during the preceding two (2) year period
covering the Company, each of the Company's subsidiaries and
all of their respective assets. Such policies and the
amount of coverage and risks insured against are, in the
opinion of the Company's management, appropriate in nature
and amount to protect the Company and its subsidiaries in
the event of the occurrence of a loss. The foregoing is not
a representation or warranty that the amount and nature of
such coverage will be adequate to cover losses actually
incurred by the Company or any of its subsidiaries. The
Company and its subsidiaries have paid all premiums due with
respect to each such policy, and each such policy is in full
force and effect. Seller has delivered to Purchaser copies
of certificates of insurance evidencing the insurance
policies listed in Schedule 3.18 that are currently in
effect, other than certificates with respect to local
coverage maintained in Taiwan.
3.19 Employees. Schedule 3.19 sets forth a list,
with respect to any employee or consultant (excluding
attorneys and accountants) of the Company or any of its
subsidiaries, of: (a) each individual paid or entitled to
payment by the Company or any of its subsidiaries for
compensation (i) exceeding, in the aggregate, $75,000 for
fiscal year 1994, or (ii) expected to exceed, in the
aggregate, $75,000 for fiscal year 1995; (b) all agreements
for fringe benefits, bonus, unemployment compensation,
severance pay, incentive or non-qualified stock options,
restricted stock, stock appreciation rights, stock purchase
plans, incentive compensation or deferred compensation to
which the Company or any of its subsidiaries is a party and
which does not constitute a Benefit Plan ("Fringe Benefit
Arrangements"); and (c) all employment or consulting
agreements to which the Company or any of its subsidiaries
is a party. Except as set forth in Schedule 3.19, (y)
neither the Company nor any of its subsidiaries is a party
to a collective bargaining agreement or currently
negotiating any such agreement, and (z) no complaint against
the Company or any of its subsidiaries is currently pending
before the National Labor Relations Board or the Equal
Employment Opportunity Commission. Seller has delivered to
Purchaser copies, as requested by Purchaser and its
representatives, of any written material relating to the
personnel policies of the Company and its subsidiaries.
Schedule 3.19 sets forth a summary of any personnel policy
not otherwise memorialized in writing. As of the Closing
Date, to the knowledge of Seller, all Fringe Benefit
Arrangements comply, and have in the past complied, in form
and operation in all material respects with all applicable
requirements of law.
3.20 Environmental.
(a) Seller has delivered to Purchaser copies of
the environmental report pertaining to the Company's
facility located at 1801 Morgan Street, Rockford, Illinois
(the "Rockford Facility") dated June 4, 1993 and the
environmental report pertaining to the Rockford Facility
dated September 4, 1993 (hereinafter, collectively, the
"Report").
(b) Seller has delivered to Purchaser a summary of
the nature and quantities of any Hazardous Material (other
than raw material awaiting manufacturing, work-in-process or
finished goods or materials present through the sale of
products in the ordinary course of business) that, to
Seller's knowledge, has been (i) stored, disposed of, found
or generated by any person or entity, by any current or
former asset or at any current or former site or facility
which was at any time owned or operated by the Company or
any of its current or former subsidiaries or its parent
company (each, a "Company Facility"), or (ii) stored,
disposed of, found or generated by or at a Company Facility
by any person or entity, and disposed of at a facility which
is not a Company Facility.
(c) To Seller's knowledge, except as set forth in
the Report and in the summary provided pursuant to Section
3.20(b) above, no person or entity has generated,
manufactured, refined, produced, processed, treated, stored,
handled, disposed of, discharged, emitted, poured, emptied,
leached, leaked, spilled, injected, dumped, accumulated,
buried, transported or used (collectively, "Use") in
connection with any Company Facility any Hazardous Material
in violation of any Environmental Law or which Use could
reasonably be expected to, under current Environmental Law,
give rise to or create any Loss, including but not limited
to liability for penalties, remedial, removal or cleanup
costs or toxic tort liability.
(d) No proceeding is pending or, to the knowledge
of Seller, threatened which seeks to revoke, suspend or
limit any permits, licenses, orders, approvals,
authorizations, concessions and franchises ("permits") of
the Company and its subsidiaries required under any
Environmental Law.
(e) Seller has no knowledge of (i) any Use of
Hazardous Material at the Rockford Facility, or (ii) any
condition or circumstance whatsoever at the Rockford
Facility, which could reasonably be expected to give rise to
or create any Loss under any Environmental Law, including
without limitation liability for penalties, remedial,
removal or cleanup costs or toxic tort liability, other than
the Uses, conditions, circumstances and other matters
disclosed in the Report or in the summary provided pursuant
to Section 3.20(b).
(f) Except as set forth in Schedule 3.20, neither
the Seller, the Company nor any of its subsidiaries has
knowledge of any civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter,
notice of violation, investigation, or proceeding pending or
threatened against the Seller, the Company or any of its
subsidiaries in connection with the conduct of the Business,
relating to or arising under any Environmental Laws.
3.21 Inventory. The inventory of the Company and
its subsidiaries is fairly reflected in all material
respects on the Balance Sheet and is valued on the basis of
the lower of cost or market. Except as disclosed in
Schedule 3.21 or Schedule 3.5, all such inventory is owned
by the Company and its subsidiaries, free and clear of any
liens, claims, charges, security interests and
encumbrances, and is not subject to any consignment,
conditional sale, "sale or return" or similar arrangement.
The location of such inventory as of a recent date is
identified on Schedule 3.21.
3.22 Affiliate Transactions. Except as set forth
in Schedule 3.22, neither (a) Seller, any of Seller's
affiliates or shareholders, the Company or any of its
subsidiaries possesses any financial interest in any
supplier or customer of, or provider of services to, the
Company or any of its subsidiaries, nor (b) any supplier or
customer of, or provider of services to, the Company or any
of its subsidiaries possesses any financial interest in the
Company or any of its subsidiaries. Ownership of the
securities of an entity registered under the Securities
Exchange Act of 1934, in an amount not exceeding 5% of any
class thereof, shall not be deemed to be a financial
interest for purposes of this Section 3.22. Schedule 3.22
sets forth a list of the Elgin Guarantees existing as of the
date hereof.
3.23 Accounts Receivable. All accounts receivable
of the Company or any of its subsidiaries which are
reflected on the Balance Sheet (a) arose in the ordinary
course of business; (b) to the best of Seller's knowledge,
and net of the reserve for doubtful accounts receivable set
forth on such Balance Sheet, (i) represent valid, bona fide
and subsisting claims, (ii) are correct as to amount and are
legally enforceable according to their terms, and (iii) have
no current right of defense, counter-claim or set-off
against them; and (c) except as set forth in Schedule 3.23
and Schedule 3.5, are owned by the Company or its applicable
subsidiary free of any liens, security interests,
encumbrances, claims or charges of any kind, choate or
inchoate, liquidated or unliquidated.
3.24 Condition of Assets. Except for the inventory
of the Company and its subsidiaries, which is covered by
Section 3.21, all of the personal property (whether owned or
leased) material to the conduct of the respective businesses
of the Company or its subsidiaries are in operating
condition, normal wear and tear excepted, and, to the
knowledge of Seller, are free from defects other than such
minor defects as do not interfere with the continued use
thereof in the conduct of normal operations.
3.25 Knowledge. Seller has no knowledge of any
breach of, or inaccuracy in, any of the representations and
warranties of Purchaser set forth in this Agreement.
3.26 Certain Contracts. Seller has previously
delivered to Purchaser true, complete and correct copies of
the Jupiter Stock Purchase Agreement, the Household
International Stock Purchase Agreement, the Jamison
Noncompetition Agreement and the Ross Noncompetition
Agreement (along with any amendments or any other
modifications thereto). There exist no side agreements with
Household, Jupiter, C.H. Jamison or Edward W. Ross with
respect to any such contracts, other than side agreements,
the copies of which have been previously delivered to
Purchaser's attorneys.
3.27 Accuracy and Completeness of Statements.
Neither this Agreement nor any schedule, exhibit, statement,
list, certificate or other written information furnished or
to be furnished by Seller, the Company or the Company's
subsidiaries to Purchaser in connection with this Agreement
contains or will contain any untrue statement of material
fact or will omit to state a material fact necessary to make
the statements made, in light of the circumstances in which
they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as
follows:
4.1 Authority of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of Delaware, with all requisite
corporate power and authority (including necessary
authorization to do business as a foreign corporation where
required except where the failure to qualify will not result
in liability to Seller or materially and adversely affect
the operation of Purchaser) to own, lease and operate its
properties and to carry on its business as now being
conducted. Purchaser has all requisite corporate power to
enter into this Agreement and to carry out its obligations
under this Agreement. The execution, delivery and
performance of this Agreement by Purchaser has been duly
authorized by all necessary corporate action. This
Agreement has been duly and validly executed and delivered
by Purchaser and constitutes the legal, valid and binding
obligation of Purchaser enforceable in accordance with its
terms, except as may be limited by: (a) applicable
bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect that affect
creditors' rights generally; or (b) legal and equitable
limitations on the availability of specific remedies. The
execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and
performance by Purchaser of its obligations hereunder will
not, (i) violate or conflict with any provision of: (A) the
Certificate of Incorporation or By-laws of Purchaser, (B)
any agreement, lease, instrument, mortgage, order,
arbitration award, judgment or decree to which Purchaser is
a party or by which any of its properties is bound, or (C)
any material Law applicable to Purchaser; (ii) result in the
creation of any lien, charge, encumbrance or claim upon any
property of Purchaser or give to others any interest or
right in any such property including, but not limited to, a
right to purchase such property (iii) except as provided for
in Schedule 4.1, require the approval, consent or
authorization of any third party, federal, state or local
court, governmental authority or body, or creditor or give
any party with rights under any instrument, agreement,
contract, mortgage, judgment, award, order or other
restriction the right to terminate, modify or otherwise
change any of the current rights or obligations of
Purchaser. Except as set forth in Schedule 4.1, the failure
of any Person not a party hereto to authorize or approve
this Agreement or the transactions contemplated hereby will
not give any Person the right to enjoin, rescind or
otherwise prevent or impede the purchase of the Stock by
Purchaser in accordance with the terms of this Agreement or
to obtain damages from, or any other judicial relief
against, Seller as a result of any transactions carried out
in accordance with the provisions of this Agreement.
4.2 Brokers, Etc. Except for Chicago Dearborn,
the fees and expenses of which shall be the responsibility
of Purchaser, no agent, broker, investment banker or Person
acting on behalf of Purchaser is or will be entitled to any
broker's or finder's fee or any other commission or similar
fee directly or indirectly from Seller, the Company or any
subsidiary of the Company (prior to the Closing) in
connection with any of the transactions contemplated hereby.
Seller shall have no liability for any commission, fee or
expense to Chicago Dearborn arising from the transactions
contemplated herein.
4.3 Knowledge. Purchaser has no knowledge of any
breach of, or inaccuracy in, any of the representations and
warranties of Seller set forth in this Agreement.
4.4 Securities. Purchaser hereby acknowledges
that the Stock is not registered under the Securities Act or
registered or qualified for sale under any state securities
Law and cannot be resold without registration thereunder or
exemption therefrom. Purchaser is acquiring the Stock for
its own account as principal, for investment, and not with
a view toward the sale or distribution thereof. Purchaser
has sufficient knowledge and experience in financial and
business matters to enable it to evaluate the risks of
investment in the Stock and has the ability to bear the
economic risks of such investment.
4.5 Financing. Purchaser has sufficient funds
available to purchase the Stock pursuant to this Agreement
without violating any solvency requirements currently
applicable to Purchaser. Purchaser has previously supplied
to Seller a balance sheet of Purchaser as of December 31,
1994, which balance sheet gives a fair presentation of
Purchaser's financial position as of such date.
ARTICLE V
COVENANTS OF SELLER
Seller hereby covenants and agrees with Purchaser as
follows:
5.1 Payment of Taxes. Seller shall pay or cause
to be paid on a timely basis, or provide an adequate reserve
for, all Taxes that have accrued with respect to the
operations of the Company and its subsidiaries for the
Seller Tax Period.
5.2 Non-Competition, Non-Solicitation and
Confidentiality Covenants of Seller.
(a) Non-Compete and Non-Solicitation. (i)
Subject to subsection (a) (ii) below, for a period of two
(2) years after the Closing Date, neither Seller nor any
Person (other than Fred C. Schulte, Charles D. Hall,
Wayne J. Conner and the present stockholders of the parent
corporation of Seller) controlling, controlled by or under
common control with Seller (including, without limitation,
any Person that is, on the Closing Date or thereafter, a
member of the Elgin Consolidated Group) (for purposes of
this Section 5.2, hereinafter collectively referred to as
the "Seller Group"), will own (other than ownership of less
than 5% of the issued and outstanding securities of an
entity registered under the Securities Exchange Act of
1934), manage, operate, control, lend to or engage in any
other manner, directly or indirectly, including in the
capacity of agent, consultant, independent contractor, joint
venturer or otherwise, whether for compensation or
otherwise, anywhere within the Territory, in any business
engaged in (directly or indirectly) the conception, design,
development, manufacture, promotion, marketing, distribution
or sale of any products that compete with the products of
the Business or initiate contact with any Person (directly
or indirectly) that is an employee of the Company or its
subsidiaries on the date hereof for the purpose of
soliciting the employment or engagement of such employee.
(ii) Nothing in this Agreement shall limit, prohibit
or restrict (A) the operation of the respective businesses
of the Seller Group (including, without limitation, the
business of American Fasteners and Hi-Ten Products) in
substantially the same manner as such businesses are
operated on the Closing Date and (B) the bona fide arms
length sale of products or provision of services, each in
the ordinary course of business, to any Person competing
with the Business.
(b) Confidentiality. At all times from and after
the Closing Date, Seller shall keep secret and maintain in
strictest confidence, and shall not use for its benefit or
for the benefit of others, and shall not cause or allow any
of the Seller Group to so disclose or use, any confidential
or proprietary information relating to the Business or its
financial or other affairs, including, without limitation,
all Intellectual Property and files and records other than
any of the foregoing that are in the public domain prior to
the date of this Agreement (unless any of the foregoing are
in the public domain as aforesaid, in whole or in part, due
to action or inaction of Seller or any Person associated
therewith) in violation of this Agreement. The foregoing
shall not prohibit use of information as necessary to
prepare tax returns or other filings with governmental
authorities for the Seller Tax Period or to assert or
protect any rights of Seller hereunder.
(c) Remedies. The business being acquired by
Purchaser hereunder is conducted throughout the United
States and the Territory and the geographical scope, the
time periods and other restraints imposed by this Section
5.2 are fair and reasonable and required for the protection
of Purchaser, and the business and investment to be acquired
from Seller hereunder. Irreparable harm and injury will
result to Purchaser, its business and properties in the
event of a breach or threatened breach of this covenant by
Seller or any member of the Seller Group, and the amount or
extent of damages would be difficult if not impossible to
ascertain and therefore, any remedy at Law for any breach by
any of them of this covenant will be inadequate.
Accordingly, Purchaser shall be entitled to, and Seller
covenants that it will not contest the appropriateness or
availability of, temporary and permanent injunctive relief
without the necessity of proving actual damages to Purchaser
by reason of any such breach or threatened breach and
without the posting of any bond, without prejudice to the
rights of Purchaser to seek damages or other remedies
available to Purchaser. In the event of a breach or
threatened breach of this covenant by any of the Seller
Group, Purchaser shall also be entitled to recover
reasonable attorneys' fees and costs incurred in connection
with the enforcement of its rights hereunder. Whenever used
in this Section 5.2, the term "Purchaser" shall be deemed to
include any successor or any other Person that may hereafter
acquire all or any portion of the aforesaid business being
acquired by Purchaser hereunder during the period of this
covenant not to compete.
(d) Modification. If any provision of this
Section 5.2 should be adjudicated by a court of competent
jurisdiction to be invalid or unenforceable, such provision
(or specific words or phrases ("blue pencilling"), as
applicable) shall be deemed deleted herefrom with respect,
and only with respect, to the operation of such provision in
the particular jurisdiction in which such adjudication was
made; provided, however, that to the extent any such
provision may be made valid and enforceable in such
jurisdiction by limitations on the scope of the activities,
geographical area or time period covered, such provision
instead shall be deemed limited to the extent, and only to
the extent, necessary to make such provision enforceable to
the fullest extent permissible under the laws and public
policies applied in such jurisdiction.
(e) Covenants Independent. The covenants
contained in this Section 5.2 shall be construed and
enforced independently of any other provision of this
Agreement or any other understanding or agreement between
the parties, and the existence of any claim or cause of
action of Seller against Purchaser, of whatever nature,
shall not constitute a defense to the enforcement of the
covenants contained herein against Seller or any of the
members of the Seller Group.
5.3 Real Property Requirements.
(a) As evidence of the Company's title, Seller
shall furnish to Purchaser, at the Closing, a commitment for
title insurance (the "Title Commitment") dated as of a
recent date, from First American Title Insurance Company
(the "Title Company"), subject only to real estate taxes not
yet due and payable, those matters set forth in Schedule 3.6
and such easements, covenants and conditions of record that,
in Purchaser's reasonable judgment, do not render title
unmarketable or materially impair the use (in the manner
currently used) or value of the Real Property (the
"Permitted Exceptions"). All fees of the Title Company in
connection with the Title Policy shall be paid by Seller.
(b) At Seller's sole cost and expense, Seller
shall furnish to Purchaser, no later than one (1) day prior
to Closing, a current survey of the Real Property certified
in favor of Purchaser and the Title Company, prepared by a
land surveyor registered in the State of Illinois,
containing the Minimum Standard Detail Requirements for an
ALTA/ACSM Land Title Survey most recently adopted by
American Land Title Association and American Congress on
Surveying and Mapping, and otherwise in form sufficient for
the Title Company to waive or provide title insurance over
any matters which would be disclosed by an accurate survey.
(c) At the Closing, Seller shall deliver (and
where required shall cause the Company to deliver) to
Purchaser the following instruments and documents with
respect to the Real Property:
(I) All permits, plans and specifications and
all construction and equipment guarantees and warranties for
the Real Property in Seller's possession; and
(ii) "GAP Undertaking", an ALTA Statement,
and any instrument, assurance or deposit (to be paid by
Seller) necessary to induce the Title Company to insure over
Unpermitted Exceptions in such form, terms, conditions and
amount as may be required by the Title Company.
5.4 Leased Real Estate Requirements
(a) Rent, operating expenses, real estate taxes
and other proratable items under the leases for the Leased
Real Property shall be prorated as of Closing.
(b) Upon Closing, Seller shall deliver to
Purchaser copies of the original counterparts of any leases
for the Leased Real Property.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller as
follows:
6.1 Confidentiality. Purchaser is bound by the
obligations of the Confidentiality Agreement as if a party
thereto.
6.2 Benefit Plans. Each employee of the Company
and its subsidiaries shall cease to participate in each of
the Elgin Plans for periods on and after the Closing Date.
For periods on and after the Closing Date, each employee of
the Company and its subsidiaries shall be eligible to
participate in the Benefit Plans, arrangements, programs and
policies maintained from time to time by Purchaser for the
benefit of similarly situated employees of Purchaser
(collectively, the "Purchaser Plans"). Notwithstanding the
preceding sentence, the Purchaser shall cause the Company to
(i) adopt, for the benefit of the non-highly compensated
employees (as determined after the application of Code
Section 414(q)) of the Company and its subsidiaries,
effective as of the Closing Date, employee pension benefit
plans (as defined under Section 3(2) of ERISA) that provide
comparable benefits to those received by such employees
under the Employee Pension Benefit Plans which purport to
comply with Section 401(a) of the Code prior to the Closing
Date, and (ii) provide, for the benefit of the highly
compensated employees (as defined under Code Section 414(q))
through the establishment of non-qualified retirement plans,
compensation adjustments or otherwise comparable benefits to
those received by such employees under the Employee Pension
Benefit Plans which purport to comply with Section 401(a) of
the Code prior to the Closing Date.
The Purchaser shall cause the Company to maintain in
effect the GC Thorsen, Inc. Management Incentive
Compensation Plan until December 31, 1995 and make all
payments required thereunder. In connection therewith, any
amounts due thereunder through the Closing shall be fully
accrued and reflected on the Closing Balance Sheet. In
addition, the group medical plan covering the employees of
the Company is being transferred as of April 1, 1995.
The parties acknowledge and agree that all provisions
contained in this Agreement with respect to Benefit Plans or
employee compensation are included for the sole benefit of
the respective parties hereto and shall not create any right
in any other Person, including, without limitation, any
employees of the Company or its subsidiaries, any
participant in any Benefit Plan or any beneficiary thereof.
6.3 Full Access. From and after the Closing Date,
Purchaser shall cause the Company and its subsidiaries to
afford Seller and its counsel, accountants and other
authorized representatives, with 2 days' prior notice,
reasonable access during normal business hours (when
accompanied by an authorized representative of the Company
or its subsidiaries, as the case may be) to the respective
premises, properties, personnel, books and records of the
Company and its subsidiaries and any other assets or
information that Seller reasonably deems necessary to
prepare the Closing Balance Sheet and any report or return
required to be filed by Seller (but so as not to unduly
disrupt the normal course of operations of the Company and
its subsidiaries), including, without limitation, any tax
return. Personnel of the Company and its subsidiaries shall
assist Seller in the preparation of the Closing Balance
Sheet. Respecting the preparation of the Closing Balance
Sheet, Seller shall not be obligated to compensate such
personnel, Purchaser, the Company or its subsidiaries for
such assistance.
6.4 Insurance. Purchaser shall cause the Company
and its subsidiaries to maintain, with reputable,
financially sound insurance companies (rated at least A- by
A.M. Best & Co.), insurance to such extent and against such
hazards and liabilities as is customarily maintained by
companies similarly situated (and, in any event, such
insurance as may be required by Law or governmental
regulation or any court order or decree) and to include
Seller or its designee as an additional insured on such
policies. At the Closing, and annually thereafter until the
third anniversary of the Closing Date, Purchaser shall
deliver to Seller certificates of insurance evidencing such
coverage and showing Seller or its designee as an additional
insured.
6.5 Use of Name. Purchaser shall cause the
Company and each of its subsidiaries to refrain from using
the name "Elgin" or any derivation thereof.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER
The obligation of Purchaser to purchase the Stock is,
at the option of Purchaser, subject to satisfaction of each
of the following conditions precedent on or before the
Closing Date:
7.1 Warranties True. The representations and
warranties of Seller contained herein shall be true in all
material respects.
7.2 Compliance with Agreements and Covenants.
Seller shall have performed and complied with, in all
material respects, its obligations and agreements hereunder.
7.3 Consents and Approvals. Consents and
approvals in writing shall have been received by Seller from
any governmental authorities, lenders, lessors or other
persons whose consent and approval is required for the
consummation of the transactions contemplated hereby;
provided, that, with respect to the HSR Act and the consent
decree listed in Schedule 3.1, all required notice and
waiting periods shall have expired or been waived.
7.4 Injunctions. No court or governmental
authority shall have issued an order which shall then be in
effect restraining or prohibiting the completion of the
transactions contemplated hereby and no suit shall have been
instituted seeking the same.
7.5 Deliveries by Seller. Seller shall have
effected the deliveries required pursuant to Section 9.2
below.
7.6 Continental Releases. Continental shall have
delivered all appropriate UCC-3 termination statements
evidencing its release of its security interests in the
assets of the Company and its subsidiaries and Elgin or
Continental shall have delivered a written undertaking to
have Continental release any lien filing it may have against
patent or trademark registrations or applications.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are, at
the option of Seller, subject to the satisfaction of the
following conditions precedent on or before the Closing
Date:
8.1 Warranties True. The representations and
warranties of Purchaser contained herein shall be true in
all material respects.
8.2 Compliance with Agreements and Covenants.
Purchaser shall have performed and complied with, in all
material respects, its obligations and agreements hereunder.
8.3 Consents and Approvals. Consents and
approvals in writing shall have been received by Purchaser
from any governmental authorities, lenders, lessors or other
persons whose consent and approval is required for the
consummation of the transactions contemplated hereby;
provided, that, with respect to the HSR Act and the consent
decree listed in Schedule 3.1, all required notice and
waiting periods shall have expired or been waived.
8.4 Injunctions. No court or governmental
authority shall have issued an order which shall then be in
effect restraining or prohibiting the completion of the
transactions contemplated hereby and no suit shall have been
instituted seeking the same.
8.5 Deliveries by Purchaser. Purchaser shall have
effected the deliveries required pursuant to Section 9.3
below.
8.6 Continental Releases. Continental shall have
delivered all appropriate UCC-3 termination statements
evidencing its release of its security interests in the
assets of the Company and its subsidiaries.
ARTICLE IX
CLOSING
9.1 Closing. The Closing shall take place at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street,
Chicago, Illinois 60603 at 10:00 A.M. on April 5, 1995 (the
"Closing Date").
9.2 Seller's Deliveries. At the Closing, Seller
shall deliver to Purchaser:
(a) the opinion of Mayer, Brown & Platt, dated the
Closing Date, in the form of Exhibit D attached hereto;
(b) certificates evidencing the Stock and all of
the issued and outstanding shares of capital stock of the
Company's subsidiaries, and with respect to the Stock, duly
endorsed in blank or accompanied by duly executed stock
powers;
(c) the stock record book, minute book and seal
(if any) of the Company and all of its subsidiaries;
(d) resignations of the Company's and its
subsidiaries' respective Boards of Directors;
(e) a duly executed assignment to the Company, in
the form and substance of Exhibit E-1 attached hereto, of
Seller's rights under Section 11 of the Jupiter Stock
Purchase Agreement but only to the extent that such rights
relate to the non-competition, confidentiality and non-solicitation
obligations of Jupiter thereunder with respect
to the business, information and employees of the Company or
any of its subsidiaries;
(f) a duly executed assignment to the Company, in
the form and substance of Exhibits E-2 and E-3 attached
hereto, of Seller's rights under the Jamison Noncompetition
Agreement and the Ross Noncompetition Agreement, but only to
the extent that such rights relate to the noncompetition,
confidentiality and nonsolicitation obligations of C.H.
Jamison and Edward Ross with respect to the business,
information and employees of the Company and its
subsidiaries; and
(g) a certificate, signed by an executive officer
of Seller, certifying that the representations and
warranties of Seller contained herein are true in all
material respects; and
(h) any other items required to be delivered by
Seller under the terms and provisions of this Agreement.
9.3 Purchaser's Deliveries. At the Closing, the
Purchaser shall deliver to Seller:
(a) confirmation of the wire transfers of same-day
funds as required by Section 2.2;
(b) the opinion of Holleb & Coff, dated the
Closing Date, in the form of Exhibit F attached hereto;
(c) a waiver, in the form and substance of
Exhibit G attached hereto, whereby the Purchaser, on its
behalf and on behalf of the Company and its subsidiaries,
waives any claim that it may have against Jupiter with
respect to the business or assets of the Company or any of
its subsidiaries, whether any such claim arises under
statute, common law or otherwise (it being understood that
Seller will receive such waiver as agent for Jupiter and
deliver such waiver to Jupiter);
(d) a certificate, signed by an executive officer
of Purchaser, certifying that the representations and
warranties of Purchaser contained herein are true in all
material respects; and
(e) any other items to be delivered by Purchaser
under the terms and provisions of this Agreement.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival. The representations and warranties
of the parties contained herein or in any certificate or
writing delivered pursuant hereto shall survive the Closing
for a period of 18 months after the Closing Date; provided,
however, that (a) the representations and warranties of
Seller set forth in Section 3.12 shall survive the Closing
for the period of the applicable statute of limitations for
tax claims; (b) the representations and warranties of Seller
set forth in Sections 3.1, 3.2, 3.3 and 3.4 hereof shall
survive the Closing forever; and (c) the representations and
warranties of Seller set forth in Sections 3.20(c) and (d)
shall survive the Closing for a period of four (4) years
after the Closing Date, except with respect to any Use or
proceeding referred to therein that gives rise to a
violation of or Loss under any Environmental Law on the Real
Property. No claim may be made under this Agreement or
otherwise based upon any alleged breach of any
representations or warranties, whether for indemnification
or otherwise, unless written notice of such claim, in
reasonable detail, is given to Purchaser or to Seller, as
the case may be, on or prior to the expiration of the
survival period set forth above with respect to the
representation and warranty on which such claim is based.
10.2 Indemnification by Seller. Subject to the
terms of this Section 10.2, Seller agrees to indemnify,
defend and hold harmless Purchaser, its officers, directors,
affiliates, successors and assigns against any and all
Losses suffered by Purchaser or such persons or entities to
the extent that such Losses, combined with any Trademark
Losses (as defined below) incurred pursuant to the following
paragraph, exceed $125,000 in the aggregate and (w) result
from any obligation imposed on Purchaser, the Company or its
subsidiaries under the Jupiter Stock Purchase Agreement, the
Jamison Noncompetition Agreement or the Ross Noncompetition
Agreement, (x) are caused by any breach of the
representations, warranties, covenants and agreements of
Seller set forth in this Agreement (provided, that no claim
for a breach of any representation, warranty, covenant or
agreement may be made with respect to any such breach that
does not cause a Loss in excess of $5,000, exclusive of
attorney's fees, court costs and costs of litigation), (y)
result from any tax liability of the Company arising under
Treas. Reg. 1.1502-6 or any similar provision under state
law, or (z) result from any Third Party Action in connection
with (i) any Use, on or before the Closing Date, of
Hazardous Materials by the Company or any current or former
Company subsidiary or affiliate, but only to the extent that
such Use does not relate to matters disclosed in the Reports
which result in a Loss on the Real Property arising under
any Environmental Law or (ii) any act or omission by any
person or entity, which occurred at any time on or before
the Closing Date, which may be subject to any Environmental
Law and which concerns any Company Facility, including, but
not limited to, disposal at any location of Hazardous
Materials; provided, however, that the indemnification
described in clause 10.2(z) shall not apply with respect to
any Losses relating to the presence of Hazardous Materials
at or under the Rockford Facility unless Seller is in breach
of Seller's representation set forth in Section 3.20(e) of
this Agreement; provided, further, however, that (a) the
aggregate liability of Seller to Purchaser under this
Section 10.2 or otherwise under this Agreement or at law or
in equity shall not exceed $5,000,000; and provided,
further, that the aggregate liability of Seller to Purchaser
under this Section 10.2 or otherwise under this Agreement or
at law or in equity with respect to matters described in
clauses 10.2(x) and 10.2(y) above shall not exceed
$2,400,000; and (b) any indemnity under this Section 10.2
shall be (i) on an actual after-tax basis and (ii) reduced
by amounts recovered (net of actual expenses incurred) by
the Company or its subsidiary, HMO, Inc., from Household
pursuant to the Household Stock Purchase Agreement. The
indemnification provided by this Section 10.2 shall not
apply in the case of any breach of any representation or
warranty of which Purchaser was aware prior to the Closing.
The rights and remedies set forth in this Article X shall
constitute the exclusive rights and remedies of Purchaser
and its affiliates against Seller with respect to this
Agreement, the events giving rise to this Agreement and the
transactions contemplated herein.
Subject to the proviso in the preceding paragraph
limiting the liability of Seller under this Section 10.2 to
$5,000,000, Seller agrees to indemnify, defend and hold
harmless Purchaser, its officers, directors, affiliates,
successors and assigns against any and all (i) penalties,
fines, costs of litigation or other contested proceedings
(including, without limitation, court costs and reasonable
attorneys' fees) and damages, royalties or other similar
amounts paid to third parties and (ii) expenses incurred by
the Company or its affiliates in connection with
repackaging, redesigning or modifying the products or
production facilities of the Company (collectively,
"Trademark Losses"), in each case arising as a result of
claims by third parties alleging unfair competition,
infringement or dilution of the intellectual property rights
of such third parties and relating to the use by the Company
of (x) the registered trademark "THORSEN & Design"
(Registration No. 665,346), (y) the trademark "GC
ELECTRONICS & Design" (Application pending, Application
Serial No. 74/530,956) or (z) the name "Thorsen Tool" from
and after the Closing Date; provided, that no claim for
indemnification may be made under this paragraph unless
written notice of such claim, in reasonable detail, is given
to Seller on or prior to the third anniversary of the
Closing Date; and provided, further, that the $5,000
threshold referred to in the foregoing paragraph shall not
apply to claims for indemnification made pursuant to this
paragraph; and provided, further, that Seller shall have no
indemnification obligation under this paragraph except to
the extent that the Trademark Losses suffered by Seller and
such other indemnified parties, together with Losses
incurred by such parties pursuant to the preceding
paragraph, exceed $125,000 in the aggregate.
No claim for matters described in clause 10.2(z) above
may be made under this Section 10.2 unless: (a) the Third
Party Action on which such claim is based is initiated by
the pertinent Third Party on or before the third anniversary
of the Closing Date, and Purchaser has given written notice
to Seller of such initiation within 30 days of Purchaser,
the Company or any of their employees or affiliates becoming
aware of such initiation, and (b) on or before the fourth
anniversary of the Closing Date, Seller, Purchaser, the
Company or one of its subsidiaries or affiliates receives a
written communication concerning such Third Party Action
upon which the claim is based, which communication is not
the result of any communication initiated by or on behalf of
Purchaser, the Company or their subsidiaries or affiliates,
and Purchaser has given written notice to Seller of the
receipt of such communication within 30 days of the receipt
of same by Purchaser, the Company or any of their employees.
With respect to any claim for matters described in clause
10.2(z) above, Purchaser shall consult with Seller regarding
the action to be taken and the costs thereof and shall use
its commercially reasonable efforts to cause such action to
be taken in a cost-efficient manner.
Purchaser shall promptly notify Seller in writing of
all matters which may give rise to the right to
indemnification hereunder. If Seller does not receive
notice of any matter known to Purchaser and as to which
Purchaser is entitled to indemnification hereunder in time
to contest the determination of any such liability, Seller
shall not be obligated to indemnify Purchaser with respect
thereto. Seller shall have the right: (a) with the consent
of Purchaser which shall not be unreasonably withheld or
delayed, to settle all indemnifiable matters related to
claims by third parties which are susceptible to being
settled; and (b) to defend through counsel of its own
choosing, at its own expense, any action which may be
brought by a third party in connection therewith, provided,
however, that Purchaser shall have the right to have its
counsel participate fully in such defense at its own
expense. Purchaser and Seller shall keep each other
reasonably informed of the progress of any litigation or
settlement negotiations with third parties in connection
with a matter indemnified against hereunder. Purchaser and
Seller shall permit each other reasonable access to books
and records and otherwise cooperate with all reasonable
requests of each other in connection with any indemnifiable
matter resulting from a claim by a third party.
10.3 Indemnification by Purchaser. Purchaser
agrees to indemnify, defend and hold harmless Seller, its
officers, directors affiliates, successors and assigns
against any and all Losses suffered by Seller or such
persons or entities, to the extent that such Losses (i)
arise out of or are based upon any breach of the
representations, warranties, covenants and agreements of
Purchaser set forth in this Agreement (provided, that no
claim for a breach of any representation, warranty, covenant
or agreement may be made with respect to any such breach
that does not cause a Loss in excess of $5,000, exclusive of
attorney's fees, court costs and costs of litigation), or
(ii) arise out of or are based upon the operation of the
respective businesses of the Company or any of its
subsidiaries from and after the Closing Date; provided,
however, that any indemnity under this Section 10.3 shall be
on an actual after-tax basis. Respecting Losses arising
from breaches of the representations and warranties set
forth in Sections 4.1 through 4.6, the indemnification
provided above shall apply only to the extent that such
Losses exceed $125,000 in the aggregate and do not exceed
$2,400,000 in the aggregate.
Seller shall promptly notify Purchaser in writing of
all matters which may give rise to the right to
indemnification hereunder. If Purchaser does not receive
notice of any matter known to Seller and as to which Seller
is entitled to indemnification hereunder in time to contest
the determination of any such liability, Purchaser shall not
be obligated to indemnify Seller with respect thereto.
Purchaser shall have the right: (a) with the consent of
Seller, which shall not be unreasonably withheld or delayed,
to settle all indemnifiable matters related to claims by
third parties which are susceptible to being settled; and
(b) to defend, through counsel of its own choosing, at its
own expense, any action which may be brought by a third
party in connection therewith, provided, however, that
Seller shall have the right to have its counsel participate
fully in such defense at its own expense. Purchaser and
Seller shall keep each other reasonably informed of the
progress of any litigation or settlement negotiations with
third parties in connection with a matter indemnified
against hereunder. Purchaser and Seller shall permit each
other reasonable access to books and records and otherwise
cooperate with any indemnifiable matter resulting from a
claim by a third party.
10.4 Calculations. The amount of indemnity payable
under Section 10.2 or Section 10.3 above shall be reduced by
(a) proceeds received by the indemnified party from
insurance policies or other indemnities covering the damage,
loss, liability or expense that is the subject of the claim
for indemnity and (b) the actual realized tax benefit to the
indemnified party resulting from the damage, loss, liability
or expense that is the subject of the indemnity and of the
indemnity payment itself. For purposes of this Section
10.4, an actual realized tax benefit is an actual reduction
in taxes payable or a refund of taxes previously paid. To
the extent that an actual tax benefit is realized in a tax
year other than the year in which the indemnity is paid, the
indemnified party shall make a payment to the indemnifying
party in the amount of such actual tax benefit in the tax
year in which it is realized.
ARTICLE XI
[INTENTIONALLY OMITTED]
ARTICLE XII
TAXES
12.1 Filing Tax Returns; Payment of Taxes.
(a) As soon as practicable after the Closing Date,
Seller and the Company will prepare and file all appropriate
tax returns for the operations of the Company and its
subsidiaries for all periods ending on or before the Closing
Date, including, for those jurisdictions and tax authorities
that permit or require a short period tax return, for the
period ending on the Closing Date. Without undue disruption
to the Company's operations, Purchaser shall cause the
Company to cooperate fully and promptly in connection with
Seller's preparation and filing of such returns. The books
and records of Seller, the Company and its subsidiaries will
be maintained, and the Federal, state and other income tax
returns of the Elgin Consolidated Group will be filed, so as
to accurately reflect the operations of the Company and its
subsidiaries through the end of the Closing Date, and to
accurately reflect the consequences of an election under
Section 338(h)(10) of the Code with respect to the Company.
All gain or loss resulting from such election will be
properly reported on the income tax returns of the Elgin
Consolidated Group and all income taxes attributable thereto
will be paid by the Elgin Consolidated Group. Seller shall
have no responsibility for filing any tax return for the
operations of the Company for any period ending after the
Closing Date.
(b) Except as any such refund is reflected on the
Closing Balance Sheet, Seller shall be entitled to any
refunds of Taxes (including interest received thereon) paid
with respect to the operations of the Company and its
subsidiaries for any period included in the Seller Tax
Period. Purchaser shall be entitled to all other refunds of
Taxes (including interest received thereon) with respect to
the operations of the Company and its subsidiaries. Refunds
to which Seller is not entitled shall be retained by the
Company or its subsidiaries, and shall not be paid to
Seller, and if received by Seller, shall be paid over to
Purchaser within three (3) business days after receipt.
Purchaser shall cause the Company and its subsidiaries to
cooperate, at no cost to Purchaser, with Seller in any
petition for or proceeding relating to any refund.
12.2 Tax Benefits. If, as the result of a final
determination or other action by the IRS or any other taxing
authority, the tax liability of the Company or one of its
subsidiaries for a period after the Closing Date is
increased because of the erroneous timing of an item of
income, deduction, or credit which, when corrected, produces
a tax benefit available to Seller or any of its affiliates
in a tax period including or ending before the Closing Date,
Seller shall pay to Purchaser upon its receipt or
application of all or any portion of such tax benefit an
amount equal to the amount of such tax benefit or portion
thereof (including any interest related thereto). If, as
the result of a final determination or other action by the
IRS or any other taxing authority, the tax liability of the
Company or one of its subsidiaries for a period prior to the
Closing Date is increased because of the erroneous timing of
an item of income, deduction, or credit, which, when
corrected, produces a tax benefit available to Purchaser or
any of its affiliates in a tax period beginning after the
Closing Date, Purchaser shall pay to Seller upon its receipt
or application of all or any portion of such tax benefit an
amount equal to the amount of such tax benefit or portion
thereof (including any interest related thereto).
12.3 Section 338(h)(10) Election. Seller
acknowledges that the purchase of the Stock by Purchaser
(and the stock of its subsidiaries by virtue of the election
under Section 338(h)(10) of the Code) constitutes a
"qualified stock purchase" for purposes of Section 338(d)(3)
of the Code. Seller and Purchaser agree to join in making
an election under Section 338(h)(10) of the Code with
respect to the purchase. Seller shall execute, at the
request of Purchaser, Internal Revenue Service Form 8023 and
shall provide Purchaser with such information reasonably
required by Purchaser for purposes of completing such form.
Seller shall attach a copy of such Form 8023 to the
consolidated Federal income tax return of the Elgin
Consolidated Group for the taxable period including the
Closing Date and otherwise shall cooperate fully with
Purchaser in making the election under Section 338(h)(10) of
the Code. The Purchase Price shall be allocated among the
assets of the Company and its subsidiaries in accordance
with Schedule 12.3 to this Agreement. A draft of Schedule
12.3, estimated as of February 28, 1995, is attached hereto,
and a final version of Schedule 12.3 will be agreed upon by
the parties, and attached hereto, as soon as practicable
after the Closing (which shall be based on the attached
estimate). Following the Closing, Purchaser and Seller
shall not take any position inconsistent with such
allocation (or any adjustment to such allocations) on their
respective U.S. Federal, state and local income tax returns
and other filings. Any adjustment to the Purchase Price
shall be allocated among the assets of the Company and its
subsidiaries in accordance with Temp. Treas. Reg.
1.338(b)-3T(d) or Temp. Treas. Reg. 1.338(b)-3T(e),
whichever is applicable.
12.4 Tax Cooperation. Purchaser and Seller will
cooperate fully with each other in connection with (a) the
preparation and filing of any Federal, state or local tax
returns for the operations of the Company and its
subsidiaries within the Seller Tax Period, and (b) any audit
examination by any government taxing authority of the
returns referred to in clause (a). Such cooperation shall
include, without limitation, the furnishing or making
available of records, books of account or other materials of
the Company and its subsidiaries necessary or helpful for
the defense against assertions of any taxing authority as to
any tax returns which include operations of the Company and
its subsidiaries within the Seller Tax Period. Seller shall
promptly notify Purchaser and the Company of any proposed
adjustment of any item on any tax return of the Elgin
Consolidated Group for any period included in the Seller Tax
Period, if such proposed adjustment may affect the tax
liability of the Company or Purchaser for any period
beginning after the close of the Seller Tax Period,
including, without limitation, any proposed adjustments to
the allocation among assets of the Company and its
subsidiaries as the result of any election under Section
338(h)(10) of the Code. Seller shall advise Purchaser of
the status of any conferences, meetings and proceedings with
tax authorities or appearances before any court pertaining
to such adjustment or adjustments, and shall advise
Purchaser of the outcome of such proceedings. However,
nothing herein shall entitle Purchaser to interfere with
Seller's right to make any judgments or to take any actions
it deems appropriate in connection with the disposition of
any such proposed adjustments.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses. Each party hereto shall bear its
own expenses with respect to this transaction.
13.2 Amendment. This Agreement may be amended,
modified or supplemented only in writing signed by each of
the parties hereto.
13.3 Notices. Any written notice to be given
hereunder shall be deemed given: (a) when received if given
in person or by courier; (b) on the date of transmission if
sent by telex, telecopy or other wire transmission (receipt
confirmed); (c) three (3) days after being deposited in the
U.S. mail, certified or registered mail, postage prepaid;
and (d) if sent by a nationally recognized overnight
delivery service, the day following the date given to such
overnight delivery service (specified for overnight
delivery). All notices shall be addressed as follows:
If to Seller, addressed as follows:
Elgin National Industries, Inc.
120 South Riverside Plaza
Suite 500
Chicago, Illinois 60606
Attention: Wayne J. Conner
Telephone: (312) 454-1900
Facsimile: (312) 236-2668
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Paul W. Theiss, Esq.
Telephone: (312) 782-0600
Facsimile: (312) 701-7711
If to Purchaser, addressed as follows:
Hallmark Holdings, Inc.
c/o Katy Industries, Inc.
6300 South Syracuse Way
Suite 300
Englewood, Colorado 80111
Attention: John R. Prann
Telephone: (303) 290-9300
Facsimile: (303) 290-9344
with a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Arthur R. Miller, Esq.
Telephone: (312) 807-4600
Facsimile: (312) 807-3900
13.4 Waivers. The failure of a party to require
performance of any provision hereof shall not affect its
right at a later time to enforce the same. No waiver by a
party of any term, covenant, representation or warranty
contained herein shall be effective unless in writing. No
such waiver in any one instance shall be deemed a further or
continuing waiver of any such term, covenant, representation
or warranty in any other instance.
13.5 Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
13.6 Headings. The headings preceding the text of
Articles and Sections of this Agreement and the Schedules
and Exhibits thereto are for convenience only and shall not
be deemed part of this Agreement.
13.7 Applicable Law. This Agreement shall be
governed by and construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the
State of Illinois.
13.8 Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their
respective successors and assigns, provided, however, that
no assignment of either party's rights or obligations may be
made without the written consent of the other party, which
consent shall not be unreasonably withheld or delayed.
13.9 No Third Party Beneficiaries. This Agreement
is solely for the benefit of the parties hereto and those
Persons (or categories of Persons) specifically described
herein, and, except as aforesaid, no provision of this
Agreement shall be deemed to confer any remedy, claim or
right upon any third party.
13.10 Forum. Each party agrees that any suit,
action or proceeding brought by such party against the other
in connection with or arising from this Agreement shall be
brought solely in the Circuit Court of Cook County or the
United States District Court for the Northern District of
Illinois, and each party consents to the jurisdiction and
venue of each such court.
13.11 Schedules. Purchaser agrees that any
disclosure by Seller in any Schedule attached hereto shall
constitute a disclosure under each other Schedule referred
to herein, whether or not such disclosure is specifically
referenced within such other Schedule.
13.12 Incorporation. The respective Schedules and
Exhibits attached hereto and referred to herein are
incorporated into and form a part of this Agreement.
13.13 Complete Agreement. This Agreement
constitutes the complete agreement of the parties with
respect to the subject matter hereof and supersedes all
prior discussions, negotiations and understandings.
13.14 Disclaimer. Seller disclaims any
representations or warranties to Purchaser except as
specifically set forth in this Agreement. In particular,
Seller disclaims any representation or warranty with respect
to any information concerning the Company or any of its
subsidiaries not expressly represented and warranted to in
this Agreement, including, without limitation, (a) the
information set forth in (i) the Confidential Information
Memorandum distributed by BHC with respect to the Company,
or (ii) that certain slide presentation given to Purchaser
or copies of such slides delivered to Purchaser or (b) any
financial projection or forecast relating to the Company or
any of its subsidiaries. With respect to any such
projection or forecast delivered by or on behalf of Seller
to Purchaser, Purchaser acknowledges that (x) there are
uncertainties inherent in such projections and forecasts and
(y) Purchaser is familiar with such uncertainties and takes
full responsibility for making its own evaluation of the
adequacy and accuracy of all such projections and forecasts;
provided, however, that Seller in no way limits the
representations, warranties, covenants or other agreements
made by Seller hereunder. Purchaser shall have no claim
against Seller, and Seller shall have no liability to
Purchaser, with respect to any such disclaimed information,
including, without limitation, the Confidential Information
Memorandum, the slide presentation given to Purchaser or
copies of such slides delivered to Purchaser or any
financial projection or forecast relating to the Company or
any of its subsidiaries.
13.15 Knowledge Defined. For purposes of this
Agreement, (a) the term "Knowledge of Seller" or variations
thereof shall be limited to the actual knowledge of those
individuals and entities listed on Schedule 13.15(a) and (b)
the term "Knowledge of Purchaser" or variations thereof
shall be limited to the actual knowledge of those
individuals and entities listed on Schedule 13.15(b).
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed and delivered on April 5,
1995.
ELGIN NATIONAL INDUSTRIES, INC.
By:
Name:
Title:
HALLMARK HOLDINGS, INC.
By:
Name:
Title:
AGREEMENT OF ELGIN NATIONAL INDUSTRIES, INC.
Seller, for itself and on behalf of its shareholders,
successors and assigns, hereby covenants and agrees not to
liquidate, dissolve, or otherwise go out of existence for a
period of four (4) years following the Closing Date without
making adequate arrangements for satisfaction of its
obligations hereunder.
ELGIN NATIONAL INDUSTRIES, INC.
By:
Name:
Title:
AGREEMENT OF HALLMARK HOLDINGS, INC.
Purchaser, for itself and on behalf of its
shareholders, successors and assigns, hereby covenants and
agrees not to liquidate, dissolve, or otherwise go out of
existence for a period of four (4) years following the
Closing Date without making adequate arrangements for
satisfaction of its obligations hereunder.
HALLMARK HOLDINGS, INC.
By:
Name:
Title:
SALES AGREEMENT
between
Katy Industries, Inc., 6300 S. Syracuse Way, Suite 300,
Englewood, Colorado 80111-6723
- the Seller -
and
Pegasus Beteiligungen Aktiengesellschaft
Bahnhofstrasse 55-57, 69115 Heidelberg,
- the Buyer -
Preamble
(1) The Seller holds an interest of 75% in Schoen & Cie AG,
Pirmasens, the capital stock of which is 12 million DM.
Of the total of 240,000 shares the Seller holds
180,000 bearer shares with a nominal value of
50.00 DM each.
(2) The shares held by the Seller referred to in subsection 1 are
held in Seller's custody account maintained with
Commerzbank AG, Frankfurt am Main.
(3) Furthermore, the Seller holds certain rights vis a vis Schoen &
Cie hereinafter referred to as Income certificate.
(4) The parties believe that the Buyer possesses certain expertise
which will be valuable in assisting Schoen & Cie AG to
develop and implement strategies necessary for the long
term success of the company.
Now therefore the parties hereto agree on the following
Sales Agreement
1
(1) The Seller hereby sells to the Buyer 90,000 shares of Schoen &
Cie AG together with the respective coupons
(Nos. 2 - 20) and renewal coupon.
(2) The Seller shall be liable for the aggregate amount of
aforesaid shares and shall guarantee that aforesaid shares are
free of any third-party rights and/or any preemption rights.
Any further liability on the part of the Seller is hereby
excluded.
(3) In addition, the Seller hereby sells 50% of its rights based on
and derived from its Income Certificates.
2
(1) The purchase price for the shares and the rights pursuant to
1 subsection 2 shall be one Deutschmark.
(2) The purchase price shall increase by 2/3 of the proceeds
realized by the Buyer as result of a possible sale of the shares
pursuant to 1 subsection 2 to a third party within a period of
time of four years as from conclusion of this Agreement. The
purchase price shall further increase by 2/3 of such amounts
as are realized by the Buyer from the rights pursuant to 1
subsection 3.
(3) Any portions of the purchase price pursuant to subsection 2
shall be due upon expiration of a period of time of four weeks
after receipt of proceeds.
(4) In the event the Buyer shall not have sold the shares within a
period of four years from the conclusion of this Agreement,
then the Buyer and the Seller will in good faith attempt to
reach agreement regarding a mutually agreeable method of
addressing the situation. If the parties are unable to reach
agreement, then the provisions of subsection 2 shall remain in
effect beyond the end of the four year period referred to until
the shares are disposed of. However, the Seller shall have the
right to seek a purchaser for two-thirds (2/3) of the shares
held by the Buyer and, if successful, the Seller shall be
entitled to retain the remaining one-third (1/3) of the
shares without further obligation upon the eventual sale of
those shares.
(5) The provisions of the last sentence of subsection 2 relating
to amounts realized by the Buyer with respect to the rights
shall continue indefinitely.
(6) Any exchange of the shares (and/or the rights) for other
shares or securities (for example, in a merger) shall not be
considered a sale for purposes of subsection 2.
3
(1) The Seller and the Buyer hereby agree that the ownership in
the aforesaid shares shall pass to the Buyer.
(2) The Seller hereby assigns its claim for surrender of the shares
held in its custody account maintained with Commerzbank
AG to the Buyer. The Buyer hereby accepts said assignment.
(3) The Seller hereby assigns its rights based on and derived from
aforesaid Income Certificates to the Buyer. The Buyer
accepts said assignment.
4
This Agreement shall be governed by the law of the Federal Republic
of Germany. Place of performance and place of jurisdiction shall be
Frankfurt am Main.
Seller Buyer
KATY INDUSTRIES, INC. PSGASUS
BETEILIGUNGEN AG
By: /s/ Arthur R. Miller
By:
General Counsel and
Authorized Agent
NB: Preemption right or right of preemption [Vorkaufsrecht] herein
means the right of purchasing the shares before or in preference
of third parties
