<PAGE>
Securities and Exchange Commission
Washington, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - June 28, 1995
Minnesota Power & Light Company
A Minnesota Corporation
Commission File No. 1-3548
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 30, 1995, Minnesota Power & Light Company (Minnesota Power or
Company) sold its interest in the pulp and paper business to Consolidated
Papers, Inc. (CPI) for $118 million in cash, plus CPI's assumption of certain
debt and lease obligations. CPI has agreed to indemnify the Company for any
payments the Company may make as a result of the Company's existing obligation
relating to the Lake Superior Paper Industries' operating lease. The sale
price is subject to final audit adjustments.
Effective July 1, 1995, Minnesota Power became an 80 percent owner of
ADESA Corporation (ADESA) for $167 million in cash. ADESA, headquartered in
Indianapolis, Indiana, owns and operates auto redistribution facilities and
performs related services through which used cars and other vehicles are sold
to franchised automobile dealers and licensed used car dealers. Sellers at
ADESA's auctions include domestic and foreign auto manufacturers, car dealers,
fleet/lease companies, banks and finance companies. Proceeds from the sale of
the pulp and paper business combined with proceeds from the sale of securities
investments were used to fund the purchase of ADESA.
In February 1995 the Company signed a merger agreement with ADESA which
includes employment agreements and put and call agreements with ADESA's four
top managers. The put and call agreements provide ADESA management the right to
sell to Minnesota Power, and Minnesota Power the right to purchase, ADESA
management's 20 percent retained ownership interest in ADESA, in increments
during the years 1997, 1998 and 1999, at a price based on ADESA's financial
performance.
Item 5. Other Events.
On June 28, 1995, Southern States Utilities (SSU) filed with the Florida
Public Service Commission (FPSC) a request for increased rates. SSU requested a
final annual rate increase of $18.1 million, or 39 percent and an interim rate
increase of $12.4 million, or 29.6 percent on an annual basis. The interim
increase will become effective 60 days after the FPSC determines that the
filing has met the minimum filing requirements. The Company anticipates interim
rates to become effective in September 1995. The FPSC is expected to make its
decision on final rates in mid 1996. Interim rates are subject to refund with
interest.
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of ADESA Corporation
The consolidated financial statements of ADESA Corporation together with
the report thereon of Ernst & Young LLP dated February 23, 1995, for the year
ended December 31, 1994, are incorporated herein by reference and filed as
exhibit 99(a) in this Form 8-K.
The consolidated financial statements of ADESA Corporation for the quarter
ended March 31, 1995, are incorporated herein by reference and filed as exhibit
99(b) in this Form 8-K.
The consolidated financial statements of ADESA Corporation for the period
ended June 30, 1995, are anticipated to be filed in Minnesota Power's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(b) Pro forma financial information
Pro forma financial statements reflecting the acquisition of ADESA
Corporation for the year ended December 31, 1994, and the interim period ended
June 30, 1995, are anticipated to be filed in Minnesota Power's Quarterly
Report on Form 10-Q for the period ended June 30, 1995.
(c) Exhibits
2(a) Agreement for Sale and Purchase of Assets of LSPI Fiber Co. and
Stock of Superior Recycled Fiber Corporation dated May 8, 1995.
2(b) Agreement for Sale and Purchase of Stock of Pentair Duluth Corp.
and Minnesota Paper Incorporated dated May 8, 1995.
* 2(c) Agreement and Plan of Merger by and among Minnesota Power & Light
Company, AC Acquisition Sub, Inc., ADESA Corporation and Certain
ADESA Management Shareholders dated February 23, 1995, (filed as
Exhibit 2 to Minnesota Power & Light Company's Current Report on
Form 8-K dated March 31, 1995, File No. 1-3548).
99(a) Audited Financial Statements of ADESA Corporation for the year ended
December 31, 1994.
99(b) Unaudited Financial Statements of ADESA Corporation for the quarter
ended March 31, 1995.
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* Incorporated herein by reference as indicated.
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<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minnesota Power & Light Company
-------------------------------
(Registrant)
July 12, 1995 D.G. Gartzke
-------------------------------
D.G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
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<PAGE>
Exhibit 2(a)
<PAGE>
AGREEMENT FOR SALE AND PURCHASE
OF
ASSETS OF
LSPI FIBER CO.
AND
STOCK OF
SUPERIOR RECYCLED FIBER CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
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1. Definitions 1
2. Purchase and Sale Transaction 6
(a) Purchase of Assets 6
(b) Assumed Liabilities and Obligations 6
(c) Purchase of Stock 6
3. Purchase Price 6
4. Payment 7
5. Assumption of Liabilities 8
6. Closing 9
7. Parents' Representations, Warranties and Covenants 9
(a) Organization and Authority of Seller 9
(b) Valid and Enforceable Agreement 9
(c) Organization of Subsidiaries 10
(d) Financial Statements 11
(e) No Material Change 11
(f) Leases 12
(g) Title to Personal Property 12
(h) Real Estate 12
(i) Plant and Equipment 14
(j) Intellectual Property 14
(k) Employee Matters 14
(l) Litigation 14
(m) Compliance with Laws 14
(n) Material Contracts 15
(o) Licenses and Permits 15
(p) Insurance 15
(q) Liabilities to PBGC or Multiemployer or
Multiple Employer Plans 15
(r) Transactions with Related Parties 15
(s) Bank Accounts 16
(t) Tax Matters 16
(u) Accounts Receivable 18
(v) Inventory 18
(w) Motor Vehicles 19
(x) Product Warranty 19
8. Buyer's Representations and Warranties 19
(a) Organization 19
(b) Authority 19
(c) Valid and Enforceable Agreement 19
(d) No Insolvency 20
(e) Financial Statements 20
(f) Investment Intent 20
9. Actions Pending Closing 20
(a) Operations 20
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(b) Access to Records 21
(c) Access to Facilities 21
(d) Hart-Scott-Rodino Filings 21
(e) Notice of Developments 21
(f) SRFI Restrictions 22
(g) Best Efforts 22
10. Conditions Precedent to Obligations of Buyer 22
(a) No Errors; Performance of Obligations 22
(b) Officer's Certificates 22
(c) Certified Copy of Resolutions 22
(d) Opinion of Sellers' and Parent's Counsel 22
(e) Injunctions 23
(f) Clayton Act Matters 23
(g) Environmental Matters 23
(h) SRFI Restrictions 23
(i) Consents 24
(j) Financing 24
(k) FIRPTA Certificate 24
(l) Assignments of Contracts 24
(m) Purchase of LSPI and Niagara Paper 24
(n) Real Estate Consents 24
(o) Title Insurance and Surveys 24
(p) Note Purchase Agreement 26
(q) Other Matters 26
11. Conditions Precedent to Obligations of Sellers 26
(a) No Errors; Performance of Obligations 26
(b) Officer's Certificate 26
(c) Certified Copy of Resolutions 27
(d) Opinion of Buyer's Counsel 27
(e) Injunctions 27
(f) Clayton Act Matters 27
(g) Financing 27
(h) Purchase of LSPI and Niagara Paper 27
(i) Note Purchase Agreement 27
(j) Other Matters 27
12. Broker 28
13. [Intentionally Left Blank] 28
14. Confidential Information 28
15. Indemnification 29
16. [Intentionally left blank] 31
17. Expenses 31
18. Environmental Matters 31
(a) Warranty 31
(b) Indemnity 33
(c) Special Provisions 33
(d) Exclusive Remedy 34
(e) Inspection of Books and Records 34
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19. Termination of Agreement 35
20. Announcements 35
21. Records 35
22. Assistance after Closing 36
23. Tax Matters; Payment of Taxes 36
(a) Tax Returns 36
(b) Apportionment of Income 36
(c) Allocation of Taxes 36
(d) Indemnity 37
(e) Post-Closing Elections 38
(f) Control of Contest 38
(g) General 38
(h) Sales and Transfer Taxes 38
(i) Tax Effective Time 38
(j) Survival 39
(k) Tax Agreements 39
24. Section 338(h)(10) Election 39
25. Limitations on Liability 40
26. Amendment and Waiver 41
27. Notices 41
28. Parties in Interest 43
29. Further Assurances 43
30. No Waivers 43
31. Governing Law 43
32. Severability 43
33. Miscellaneous 43
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<PAGE>
THIS AGREEMENT is made and entered into as of the 8th day of May, 1995 by and
among Pentair, Inc., a Minnesota corporation ("Pentair"), Minnesota Power &
Light Company, a Minnesota corporation ("Minnesota Power"), Synertec, Inc., a
Minnesota Corporation ("Synertec"), LSPI Fiber Co., a joint venture organized
under the general partnership laws of the state of Minnesota ("LSPI Fiber"),
and Consolidated Papers, Inc., a Wisconsin corporation ("Buyer").
WHEREAS, Pentair is the owner of all of the issued and outstanding capital
stock of Duluth Holdings (Paper) Corp., a Minnesota corporation ("Duluth
Holdings") which owns all of the issued and outstanding stock of Pentair Duluth
Pulp Corp., a Minnesota corporation ("Pentair Duluth Pulp"); and
WHEREAS, Minnesota Power is the owner of all of the issued and outstanding
capital stock of Minnesota Pulp Incorporated, a Minnesota corporation
("Minnesota Pulp"), which owns all of the issued and outstanding stock of
Minnesota Pulp Incorporated II, a Minnesota corporation ("Minnesota Pulp II");
and
WHEREAS, Pentair Duluth Pulp and Minnesota Pulp II each own a 50% equity
interest in LSPI Fiber; and
WHEREAS, Minnesota Power is the owner of all of the issued and outstanding
stock of Synertec which owns all of the issued and outstanding capital stock of
Superior Recycled Fiber Corporation, a Minnesota corporation ("SRFC"); and
WHEREAS, LSPI Fiber owns a 24% equity interest, and SRFC owns a 76% equity
interest, in Superior Recycled Fiber Industries, a joint venture organized
under the general partnership laws of the state of Minnesota ("SRFI"); and
WHEREAS, Synertec and LSPI Fiber (collectively, "Sellers") desire to sell
and Buyer desires to purchase from Sellers all of the issued and outstanding
capital stock of SRFC and all of the assets of LSPI Fiber in accordance with
the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and conditions herein contained, the parties agree as follows:
1. Definitions. The terms below shall have the following
meanings under this Agreement unless the context clearly requires otherwise:
(a) "Affiliates" means Duluth Holdings and Pentair Duluth Pulp, in the
case of Pentair; and Minnesota Pulp, Minnesota Pulp II, Synertec and SRFC, in
the case of Minnesota Power; and all of the foregoing, in the case of Pentair
and Minnesota Power.
(b) "Allocations" shall have the meaning set forth in Section 24(b).
<PAGE>
(c) "Assumed Liabilities and Obligations" means the liabilities set
forth in Section 2(b).
(d) "CERCLA" shall have the meaning set forth in Section 18(a)(iii).
(e) "Clayton Act" means 15 U.S.C. Section 12, et seq., as amended, and
the rules and regulations promulgated thereunder from time to time.
(f) "Closing" means the actual transfer of the Purchased Interests, the
delivery of documents providing for the assumption of the Assumed Liabilities
and Obligations, and the exchange and delivery by the parties of the other
documents and instruments contemplated by this Agreement.
(g) "Closing Date" means June 30, 1995, or such later month end date as
mutually agreed upon by the parties.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Commitments" shall have the meaning set forth in Section 10(o)(i).
(j) "Confidential Information" means all information designated as
"Evaluation Material" in the confidentiality letter agreement dated August 26,
1994 between Buyer and CS First Boston Corp., acting as agent for Pentair and
in the confidentiality letter agreement dated January 9, 1995 between Buyer and
PaineWebber Incorporated, acting as agent for Minnesota Power, copies of which
are attached as Schedule 1(j).
(k) "Election" shall have the meaning set forth in Section 24.
(l) "Election Form" shall have the meaning set forth in Section 24(c).
(m) "Environmental Cleanup" shall have the meaning set forth in Section
18(c)(iii).
(n) "Environmental Laws" means federal, state, regional, county and
local laws, statutes, rules, regulations and ordinances and common law
requirements as of the Closing Date relating to the environment, including,
without limitation, those relating to the public health or safety aspects
thereof, or to nuisance, trespasses, releases, discharges, emissions or
disposals to air, water, land or groundwater, to the withdrawal or use of
groundwater, to the use, handling or disposal of polychlorinated biphenyls
(PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or
management of Hazardous Material (including, without limitation, petroleum, its
derivatives, by-products or other hydrocarbons), to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances, to the
transportation, storage, disposal, management or release of gaseous or liquid
substances, and any regulation, order, injunction, judgment, declaration,
notice or demand issued thereunder.
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(o) "GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with
prior financial practice of LSPI Fiber, SRFC, SRFI, Pentair or Minnesota Power
(and their respective Affiliates), as the case may be.
(p) [Intentionally left blank]
(q) "Hazardous Material" means and includes (a) petroleum or petroleum
products, including crude oil, (b) any asbestos insulation or other material
composed of or containing asbestos, and (c) any hazardous, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, any so-called state or local "Superfund" or "Superlien" law, Section
115B.02 of the Minnesota Statutes, or any other Environmental Laws.
(r) "Indemnitee" shall have the meaning set forth in Section 15(e).
(s) "Indemnitor" shall have the meaning set forth in Section 15(e).
(t) "Intellectual Property" means all patents, utility patents and
design patents and registrations therefor, trademarks, trade names, trademark
rights and trademark registrations, copyrights and licenses listed on Schedule
1(t) attached, as well as all technical documentation reflecting engineering
and production data, design data, plans, specifications, drawings, technology,
know-how, trade secrets, software (whether owned or licensed), manufacturing
processes and all documentary evidence thereof relating to the SRFI Group and
its business.
(u) "Knowledge" of Sellers or the "best knowledge" of Sellers when
modifying any representation or warranty shall mean that: (i) no officer or
other manager, reporting directly to the President of any of Sellers or the
Parents (who are involved in or responsible for operations of the SRFI Group or
the LSPI Group); and (ii) no officer or other manager of any member of the SRFI
Group and the LSPI Group, including the chief financial officer and the manager
of environmental affairs, if any, of Sellers, the Parents or of any member of
the SRFI Group or the LSPI Group, has any knowledge that such representation
and warranty is not true and correct to the same extent as provided therein and
that:
(i) Sellers, the Parents and each member of the SRFI Group has
exercised due diligence and has made appropriate investigations and
inquiries of the officers and business records of each of Sellers, the
Parents, the SRFI Group and the LSPI Group; and
(ii) nothing has come to the attention of Sellers, the Parents or
of any member of the SRFI Group in the course of such investigation and
review or otherwise which would reasonably cause such party, in the
exercise of due diligence, to believe that such representation and
warranty is not true and correct.
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<PAGE>
Such terms shall have a cognate meaning as applied to Buyer.
(v) "LSPI Group" means Pentair Duluth Corp., a Minnesota corporation,
Minnesota Paper Incorporated, a Minnesota corporation and Lake Superior Paper
Industries, a joint venture organized under the general partnership laws of the
state of Minnesota.
(w) "LSPI Supply Contract" means the Pulp Supply Agreement dated as of
August 9, 1993, between LSPI Fiber and Lake Superior Paper Industries, a joint
venture organized under the general partnership laws of the state of Minnesota.
(x) "MADSP" shall have the meaning set forth in Section 24(b).
(y) "Material Contracts" means those contracts and arrangements listed
on Schedule 7(n).
(z) "Net Book Value" means the sum of: (i) with respect to LSPI Fiber,
the difference between (x) the Purchased Assets less (y) all of the liabilities
of LSPI Fiber set forth on the balance sheet of LSPI Fiber as of December 31,
1994 or the Closing Date, as appropriate; and (ii) with respect to the Stock,
the difference between (x) the assets of SRFC (including therein, its
investments in the net assets of SRFI) less (y) all liabilities of SRFC
excluding current income tax accruals, deferred tax accruals, and subordinated
and other debt, whether current or long-term, owing to Sellers, Parents, or
Affiliates, all as reflected on the balance sheet of SRFC as of December 31,
1994 or the Closing Date, as appropriate.
(aa) "1933 Act" shall have the meaning set forth in Section 8(f).
(ab) "Note Purchase Agreement" means the Note Purchase Agreement between
SRFC, SRFI and New York Life Insurance Company dated as of December 30, 1993,
as amended and all of the Security Documents collateral thereto, as defined in
the Note Purchase Agreement.
(ac) "Owned Real Estate" shall have the meaning set forth in Section
7(h)(i).
(ad) "Parents" shall mean both of Pentair and Minnesota Power and
"Parent" shall mean any one of them.
(ae) "Permitted Exceptions" shall have the meaning set forth in
Section 10(o)(i).
(af) "Purchased Assets" shall have the meaning set forth in Section 2(a).
(ag) "Purchased Interests" means the Stock and the Purchased Assets.
(ah) "Real Estate" means all real property, whether owned, under contract
to purchase, or leased by the SRFI Group, including all land, buildings,
structures, easements, appurtenances and privileges relating thereto, and all
leaseholds, leasehold
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<PAGE>
improvements, fixtures and other appurtenances and options, including options
to purchase and renew, or other rights thereunder, used or intended for use in
connection with the business of the SRFI Group.
(ai) "Report" shall have the meaning set forth in Section 24(b).
(aj) "Return(s)" means any return (including any consolidated or combined
return), report, claim for refund, information return or statement, relating to
any Tax, including any schedule or attachment thereto.
(ak) "SRFI Group" means all of LSPI Fiber, SRFC and SRFI.
(al) "SRFI Group Financial Statements" means (i) the audited financial
statements (for the year ended December 31, 1994) of SRFI and SRFC, (ii) the
unaudited financial statements (for the year ended December 31, 1993) of SRFI
and SRFC, (iii) the unaudited internal financial statements of the other
members of the SRFI Group for the fiscal years ended December 31, 1993 and
1994, (iv) the combined unaudited balance sheet for the fiscal year ended
December 31, 1994 reflecting the assets and liabilities of each member of the
SRFI Group as of those dates, with all applicable adjustments and eliminations
and as combined, and (v) the combined unaudited income statement for the year
ended December 31, 1994 reflecting all items of income and expense for each
member of the SRFI Group, with all applicable adjustments and eliminations and
as combined.
(am) "SRFI Pledges" means the pledges by LSPI Fiber and all of the
Affiliates of all of their interests, direct or indirect, including the stock
of Pentair Duluth Pulp, Minnesota Pulp and SRFC, in SRFI and the entities which
own such direct or indirect interests, all pursuant to the Note Purchase
Agreement.
(an) "SRFI Put and Call Rights" means the rights of each Parent to put
and the rights of the other Parent to call, each Parent's interest in its
respective Affiliates and in LSPI Fiber pursuant to Section 2 of the Amended
and Restated Agreement to Restrict Transfer of Stock dated January 19, 1994 and
Section 12 of the LSPI Fiber Joint Venture Agreement dated May 28, 1993, as
amended December 30, 1993 and January 18, 1994.
(ao) "SRFI Restrictions" means, with respect to the shares of SRFC and to
LSPI Fiber, the SRFI Put and Call Rights, the SRFI Rights of First Refusal and
the SRFI Pledges.
(ap) "SRFI Rights of First Refusal" means the right of first refusal
granted by each Parent to the other to purchase its stock in Duluth Holdings
and Minnesota Pulp, respectively, pursuant to Section 2 of the Restated
Agreement to Restrict Transfer of Stock dated January 19, 1994.
(aq) "Statement of Net Book Value" means the combined audited balance
sheet of the SRFI Group as of the Closing Date in substantially the form
reflected in
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Schedule 3.2 from which the calculation of the purchase price of the Purchased
Interests will be made in accordance with Section 3 hereof.
(ar) "Stock" means all of the issued and outstanding capital stock of
SRFC.
(as) "Surveys" shall have the meaning set forth in Section 10(o)(ii).
(at) "Survey Defect" shall have the meaning set forth in Section
10(o)(iii).
(au) "Tax" or "Taxes" means all income, gross receipts, sales, use,
employment, franchise, profits, property or other taxes, fees, stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority with respect thereto.
(av) "Title Company" shall have the meaning set forth in Section
10(o)(i).
(aw) "Title Policy" shall have the meaning set forth in Section
10(o)(i).
(ax) "Unpermitted Exception" shall have the meaning set forth in
Section 10(o)(iii).
2. Purchase and Sale Transaction. (a) Purchase of Assets. Subject to
the terms and conditions herein stated, LSPI Fiber shall sell, transfer, assign
and deliver to Buyer and Buyer shall purchase from LSPI Fiber, at the Closing,
all of the assets of LSPI Fiber including, but not limited to, its 24%
partnership interest in SRFI (collectively, the "Purchased Assets").
(b) Assumed Liabilities and Obligations. At the Closing, Buyer
shall assume and agree to satisfy and perform to the extent not satisfied or
performed prior to the Closing Date, without any cost or charge to Sellers, all
obligations of LSPI Fiber as set forth on Schedule 5 and under the Material
Contracts (collectively, the "Assumed Liabilities and Obligations").
(c) Purchase of Stock. Subject to the terms and conditions
herein stated, Synertec shall sell, transfer, assign and deliver to Buyer, and
Buyer shall purchase from Synertec, at the Closing, all of Synertec's right,
title and interest in the Stock.
3. Purchase Price. The aggregate purchase price to be paid by Buyer to
Sellers for the purchase of all the Stock and the Purchased Assets, shall be:
(a) $65,300,000;
(b) increased for any increase, or decreased for any decrease, in
the Net Book Value from December 31, 1994 to the Closing Date; and
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(c) the assumption by Buyer of the Assumed Liabilities and
Obligations.
The aggregate purchase price set forth above shall be paid to Sellers as set
forth on Schedule 3.1.
The Net Book Value shall be determined in accordance with GAAP as set
forth on Schedule 3.2, which Schedule sets forth sample calculations of the Net
Book Value as of December 31, 1994 and March 31, 1995 and the exceptions to
GAAP used in calculating Net Book Value.
Within sixty (60) days following the Closing Date, Sellers shall prepare
and deliver to Buyer a Statement of Net Book Value, which shall be audited by
SRFC's auditors based upon the audits of SRFI's, SRFC's and LSPI Fiber's books,
including an inventory taken by the SRFI Group beginning at 7:00 a.m. on the
Closing Date and a review of the liabilities as of the Closing Date. The
taking of such inventory may be observed by Buyer and Buyer's auditors. The
Statement of Net Book Value shall have attached thereto an auditor's report in
the form attached as Schedule 3.3. To the extent possible, Sellers will
provide Buyer with a preliminary draft of the Statement of Net Book Value.
Buyer and Parents will in good faith attempt to resolve any disputes with
respect to such calculation before the final Statement of Net Book Value is
rendered.
Buyer may review the Statement of Net Book Value and Sellers shall make
available the work papers of SRFC's auditors to Buyer and its accountants and
Buyer and its accountants may make inquiries of representatives of Sellers' and
SRFC's auditors. Buyer shall give written notice to Parents of any objection
to the Statement of Net Book Value within thirty (30) days after Buyer's
receipt thereof. The notice shall specify in reasonable detail the items in
the Statement of Net Book Value to which Buyer objects and shall provide a
summary of Buyer's reasons for such objections.
Any dispute between Buyer and either or both Parents with respect to the
Statement of Net Book Value which is not resolved within fifteen (15) business
days after receipt by Parents of the written notice from Buyer shall be
referred for decision to Ernst & Young LLP who shall cause an audit partner who
is not engaged in providing services to Sellers or Buyer to decide the dispute
within thirty (30) days of such referral. The decision by the partner shall be
final and binding on Parents and Buyer. In resolving any disputed item, such
audit partner may not assign a value to any item greater than the greatest
value for such item claimed by either party or less than the smallest value for
such item claimed by either party. The cost of retaining the audit partner
with respect to resolving disputes as to the Statement of Net Book Value shall
be borne by Parents and Buyer equally, unless such partner determines, based on
his or her evaluation of the good faith of the parties, that the fees should be
borne unequally.
4. Payment. The estimated purchase price shall be paid in U.S. dollars
in immediately available funds on the Closing Date. The amount to be paid on
the Closing Date shall be based upon a preliminary Statement of Net Book Value
delivered to Buyer at least five (5) business days prior to Closing, which
shall be calculated based
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<PAGE>
on the unaudited combined balance sheet of the SRFI Group as of the month end
prior to the Closing Date, prepared by Sellers on a basis consistent with
Schedule 3.2. Following delivery of the final Statement of Net Book Value
under Section 3, any balance due to Sellers or refunds due to Buyer reflected
thereon shall be paid within ten (10) days of such delivery, (unless there is
an objection under Section 3, in which case the amount not in dispute shall be
paid within ten (10) days of such delivery, and the balance in dispute shall be
paid within ten (10) days of the resolution of such objection) together with
interest on such amount from the Closing Date at the announced large business
prime rate of Morgan Guaranty Trust Company of New York.
Except as Buyer may be otherwise advised in writing by Sellers at least
five (5) days prior to any payment, all payments of the purchase price by Buyer
to Sellers at the Closing or any other amounts owed by Buyer to Sellers or
Parents shall be by wire transfer to:
Parent and Bank Account
Affiliates Bank and Routing Number Number
Pentair First Bank National Association
(091000022) to attention of Karen
Johnson xxx-xxxxxxx
Minnesota Pulp First Bank National Association,
Incorporated II (091000022) to attention of Russell
Arneson xxx-xxxxxxx
Synertec First Bank National Association,
(091000022) to attention of Russell
Arneson xxx-xxxxxxx
Except as Parents may be otherwise advised in writing by Buyer at least five
(5) days prior to any payment, payment of any refund to Buyer based on the
final determination of the purchase price pursuant to Section 3 or any other
amounts owed by Sellers or Parents to Buyer hereunder shall be made by wire
transfer to Harris Trust and Savings Bank - Consolidated Papers, Inc., Account
No. xxxxxxx (ABA wire transfer routing number xxxx-xxxx-x), marked to the
attention of J.R. Matsch.
All wire transfers shall be sent by 10:00 a.m. Minneapolis time on the
date of such payment, unless otherwise agreed by the parties.
5. Assumption of Liabilities. At Closing, Buyer shall assume and agree
to satisfy and perform, to the extent not satisfied or performed prior to the
Closing Date, without any cost or charge to Sellers, all Assumed Liabilities
and Obligations. If the assumption of the Assumed Liabilities and Obligations
by Buyer under this Section 5 requires the consent of any third party, Buyer
and each respective Parent and/or Seller agree they will use their best efforts
to obtain such written consent to such assumption; provided, however, that in
no event shall Buyer be subject, without its consent, to terms and
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conditions more restrictive than those set forth in the existing obligations of
Parents being assumed.
6. Closing. (a) The Closing shall take place on the Closing Date at
the offices of Henson & Efron, P.A. in Minneapolis, Minnesota, at 9:00 o'clock
a.m., local time, or at such other time and place as may be mutually agreed
upon. Buyer and Sellers each agree they shall use their best efforts and shall
cause all relevant affiliates to use their best efforts to obtain fulfillment
of all conditions to Closing set forth in Sections 10 and 11 hereof.
(b) At the Closing, Sellers shall deliver to Buyer such documents and
instructions as provided herein, including the assignment to Buyer of the LSPI
Supply Contract, reasonably satisfactory in form and substance to Buyer and its
counsel, as shall be required to vest in Buyer good and marketable title, free
and clear of all liens, charges and encumbrances (except as specified in this
Agreement, if any) in and to the Purchased Interests. At the Closing, each
Seller and Parent shall deliver to Buyer a release of all claims of such Seller
and Parent and any person or entity affiliated therewith against all members of
the SRFI Group, in substantially the form of Schedule 6.
(c) At the Closing, Buyer shall deliver to Parents such documents and
instruments as provided herein and such undertakings, and other instruments as
shall be required to cause Buyer to assume the obligations as provided in
Section 5, all of which shall be reasonably satisfactory in form and substance
to Parents and their respective counsel.
7. Parents' Representations, Warranties and Covenants. Subject to the
several liability of Parents provided for in Section 25 hereof, Parents
represent, warrant and covenant to Buyer as follows:
(a) Organization and Authority of Seller. Each of Pentair, Duluth
Holdings, Pentair Duluth Pulp, Minnesota Power, Synertec, Minnesota Pulp,
Minnesota Pulp II and SRFC is a duly organized and validly existing corporation
in good standing under the laws of the state of Minnesota. Each of SRFI and
LSPI Fiber is a duly organized and validly existing joint venture organized as
a general partnership under the laws of the state of Minnesota. Sellers and
Parents have the complete and unrestricted right, power and authority to sell,
transfer and assign all of the Purchased Interests pursuant to this Agreement
and to carry out the transactions contemplated hereby without the consent of
any other person (except as otherwise set forth herein), subject only to the
SRFI Restrictions. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Boards of Directors and the general partners of each Seller
and Parent, respectively.
(b) Valid and Enforceable Agreement. This Agreement constitutes a valid
and binding agreement of each respective Seller and Parent, enforceable in
accordance with its terms, except insofar as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the rights of creditors generally, and
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by general equitable principles. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
the performance of its obligations hereunder materially violates or conflicts
with, results in a material breach of, or constitutes a material default under
(i) to the best knowledge of each respective Seller and Parent, any law, rule,
or regulation, or (ii) subject to the obtaining of necessary consents, which
consents are listed on Schedule 7(b), under various loan agreements,
guarantees, leases, and other agreements (including without limitation the SRFI
Restrictions), any agreement or other restriction of any kind or character to
which such Seller, Parent or any member of the SRFI Group is a party, by which
such Seller, Parent or any member of the SRFI Group is bound, or to which any
of the properties of Sellers, Parents or any member of the SRFI Group is
subject. Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the performance of
its obligations hereunder violates or conflicts with, results in a breach of,
or constitutes a default under, (i) any judgment or order, decree, award or
ruling to which such Seller or Parent is subject, (ii) the Articles of
Incorporation, By-Laws or Partnership Agreement of such Seller or Parent,
excluding the SRFI Restrictions.
(c) Organization of Subsidiaries.
(i) Each member of the SRFI Group is a duly organized and validly
existing corporation or joint venture general partnership, as the case may
be, in good standing, to the extent applicable, in its respective state of
incorporation or organization, as set forth in Schedule 7(c). Each member
of the SRFI Group has all requisite corporate or general partnership power
and authority, as the case may be, to carry on its respective business as
presently conducted in all states in which it currently does business.
Each member of the SRFI Group is duly licensed, registered and qualified
to do business as a foreign corporation, partnership or joint venture and,
to the extent applicable, is in good standing in all jurisdictions in
which the ownership, leasing or operation of its assets or the conduct of
its business requires such qualification, except where the failure to be
so licensed, registered or qualified would not have a material adverse
effect upon its business or assets.
(ii) All of the outstanding shares of capital stock or partnership
interests of SRFC and LSPI Fiber have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned, beneficially and
of record, by Synertec and Minnesota Pulp II and Pentair Duluth Pulp,
respectively, and are free and clear of all liens, claims, encumbrances
and restrictions whatsoever, other than the SRFI Restrictions. SRFC's
entire equity capital consists of 50 authorized shares of common stock, no
par value, of which 50 shares are issued and outstanding. No shares of
capital stock of, or other ownership interest in, SRFC or LSPI Fiber are
reserved for issuance and there are no outstanding options, warrants,
rights, other than the SRFI Restrictions, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise, relating to the
capital stock of, or
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other ownership interest in, either of such corporation or partnership
pursuant to which either of such corporation or partnership is or may
become obligated to issue or exchange any shares of capital stock of, or
other ownership interest in, such corporation or partnership.
(iii) Except as set forth on Schedule 7(c), no member of the SRFI
Group owns, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture (other than in SRFI) or other entity.
(iv) True and complete copies of the agreements containing the SRFI
Restrictions have been furnished or made available to Buyer; each of those
agreements is currently in good standing and in full force and effect and
no default by any Seller, Parent or any member of the SRFI Group party
thereto, or to the best knowledge of Sellers, any other party thereto,
exists thereunder.
(d) Financial Statements.
(i) Attached hereto as Schedule 7(d) are the SRFI Group Financial
Statements. The SRFI Group Financial Statements were (and the Statement
of Net Book Value will be) prepared in accordance with the books and
records of the respective members of the SRFI Group, which were used in
the preparation of each Parent's audited consolidated financial statements
for the fiscal years ended December 31, 1993 and December 31, 1994.
(ii) The SRFI Group Financial Statements were (and the Statement of
Net Book Value will be) prepared in accordance with GAAP consistently
applied, but, except for the audited financial statements of SRFI, do not
include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The Statement of
Net Book Value will adequately reflect all liabilities and obligations of
the SRFI Group required to be shown thereon in accordance with GAAP,
except for those exceptions to GAAP set forth on Schedule 3.2.
(iii) The SRFI Group Financial Statements as of such dates or for
the period ending on such dates present fairly the financial position and
the results of operations of the members of the SRFI Group for the periods
covered thereby. All adjustments, consisting of normal recurring accruals
and eliminations and other similar adjustments, considered necessary for a
fair presentation have been included.
(e) No Material Change. To the best knowledge of Sellers, since
December 31, 1994 there has been no material adverse change in the business,
financial position or results of operations of the SRFI Group taken as a whole.
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(f) Leases. Sellers have furnished or made available to Buyer copies of
all leases and subleases of any personal property used in the operations of the
members of the SRFI Group to which any member of the SRFI Group is a party, all
of which are listed on Schedule 7(f). Except as set forth on Schedule 7(f), no
consents or approvals are required in connection with the transactions
contemplated hereby. No event has occurred which is or, after the giving of
notice or passage of time, or both, would constitute a default under or a
material breach of any lease by any member of the SRFI Group or, to the best
knowledge of Sellers, any other party to such leases. As of the Closing Date,
each lease shall be in full force and effect in accordance with its terms, as
amended from time to time.
(g) Title to Personal Property. Each member of the SRFI Group has
good and marketable title to its respective owned personal property as
reflected in the SRFI Group Financial Statements, free and clear of all liens,
claims, encumbrances and restrictions, except (i) those reflected on
Schedule 7(g), (ii) the lien of the Note Purchase Agreement and (iii) defects
in title, and liens, charges and encumbrances, if any, as do not materially
detract from the value of or otherwise materially impair the current operations
or financial conditions of the SRFI Group, taken as a whole.
(h) Real Estate.
(i) Schedule 7(h) sets forth an accurate legal description of all
Real Estate owned by a member of the SRFI Group for which a member of the
SRFI Group has contracted to become the owner (the "Owned Real Estate"),
including identification of the current owner of fee simple title thereto.
The party identified as the owner on Schedule 7(h) is the legal and
equitable owner of good and marketable title in fee simple absolute to
such Owned Real Estate, including the buildings, structures, spurtracks
(as set forth on Schedule 7(h) and improvements situated thereon and
appurtenances thereto, in each case free and clear of all tenancies and
other possessory interests, security interests, conditional sale or other
title retention agreements, liens, encumbrances, mortgages, pledges,
assessments, easements, rights of way, covenants, restrictions,
reservations, options, rights of first refusal, defects in title,
encroachments and other burdens, except as disclosed on Schedule 7(h).
Except as disclosed on Schedule 7(h), a member of the SRFI Group is in
possession of the Owned Real Estate. All contracts, agreements, options
and undertakings affecting the Owned Real Estate are set forth in Schedule
7(h) and are legally valid and binding and in full force and effect, and
to Seller's knowledge, there are no defaults, offsets, counterclaims or
defenses thereunder, and the SRFI Group has received no notice that any
default, offset, counterclaim or defense thereunder exists. Sellers have
delivered or made available to Buyer correct and complete copies of all
such contracts, agreements, options and undertakings.
(ii) There is no Real Estate leased, subleased or occupied by a
member of the SRFI Group.
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(iii) To the knowledge of Sellers, except as set forth on the Flood
Insurance Rate Maps prepared by the Federal Emergency Management Agency
(Community/Parcel No. 270420/004B; revised as of November 1992), no Real
Estate is located within a flood or lakeshore erosion hazard zone for
which flood insurance is now required under the National Flood Insurance
Program. Neither the whole nor any portion of any Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and
no notice of any such condemnation, requisition or taking has been
received. To the knowledge of Sellers, no such condemnation, requisition
or taking is threatened or contemplated, except as set forth on Schedule
7(h). Sellers have no knowledge of any public improvements which may
result in special assessments against or otherwise affect the Real Estate,
except as set forth on Schedule 7(h).
(iv) The Real Estate is in good operating condition and repair
(reasonable wear and tear excepted) and is suitable and adequate for the
purposes for which it is presently being used.
(v) To the knowledge of Sellers, except as set forth on Schedules
7(h) or 7(o), the Real Estate is in compliance with all applicable zoning,
building, health, fire, water, use or similar statutes, codes, ordinances,
laws, rules or regulations. To the knowledge of Sellers, the zoning of
each parcel of Real Estate permits the existing improvements and the
continuation following consummation of the transaction contemplated hereby
of the business of the SRFI Group as presently conducted thereon. The
SRFI Group has all certificates of occupancy and authorizations required
to utilize the Real Estate. To Sellers' knowledge, the SRFI Group has all
easements and rights necessary to conduct its business, including
easements for all utilities, services, roadway, railway and other means of
ingress and egress. To Sellers' knowledge, the SRFI Group holds such
rights to any off-site facilities as are necessary to ensure compliance in
all material respects with all zoning, building, health, fire, water, use
or similar statutes, codes, ordinances, laws, rules or regulations and all
such rights, to the extent held by the SRFI Group and Sellers, shall be
conveyed as directed by Buyer at Closing. Except as disclosed on Schedule
7(h), to the knowledge of Sellers, no fact or condition exists which would
result in the termination or impairment of access to the Real Estate or
discontinuation of sewer, water, electric, gas, telephone, waste disposal
or other utilities or services. Except as disclosed on Schedule 7(h), to
the knowledge of Sellers, the facilities servicing the Real Estate are in
full compliance with all codes, laws, rules and regulations.
(vi) Sellers have delivered or made available to Buyer accurate,
correct and complete copies of all existing title insurance policies,
title reports and surveys, if any, with respect to each parcel of Real
Estate.
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<PAGE>
(i) Plant and Equipment. Sellers have furnished to Buyer an accurate
list of all plant and equipment, attached as Schedule 7(i), owned by the SRFI
Group. To the best knowledge of Sellers, all plant, structures and equipment
currently being used in the conduct of the operations of the SRFI Group are in
all material respects in good operating condition and repair, subject to normal
wear and tear, and to the best of each Seller's knowledge, are free from
material structural or mechanical deficiencies, except as disclosed on Schedule
7(i) attached.
(j) Intellectual Property. Sellers have furnished to Buyer an accurate
list of all Intellectual Property, attached as Schedule 1(t), owned or used by
the SRFI Group. To the best knowledge of Sellers, no one is infringing upon
any rights of the SRFI Group with respect to any of the Intellectual Property,
no member of the SRFI Group is infringing on or otherwise acting adversely to
the rights of any person under, or in respect to, any patents, patent rights,
copyrights, licenses, trademarks, trade names or trademark rights owned by any
person or persons, and there is no claim or action pending or threatened with
respect thereto. Except as set forth in Schedule 1(t), there are no royalty,
commission or similar arrangements, and no licenses, sublicenses or agreements
pertaining to any of the Intellectual Property.
(k) Employee Matters. No member of the SRFI Group has, nor has any
member of the SRFI Group ever had, any employees.
(l) Litigation. Except as set forth on Schedule 7(l), there are no
legal actions, suits, arbitrations or other legal, administrative or
governmental proceedings or investigations (other than tax audits or
investigations) pending or, to the best knowledge of Sellers, threatened
against any member of the SRFI Group which might have a material adverse effect
upon the operations or financial condition of the SRFI Group, taken as a whole.
No member of the SRFI Group is subject to any judgment, order, writ,
injunction, stipulation or decree of any court or any governmental agency or
any arbitrator, except as may be set forth herein or in any Schedule
hereto.
(m) Compliance with Laws.
(i) To the best knowledge of Sellers, the operations of the members
of the SRFI Group have been and are being conducted in accordance with all
applicable laws, rules and regulations of applicable governmental
authorities (other than those covered in Section 18 hereof), except for
such breaches that do not and cannot reasonably be expected to (either
individually or in the aggregate) materially and adversely affect the
financial condition or operations of the SRFI Group taken as a whole.
(ii) To the best knowledge of Sellers, no member of the SRFI Group
nor any of their officers or employees, has, directly or indirectly,
given, or agreed to give, any rebate, gift or similar benefit to any
supplier, customer, distributor, broker, governmental employee or other
person, who was, is or may be in a position to help or hinder the SRFI
Group's business (or assist in connection with any actual or proposed
transaction) which could subject Buyer or the SRFI
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Group's business to any penalty in any civil, criminal or governmental
litigation or proceeding or which would have a material adverse effect on
the SRFI Group's business.
(n) Material Contracts. Sellers have furnished to Buyer a list,
attached as Schedule 7(n), of all contracts and arrangements, written or oral,
which alone or together with other contracts and arrangements with the same
party are material to the SRFI Group's business taken as a whole. All members
of the SRFI Group have, in all material respects, performed all of the
respective obligations required to be performed by them to date and are not,
and will not be as of the Closing Date, in default under any material provision
of such contracts or arrangements. All such contracts and arrangements are and
will be as of the Closing Date in good standing and full force and effect
according to their terms. For purposes of this Section 7(n), a contract shall
be deemed to be material, (i) if it involves remaining payments of more than
$300,000, or (ii) if it cannot by its terms be completed or terminated without
penalty within 180 days from the Closing Date, or (iii) if the absence of such
contract would have a material adverse effect on the business of the SRFI
Group.
(o) Licenses and Permits. Except as set forth on Schedule 7(o), each
member of the SRFI Group has all requisite licenses and permits to operate its
business as currently conducted and Sellers have not been advised of, nor to
the best knowledge of Sellers is there any basis for, any revocation or
anticipated revocation of any permits, licenses or zoning variances, or of any
changes to existing or pending zoning or other regulations, permits or licenses
which would materially and adversely affect the conduct of its operations as
presently conducted.
(p) Insurance. Schedule 7(p) contains an accurate and complete
list and description of insurance policies (including the name of the insurer,
coverage, premium and expiration date) which each member of the SRFI Group
currently maintains, or is named as an additional insured or is entitled to
benefits under (including coverage for events occurring under prior policies).
To the best knowledge of Sellers, except as set forth on Schedule 7(p), all
such policies are in full force and effect and shall survive the Closing for
the benefit of SRFC, SRFI or Buyer.
(q) Liabilities to PBGC or Multiemployer or Multiple Employer Plans. No
liability to the Pension Benefit Guaranty Corporation or to any multiemployer
or multiple employer plan has been incurred by the SRFI Group.
(r) Transactions with Related Parties.
(i) To the best knowledge of Sellers, except for interest and
corporate overhead and as set forth on Schedule 7(r), none of
the SRFI Group members are a party to any transaction or proposed
transaction, including, without limitation, the leasing of real or
personal property, the purchase or sale of raw materials or finished
goods, or the furnishing of services, with any Seller or Parent or with
any person who is related to or affiliated with Sellers or Parents
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(other than another member of the SRFI Group), involving the payment or
accrual of more than $1,000,000 during fiscal years 1993 or 1994.
(ii) Except as set forth on Schedule 7(r) or as reflected in the
SRFI Group Financial Statements dated December 31, 1994, neither Sellers
nor Parents nor any person who is related to or affiliated with Sellers or
Parents has any cause of action or other claim whatsoever against or owes
any material amount to, or is owed any material amount by, any member of
the SRFI Group.
(s) Bank Accounts. Schedule 7(s) sets forth a true and complete list of
all banks in which any member of the SRFI Group has an account, safe deposit
box or line of credit, and the names and titles of all persons authorized to
draw thereon or to have access thereto, and a summary description of the use
thereof.
(t) Tax Matters.
(i) All Returns (including consolidated or combined Returns
including any member of the SRFI Group) required to be filed on or before
the Closing with respect to any member of the SRFI Group have been or will
be timely filed (within the time permitted by any timely filing extension)
by or on behalf of such member of the SRFI Group and all Taxes shown to be
due on such Returns have been timely paid.
(ii) No member of the SRFI Group has been a member of an affiliated
group (within the meaning of Section 1504 of the Code) filing a
consolidated federal Return, other than a group the common parent of which
is a Parent.
(iii) Schedule 7(t) lists all Returns filed with respect to any of
the members of the SRFI Group for taxable periods which remain open,
indicates those Returns that have been audited and indicates those Returns
that are currently the subject of audit or scheduled for an examination by
any relevant taxing authority.
(iv) Except as disclosed in Schedule 7(t):
(1) no notice or claim has ever been made by a governmental
authority in a jurisdiction where any member of the SRFI
Group does not file Returns that it is or may be subject
to Taxes in that jurisdiction;
(2) no extension of the statute of limitations with respect to
any assessment or claim for Taxes has been granted by or
on behalf of any member of the SRFI Group;
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(3) there are no liens for Taxes upon the assets of any member
of the SRFI Group except liens for Taxes not yet due;
(4) no amended Returns or refund claims have been or are
scheduled to be filed by or on behalf of any member of the
SRFI Group;
(5) all Taxes and other liabilities with respect to completed
and settled audits, examinations or concluded litigation
have been paid; and
(6) there are no pending appeals or other administrative
proceeding with respect to any Return of any member of the
SRFI Group, and there is no deficiency or refund
litigation with respect to any Return of any member of the
SRFI Group. No material issues have been raised by any
relevant taxing authorities on the audit of the Returns of
any member of the SRFI Group. No member of the SRFI Group
has received any notice of any Tax deficiency or
assessment.
(v) No member of the SRFI Group has filed or had filed on its
behalf a consent to the application of Section 341(f) of the Code.
(vi) Except as disclosed in Schedule 7(t), no member of the SRFI
Group is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment
of any Taxes. Except as disclosed in Schedule 7(t), no claim has been
asserted, which has not been resolved or satisfied, for any payment under
any agreement disclosed in Schedule 7(t).
(vii) Except as disclosed in Schedule 7(t), no member of the SRFI
Group is a party to or a beneficiary of any financing, the interest on
which is tax-exempt under the Code, and none of the assets of any member
of the SRFI Group is "tax-exempt use property."
(viii) As of the Closing Date, no member of the SRFI Group is a
party to any agreement, contract, arrangement, or plan that has resulted
or would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the
Code.
(ix) Each member of the SRFI Group is a "United States person"
within the meaning of the Code. No member of the SRFI Group has been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. The transactions contemplated
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herein are not subject to the tax withholding provisions of Section 3406
of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other
provision of law. No member of the SRFI Group has nor had a branch in any
foreign country.
(x) No member of the SRFI Group is a party to any joint venture,
partnership, or other arrangement or contract that could be treated as a
partnership for federal income Tax purposes, except for SRFI or LSPI
Fiber.
(xi) Each member of the SRFI Group has withheld and paid all Taxes
required to have been withheld and paid including (1) amounts paid to any
employee or statutory employee or any foreign person or entity; and (2)
any backup withholding required under Section 3406 of the Code.
(u) Accounts Receivable. Schedule 7(u) sets forth an accurate, correct
and complete aging of all outstanding accounts and notes receivable of SRFC,
SRFI and LSPI Fiber as of December 31, 1994. All outstanding accounts and
notes receivable reflected on the SRFI Group Financial Statements are, and on
the Statement of Net Book Value will be, due and valid claims against account
debtors for goods or services delivered or rendered and subject to no defenses,
offsets or counterclaims. All receivables arose in the ordinary course of
business. No receivables are subject to prior assignment, claim, lien or
security interest, except under the Note Purchase Agreement. The books and
records of SRFC, SRFI and LSPI Fiber reflect amounts taken as a reserve against
noncollection of accounts receivable, which reserve has been established in
accordance with SRFC's, SRFI's and LSPI Fiber's normal accounting policies
consistently maintained for the fiscal years ended December 31, 1993 and
December 31, 1994 and there is no reason to believe that such reserve will not
be adequate for its purpose. As of the Closing Date, neither SRFC, SRFI nor
LSPI Fiber will have incurred any liabilities to customers for discounts,
returns, promotional allowances or otherwise, except those granted in the
ordinary course of SRFC's, SRFI's or LSPI Fiber's operations and reflected on
the Statement of Net Book Value. No other member of the SRFI Group has any
business operations which would result in the establishment of any trade
accounts receivable or the granting of any discounts, returns, promotional
allowances or similar charges.
(v) Inventory. All inventories reflected on the SRFI Group Financial
Statements are, and on the Statement of Net Book Value will be, properly valued
at the lower of cost or market value on a first-in, first-out basis in
accordance with GAAP. Inventories of finished goods are of good and
merchantable quality, whether of first line, or off-quality pulp and contain no
material amounts that are not salable in the ordinary course of business and
meet the current standards and specifications of its business, except as
reserved for on the SRFI Group Financial Statements. Inventories of raw
materials, stores and replacement parts are, to the best knowledge of Sellers,
(i) of good and merchantable quality and contain no material amounts that are
not usable for the purposes intended in the ordinary course of the SRFI
Group's operations; (ii) in conformity with warranties customarily given to
purchasers of like products; and (iii) at
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levels adequate for and not excessive in relation to the ordinary course of the
SRFI Group's operations and in accordance with past inventory stocking
practices. Sales of inventories subsequent to December 31, 1994 have been made
only in the ordinary course of business and at prices and under terms that are
normal and consistent with past practice.
(w) Motor Vehicles. Schedule 7(w) sets forth an accurate and complete
list of all motor vehicles used in the business of the SRFI Group, whether
owned or leased. All such vehicles are (i) properly licensed and registered in
accordance with applicable law; (ii) insured as set forth on Schedule 7(p);
(iii) in good operating condition and repair (reasonable wear and tear
excepted) and (iv) not subject to any lien or other encumbrance, except as set
forth on Schedule 7(w).
(x) Product Warranty. The books and records of each member of SRFI
Group reflect amounts taken as a reserve against claims and allowances for
product warranties, which reserve has been established in accordance with the
members of the SRFI Group's normal accounting policies consistently maintained
for the fiscal years ended December 31, 1993 and December 31, 1994 and there is
no reason to believe that such reserve will not be adequate for its purpose.
As of the Closing Date, neither SRFC, SRFI nor LSPI Fiber will have incurred
any unpaid liabilities to customers for such claims and allowances, except
those granted in the ordinary course of business and reflected on the Statement
of Net Book Value.
Disclosure of any fact in any provision of this Agreement or in any
Schedule attached hereto shall constitute disclosure thereof for the purposes
of any other provision or Schedule.
8. Buyer's Representations and Warranties. Buyer represents and
warrants to Parents as follows:
(a) Organization. Buyer is a duly organized and validly existing
corporation in good standing under the laws of the state of Wisconsin. Buyer
has all requisite corporate power to own its property and carry on its business
as presently conducted.
(b) Authority. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Buyer.
(c) Valid and Enforceable Agreement. This Agreement constitutes a valid
and binding agreement of Buyer, enforceable in accordance with its terms,
except insofar as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally, and by general equitable principles. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the performance of Buyer's obligations hereunder
materially violates or conflicts with, results in a material breach of, or
constitutes a material default under (i) to the best knowledge of Buyer, any
law, rule or regulation, or (ii) subject to the obtaining of necessary consents
under various
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agreements, any agreement or other restriction of any kind or character to
which Buyer is a party, by which Buyer is bound, or to which any of the
properties of Buyer is subject. Neither the execution or delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
the performance of Buyer's obligations hereunder, violates or conflicts with,
results in a breach of or constitutes a default under (i) any judgment or
order, decree, award or ruling to which Buyer is subject, or (ii) the Articles
of Incorporation or By-Laws of Buyer.
(d) No Insolvency. Buyer is not currently insolvent, and neither the
purchase of the Purchased Interests, the assumption of the Assumed Liabilities
and Obligations pursuant to Section 5, nor any related transaction or event
shall render Buyer insolvent or leave Buyer with assets which are unreasonably
small in relation to the business of the SRFI Group and its own business
operations, nor does Buyer intend to incur debts beyond its ability to pay them
as they come due.
(e) Financial Statements. Buyer's financial statements for the year
ended December 31, 1994, as filed with the Securities and Exchange Commission
(copies of which have been delivered to Seller) (i) were prepared in accordance
with and accurately reflect its books and records, (ii) were prepared in
accordance with generally accepted accounting principles, consistently applied,
and (iii) present fairly the financial position and the results of operations
of Buyer for the periods covered thereby.
(f) Investment Intent. Buyer is purchasing the Stock for its own
account and not with a view to, or present intention of, sale or distribution
thereof in violation of the Securities Act of 1933, as amended (the "1933 Act")
and such shares will not be disposed of in contravention of the 1933 Act.
Buyer acknowledges that such shares are not and have not been registered with
the Securities and Exchange Commission or any securities commission or agency
of any state, including the state of Minnesota, and may not be transferred or
disposed of without registration under the 1933 Act and applicable state
securities laws or an exemption from such registration.
Disclosure of any fact in any provision of this Agreement or in any
Schedule attached hereto shall constitute disclosure thereof for the purposes
of any other provision or Schedule.
9. Actions Pending Closing. From the date hereof through the Closing
Date, Sellers shall take, or cause their respective Affiliates to take, all
actions necessary and appropriate to comply with, or to refrain from taking any
action in breach of, the following provisions for the period between the
execution of this Agreement and the termination hereof or the Closing Date:
(a) Operations. Each member of the SRFI Group shall conduct its
operations only in the ordinary course of business and shall not enter or
permit any member of the SRFI Group to enter into any transaction or perform
any act that would constitute a breach of the representations, warranties, or
agreements contained herein. Each member of the SRFI Group shall use its best
efforts to preserve its business and its organization intact and to keep
available the services of its present employees.
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Attached as Schedule 9(a) is a list of capital expenditures and commitments to
be initiated by the SRFI Group prior to the Closing Date. No member of the
SRFI Group shall initiate any capital expenditure or commitment other than as
set forth on Schedule 9(a) or initiate any capital expenditure or commitment as
set forth on Schedule 9(a) in excess of $25,000 without Buyer's approval, which
approval shall not be unreasonably withheld; provided, however, that any member
of the SRFI Group may initiate emergency capital expenditures or commitments
consistent with the past practices of such SRFI Group member. Sellers or
Parents shall promptly notify Buyer of such emergency expenditures or
commitments.
(b) Access to Records. Sellers shall, and shall cause the members of
the SRFI Group to, make available to Buyer, its agents and employees, all books
and records in their possession relating to the business of the SRFI Group;
provided, however, that Sellers have not made, and shall not be deemed to have
made, any representations or warranties whatsoever with respect to any of such
books or records or any other documents provided to or made available to Buyer,
except as expressly set forth in this Agreement.
(c) Access to Facilities. Buyer, its agents and employees, shall be
given full access during regular business hours to the physical facilities of
SRFI, upon appointment with the President thereof and accompanied by such
President or his or her designee(s). Sellers and each member of the SRFI Group
and their respective employees shall cooperate fully with Buyer in its
examinations and inspections, but not to the detriment of the ongoing business
operations of the SRFI Group prior to Closing.
(d) Hart-Scott-Rodino Filings. Parents and Buyer shall cooperate in the
prompt preparation and filing of all notifications and reports which may be
required with respect to the transactions contemplated by this Agreement
pursuant to Section 7A of the Clayton Act. Parents and Buyer shall also
cooperate in responding promptly to all inquiries from the Federal Trade
Commission or the Department of Justice resulting from the filing of such
notifications and reports.
(e) Notice of Developments. At least ten (10) business days prior to
the Closing Date, Sellers shall deliver to Buyer a complete update of the
Schedules from the date hereof. Each party hereto shall notify the other of
any development(s) which shall constitute a breach of any of the
representations and warranties in Sections 7 or 8 above. The party so notified
has the right to terminate this Agreement within the period of ten (10)
business days from the date of receipt of such notification, if as a result of
such development the financial condition, results of operations or prospects of
the SRFI Group as a whole, on the one hand, or Buyer, on the other hand, have
been materially and adversely affected. If within such ten (10)-day period,
the party notified shall not have exercised its right to terminate this
Agreement, the written notice shall be deemed to have amended this Agreement
and the relevant schedules attached thereto, to have qualified the
representations and warranties contained in Sections 7 or 8 above and to have
cured any misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of such development, including for purposes of
Section 15 hereof.
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(f) SRFI Restrictions. Prior to the Closing Date, each Seller shall
waive or abandon its right of first refusal with respect to the transfer of the
other's interest in the entities that own indirectly an interest in LSPI Fiber,
SRFC or SRFI pursuant to this Agreement.
(g) Best Efforts. Sellers, Parents and Buyer shall use their best
efforts to consummate the transactions contemplated by this Agreement and shall
not take any other action inconsistent with their respective obligations
hereunder or which could hinder or delay the consummation of the transactions
contemplated hereby. From the date hereof through the Closing Date, Sellers,
Parents and Buyer shall use their best efforts to fulfill the conditions to
their obligations hereunder and to cause their representations and warranties
to remain true and correct as of the Closing Date.
10. Conditions Precedent to Obligations of Buyer. The obligations of
Buyer hereunder (unless expressly waived by Buyer) are subject to the
fulfillment, prior to or at Closing, as the case may be, of each of the
following conditions:
(a) No Errors; Performance of Obligations. The representations and
warranties of Parents herein shall be true and correct as of the Closing Date.
Sellers and Parents shall have performed the obligations set forth in Section 9
and in all material respects all of the other obligations to be performed by
them hereunder in the time and manner herein stated.
(b) Officer's Certificates. Sellers and Parents shall have delivered to
Buyer certificates, dated as of the Closing Date, executed by their respective
Secretaries, and in form and substance satisfactory to Buyer, certifying that
the covenants and conditions specified in this Agreement to be met by Sellers
and Parents have been performed or fulfilled and that the representations and
warranties herein made by Sellers and Parents are true and correct as of such
date.
(c) Certified Copy of Resolutions. Sellers and Parents shall have
delivered to Buyer a certified copy of resolutions adopted by their respective
Boards of Directors authorizing the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby.
(d) Opinion of Sellers' and Parent's Counsel. Sellers and Parents shall
have delivered to Buyer the opinion of their respective counsel, dated as of
the Closing Date, in form and substance satisfactory to Buyer and its counsel,
giving the following clean legal opinions:
(1) valid organization of Sellers, Parents and each of the members
of the SRFI Group;
(2) corporate power and authority of each Seller and Parent to
enter into the Agreement;
(3) necessary foreign qualification of members of the SRFI Group;
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(4) No Breach or Default Opinion with respect to members of the
SRFI Group;
(5) No Violation Opinion with respect to each Seller and Parent;
(6) Remedies Opinion with respect to each Seller and this
Agreement;
(7) Legal Proceedings Opinion with respect to each Seller, Parent
and members of the SRFI Group;
(8) other legal matters agreed upon between Sellers, Parents and
Buyer; and
(9) no violation of registration provisions of the 1933 Act and
applicable state securities laws;
all in accordance with, and subject to the General Qualifications and other
limitations and provisions contained in, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(e) Injunctions. No injunction shall have issued restricting or
prohibiting the transactions contemplated by this Agreement.
(f) Clayton Act Matters. The waiting period required by Section 7A of
the Clayton Act shall have expired or been terminated.
(g) Environmental Matters. The results of any inspections, soil test
boring, soil tests, drainage tests, surveys, topographical analyses,
engineering studies or other investigations performed or obtained by Buyer
shall not have disclosed evidence of Hazardous Materials in, on or adjacent to
any of the real properties owned or occupied by any member of the SRFI Group,
other than those disclosed in any environmental studies or other information
listed on Schedule 10(g) which would materially and adversely affect the
operations of the SRFI Group taken as a whole. Buyer shall not have received
any evidence that there are existing violations of any Environmental Law, other
than those described in Schedule 10(g), or that any requisite environmental
license or permit or any occupance, use or building permits or other approvals
from applicable governmental authorities are currently required for the
continued operation of the facilities owned by the SRFI Group which have not
been obtained or are not in effect. In order to enable Buyer to conduct a due
diligence investigation, Sellers, Parents, the SRFI Group, and any entity
within the LSPI Group with relevant information on the environmental status of
the operating facilities of the SRFI Group shall provide Buyer with access to
the environmental files, licenses, permits, permit applications, consultant
reports, notices from local, state and federal governmental entities,
environmental audit and inspection reports, insurance files, and other
information necessary for Buyer to assess the environmental status of the
operating facilities of the SRFI Group, as well as permit or obtain permission
for Buyer to conduct soil and groundwater testing on or beneath the real
properties owned or occupied by any member of the SRFI Group.
(h) SRFI Restrictions. Each Seller and Parent shall have waived or
abandoned its right of first refusal with respect to the transfer of the
other's interest in the entities
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that own indirectly an interest in LSPI Fiber, SRFC or SRFI pursuant to this
Agreement.
(i) Consents. All consents and releases by third parties that are
required for the transfer of the Purchased Interests or the Assumed Liabilities
and Obligations, or that are required for the consummation of the transactions
contemplated hereby, or that are required in order to prevent a breach of or a
default under or a termination of any agreement to which any Seller or any
member of the SRFI Group or Affiliates is a party or to which any portion of
the property of any Seller or any member of the SRFI Group or Affiliates is
subject, including, but not limited to, the consent of New York Life Insurance
Company relating to the Note Purchase Agreement, shall have been obtained or
provided for.
(j) Financing. Buyer shall have used its best efforts to maintain an
aggregate of at least $250 million available under Buyer's committed and
uncommitted lines of credit until the Closing Date, and such lenders shall not
have cancelled or revoked such lines of credit prior to the Closing Date.
(k) FIRPTA Certificate. Sellers shall have furnished Buyer with
certificates of non-foreign status signed by the appropriate party and
sufficient in form and substance to relieve Buyer of all withholding
obligations under Section 1445 of the Code. If Sellers cannot furnish such
certificates or Buyer is not entitled to rely upon such certificates under the
provisions of Section 1445 of the Code and the regulations thereunder, Sellers
shall take and/or permit Buyer to take any and all steps necessary to allow
Buyer to satisfy the requirements of Section 1445 of the Code.
(l) Assignments of Contracts. Sellers shall have assigned to Buyer
the LSPI Supply Contract and all other Material Contracts.
(m) Purchase of LSPI and Niagara Paper. On or prior to the Closing
Date, Buyer shall have purchased all of the issued and outstanding capital
stock of Pentair Duluth Corp., a Minnesota corporation, Minnesota Paper
Incorporated, a Minnesota corporation and Niagara of Wisconsin Paper
Corporation, a Wisconsin corporation.
(n) Real Estate Consents. Sellers shall deliver to Buyer any consents
or approvals of any parties required pursuant to the terms of any contract,
agreement, option or undertaking affecting the Owned Real Estate.
(o) Title Insurance and Surveys.
(i) Buyer shall have obtained an ALTA Owners Policy of Title
Insurance Form B Owner's Form (the "Title Policy") for each parcel of
Owned Real Estate issued by a nationally recognized title company
reasonably acceptable to Buyer (the "Title Company"). The Title Policy
shall be in the amount of the purchase price allocated to the Owned Real
Estate by Buyer, showing fee simple title to the Real Estate in a member
of the SRFI Group (or if the member of the SRFI Group is a contract
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purchaser, the seller designated under the applicable sales contract),
subject only to current real estate taxes not yet due and payable as of
the Closing Date, liens and encumbrances reflected on Schedule 10(m)
hereto, and such other covenants, conditions, easements and exceptions to
title as Buyer may approve in writing (collectively, the "Permitted
Exceptions"). With reasonable promptness, after the date of this
Agreement, Buyer shall order commitments (the "Commitments") for the Title
Policy. Copies of the Commitments shall be promptly delivered to Sellers.
The Commitments and the Title Policy to be issued by the Title Company
shall have all Standard and General Exceptions deleted so as to afford
full "extended form coverage" and shall contain an ALTA Zoning Endorsement
3.1, contiguity, non-imputation, and such other endorsements as may be
reasonably requested by Buyer. At Closing, Sellers shall deliver to
Buyer, a seller's affidavit or similar instruments as the Title Company
may require. Buyer shall be responsible for the cost of all title
insurance charges, premiums and endorsements, title abstracts and
attorneys' opinions, including all search, continuation and later-date
fees. To the extent that any parcel of Owned Real Estate is registered
Torrens title, Sellers shall deliver the owner's duplicate certificates of
titles.
(ii) Buyer shall have obtained an as-built plat of survey of each
Copies of the Surveys shall be promptly delivered to Sellers.
(iii) If (i) any Commitment or owner's duplicate certificate of
title discloses a title exception other than a Permitted Exception that
represents a defect affecting the marketability of the title to any parcel
of Owned Real Estate (an "Unpermitted Exception") or (ii) any Survey
discloses that improvements located on the surveyed land encroach onto
adjoining land or onto any easements, building lines or set-back
requirements, or
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encroachments by improvements from adjoining land onto the surveyed land
or onto any easements for the benefit of the surveyed land or overlap or
reflects that any utility service to the improvements or access thereto
does not lie wholly within the Owned Real Estate or an unencumbered
easement for the benefit of the Owned Real Estate or reflects any other
matter, any of which materially and adversely affects the use or
improvements of such parcel of Owned Real Estate, or any other matter
which renders title to any Owned Real Estate unmarketable (a "Survey
Defect"), then, in any such event, Sellers shall have thirty (30) days
from the date of delivery thereof to have the Unpermitted Exception
removed from such Commitment and owner's duplicate certificate of title,
if applicable, or the Survey Defect corrected or insured over by an
appropriate title insurance endorsement, all at Sellers' cost in a manner
reasonably satisfactory to Buyer, and in any such event the Closing shall
be extended, if necessary, to the date which is five (5) business days
after the expiration of such 30-day period. If Sellers fail to have any
Unpermitted Exception removed or any Survey Defect corrected or otherwise
insured over to the reasonable satisfaction of Buyer within the time
specified therefor, Buyer, at its sole option, upon not less than three
(3) days' prior written notice to Sellers, may terminate this Agreement
and all of Buyer's obligations hereunder.
(p) Note Purchase Agreement. Sellers and Parents and their Affiliates
shall have been released under the Note Purchase Agreement or the outstanding
indebtedness under the Note Purchase Agreement shall have been repaid.
(q) Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be delivered to Buyer and be
reasonably satisfactory in form and substance to Buyer and its counsel.
11. Conditions Precedent to Obligations of Sellers. The obligations of
Sellers and Parents hereunder (unless expressly waived by Sellers) are subject
to fulfillment by Buyer, prior to or at Closing, as the case may be, of each of
the following conditions:
(a) No Errors; Performance of Obligations. The representations and
warranties of Buyer herein shall be true and correct as of the Closing Date.
Buyer shall have performed in all material respects all of the obligations to
be performed by it hereunder in the time and manner herein stated.
(b) Officer's Certificate. Buyer shall have delivered to Sellers a
certificate, dated as of the Closing Date, executed by an officer of Buyer, and
in form and substance satisfactory to Sellers, certifying that the covenants
and conditions specified in this Agreement to be met by Buyer have been
performed or fulfilled and that the representations and warranties herein made
by Buyer are true and correct as of such date.
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(c) Certified Copy of Resolutions. Buyer shall have delivered to
Sellers a certified copy of resolutions adopted by the Board of Directors of
Buyer authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(d) Opinion of Buyer's Counsel. Buyer shall have delivered to Sellers
the opinion of its counsel, dated as of the Closing Date, in form and substance
satisfactory to Sellers, Parents and their counsel, giving the following clean
legal opinions:
(1) valid organization of Buyer;
(2) corporate power and authority of Buyer to enter into the
Agreement;
(3) No Breach or Default Opinion;
(4) No Violation Opinion;
(5) Legal Proceedings Opinion;
(6) Remedies Opinion with respect to this Agreement; and
(7) other legal matters agreed upon between Sellers, Parents and
Buyer;
all in accordance with, and subject to the General Qualifications and other
limitations and provisions contained in, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(e) Injunctions. No injunctions shall have issued restricting or
prohibiting the transactions contemplated by this Agreement.
(f) Clayton Act Matters. The waiting period required by Section 7A of
the Clayton Act shall have expired or been terminated.
(g) Financing. Buyer shall have used its best efforts to maintain an
aggregate of at least $250 million available under Buyer's committed and
uncommitted lines of credit until the Closing Date and such lenders shall not
have cancelled or revoked such lines of credit prior to the Closing Date.
(h) Purchase of LSPI and Niagara Paper. On or prior to the Closing
Date, Buyer shall have purchased all of the issued and outstanding capital
stock of Pentair Duluth Corp., a Minnesota corporation, Minnesota Paper
Incorporated, a Minnesota corporation and Niagara of Wisconsin Paper
Corporation, a Wisconsin corporation.
(i) Note Purchase Agreement. Sellers and Parents and their Affiliates
(except SRFC) shall have been released under the Note Purchase Agreement and
the SRFI Pledges by Buyer's assumption of the Note Purchase Agreement or the
repayment of the outstanding indebtedness under the Note Purchase Agreement
shall have been made by Buyer.
(j) Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions,
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agreements, instruments and documents mentioned herein or incident to any such
transaction shall be delivered to Sellers and be reasonably satisfactory in
form and substance to Sellers and their counsel.
12. Broker. Pentair represents and warrants that CS First Boston was
retained by it to represent it in this transaction. Minnesota Power represents
and warrants that PaineWebber Incorporated was retained by it to represent it
in this transaction. Buyer represents and warrants that Dillon, Read & Co.
Inc. has been retained by Buyer to represent it. Each Parent shall be
responsible for payment of all fees and expenses of its respective investment
banker and Buyer shall be responsible for payment of all fees and expenses of
Dillon, Read & Co. Inc. Should any claims for commissions be made by any other
person claiming an interest in this Agreement, or in the underlying
transactions, by reason of any agreement, understanding or other arrangement
with Buyer or with either Parent, or their respective agents, servants,
employees, or other representatives, then the party through, or on account of,
whom such claims are made shall indemnify and hold harmless the other parties
from any and all liabilities and expenses in connection therewith in accordance
with the provisions of Section 15 below. The foregoing provisions of this
Section 12 shall survive not only the Closing hereunder, but also any
termination or cancellation of this Agreement.
13. [Intentionally Left Blank].
14. Confidential Information. (a) Buyer acknowledges that pursuant to
its right to inspect Sellers' and the SRFI Group's records and facilities under
Section 9, Buyer shall become privy to Confidential Information. Buyer agrees
that in the event the transaction contemplated by this Agreement is not
completed, all Confidential Information disclosed to Buyer shall remain
confidential, shall not be used for the benefit of Buyer or any of Buyer's
affiliates or disclosed to any person or entity, and all recorded evidence
thereof shall be delivered to Sellers together with an officer's certificate to
the effect that no copies thereof or any extracts, derivatives or compilations
thereof remain in possession of Buyer, its employees, affiliates, agents,
counsel or auditors. The confidentiality and nonuse provisions hereof shall
survive any termination of this Agreement until August 26, 1997 with respect to
Pentair and January 9, 1998 with respect to Minnesota Power. Buyer
acknowledges that it has entered into a confidentiality letter dated August 26,
1994 between itself and CS First Boston on behalf of Pentair, and a
confidentiality letter dated January 9, 1995 between itself and PaineWebber on
behalf of Minnesota Power, and agrees that such confidentiality letters shall
continue in full force and effect for the duration of their respective terms
in addition to the provisions of this Section 14.
(b) Sellers and Parents agree that in the event the transaction
contemplated by this Agreement is completed, all confidential and proprietary
information related to the SRFI Group shall remain confidential, shall not be
used for the benefit of Sellers, Parent or any of their affiliates or disclosed
to any person or entity. The confidentiality and nonuse obligations of Sellers
and Parents hereunder shall be on the same terms and conditions as the
confidentiality letters set forth in Section 14(a) and shall survive any
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termination of this Agreement until August 26, 1997 with respect to Pentair and
January 9, 1998 with respect to Minnesota Power.
15. Indemnification.
(a) Without limiting any remedy Buyer may have hereunder, Parents hereby
agree to indemnify, defend and hold Buyer harmless from and against and in
respect of any and all liabilities, losses, damages, claims, costs and
expenses, including reasonable attorneys fees, suffered or incurred by Buyer,
when so suffered or incurred, by reason of or relating to:
(i) any representation or warranty of Parents or Sellers contained
in this Agreement being breached or untrue;
(ii) any covenant or agreement of Sellers or Parents contained in
this Agreement being breached or not fulfilled in any material respect,
and not waived;
(iii) the assertion against Buyer of any other liability of any
Seller or Parent not assumed by Buyer hereunder; or
(iv) the assertion against Buyer, SRFC or SRFI of any liability of
the SRFI Group assumed by Sellers or Parents;
provided, however, that any claim arising out of any breach of warranty or
otherwise relating to (x) environmental conditions, permits or liabilities or
obligations with respect to Hazardous Materials shall be dealt with solely in
accordance with Section 18 hereof and (y) taxes shall be dealt with solely in
accordance with Section 23 hereof.
(b) Without limiting any remedy Parents and Sellers may have hereunder,
Buyer hereby agrees to indemnify, defend, and hold Parents and Sellers harmless
from and against and in respect of any and all liabilities, losses, damages,
claims, costs and expenses, including reasonable attorneys fees, by reason of
or relating to:
(i) any representation or warranty by Buyer contained in this
Agreement being breached or untrue;
(ii) any covenant or agreement of Buyer contained in this Agreement
being breached or not fulfilled in a material respect, and not waived; or
(iii) the failure of Buyer to pay, discharge, or perform any
guaranty, obligation or liability assumed by Buyer hereunder (including
without limitation the Assumed Liabilities and Obligations.
(c) Notice of any claim of indemnification under this Agreement (other
than for claims pursuant to Sections 18 and 23) shall be effective only if such
notice shall have been given in writing to the Indemnitor (as hereinafter
defined) on or prior to
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December 31, 1997. Notice of claims by the Parents against Buyer regarding
Assumed Liabilities and Obligations shall be effective only if given in writing
on or prior to the date six months following the date on which the liability of
Parents is discharged with respect to the last outstanding Assumed Liabilities
and Obligations.
(d) The first $1,500,000 in the aggregate of claims made by Buyer or by
Parents and Sellers as a group (except claims against Parents under Sections 19
or 23 or under subparagraphs 15 (a)(iii) and (iv) above, claims against Buyer
under Section 19 or under subparagraphs 15 (b)(iii) above or claims against
either Buyer or Parents under Sections 12 or 14 hereof) pursuant to this
Section shall be borne by that party and shall not be indemnifiable. The
minimum amount of each such claim shall be not less than $50,000 in the
aggregate.
(e) In the event that indemnification is sought with respect to any
obligation of Buyer and Parents and Sellers under this Agreement, the party
seeking indemnification (the "Indemnitee") shall give the party from whom
indemnification is sought (the "Indemnitor") notice of any claim of the
commencement of any action or proceeding promptly after the Indemnitee receives
notice thereof, and shall permit the Indemnitor to assume the defense of any
such claim or litigation resulting from such claim.
If the Indemnitor assumes the defense of any such claim or litigation
resulting therefrom, the obligations of Indemnitor as to such claim shall be
limited to taking all steps necessary in the defense or settlement of such
claim or litigation resulting therefrom and to holding the Indemnitee harmless
from and against any and all losses, damages and liabilities caused by or
arising out of any settlement approved by the Indemnitor or any judgment in
connection with such claim or litigation resulting therefrom.
The Indemnitee may participate, at its expense, in the defense of any such
claim or litigation, provided that the Indemnitor shall direct and control the
defense of such claim or litigation.
Except with the written consent of the Indemnitee, the Indemnitor shall
not, in the defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnitee of a release from all liability with respect to the
claim or litigation.
If the Indemnitor shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against such claim or
litigation in such manner as it may deem appropriate and, unless the Indemnitor
shall deposit with the Indemnitee a sum equivalent to the total amount demanded
in such claim or litigation, or shall deliver to Indemnitee a surety bond for
such amount in form and substance reasonably satisfactory to Indemnitee,
Indemnitee may settle such claim or litigation on such terms as it may
reasonably deem appropriate, and the Indemnitor shall promptly reimburse
Indemnitee for the amount of all costs and expenses, legal or otherwise,
reasonably incurred by the Indemnitee in connection with the defense against or
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settlement of such claims or litigation. If no settlement of such claim or
litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for
the amount of any final judgment rendered with respect to such claim or in such
litigation and for all reasonable costs and expenses, legal or otherwise,
incurred by the Indemnitee in the defense against such claim or litigation, but
only to the extent that such amounts are actually paid.
16. [Intentionally left blank].
17. Expenses. Parents, Sellers and Buyer shall each be responsible for
all of their own expenses incurred in connection with the transactions
contemplated hereby. Parents and Sellers shall be responsible for the
accounting and auditing fees and expenses related to the preparation of the
Statement of Net Book Value. Parents and Sellers shall cooperate and cause
their accountants and SRFI's accountants to cooperate and assist Buyer and its
accountants (including consenting to the use of the SRFI Group Financial
Statements) with respect to any filings by Buyer with the Securities and
Exchange Commission in connection with the transactions contemplated hereby.
Parents and Sellers shall be responsible for any and all fees and expenses of
Parents', Sellers' and SRFI's accountants with respect to the foregoing. Buyer
will pay the incremental costs and expenses of auditing the SRFI financial
statements or other information required by Buyer, other than the Statement of
Net Book Value as of the Closing Date. Buyer will pay the cost of the
Commitments, Title Policies and Surveys set forth in Section 10(o).
18. Environmental Matters.
(a) Warranty. Parents warrant that, other than as disclosed to Buyer
pursuant to Schedule 10(g) attached:
(i) Compliance with Environmental Laws. The business and
operations of each member of the SRFI Group comply in all material
respects with all applicable Environmental Laws, except to the extent that
such noncompliance could not be reasonably expected to have a material
adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the SRFI Group.
(ii) Notice/Receipt of Notice. No member of the SRFI Group has
given, or is required to give, nor has any member of the SRFI Group
received, any written notice, letter, citation, or order, or any written
warning, complaint, inquiry, claim or demand (or if verbal, to the extent
the warning, complaint, inquiry, claim or demand is recorded in a written
log) that: (i) any member of the SRFI Group has violated, or is about to
violate, any Environmental Law; (ii) there has been a release, or there is
a threat of release, of a non-de minimis quantity of Hazardous Material
from any member of the SRFI Group's property, facilities, equipment or
vehicles or previously owned or leased properties; (iii) any member of the
SRFI Group may be or is liable, in whole or in part, for material costs of
cleaning up, remediating, restoring or responding to a release of
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Hazardous Material; (iv) any of the SRFI Group's property or assets or
previously owned or leased properties or assets are subject to a lien in
favor of any governmental entity for any liability, costs or damages,
under any Environmental Law; and (v) any member of the SRFI Group may be
or is liable in whole or in part, for natural resource damages; provided,
that for purposes of liability for natural resource damages such notice,
letter, citation, order, inquiry, claim or demand was made by a
governmental agency.
(iii) Property on Environmental Cleanup Lists. No property now or
previously owned or leased by the SRFI Group is listed (or with respect to
Owned Real Estate proposed for listing) on the National Priorities List
pursuant to Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.)
("CERCLA"), on the CERCLIS or on any similar state list of sites
requiring investigation or clean-up.
(iv) [Intentionally left blank.]
(v) Past Disposal -- On site. Neither any member of the SRFI Group
nor to the best knowledge of Sellers any previous owner or other person,
has ever caused or permitted any material release or disposal of any
Hazardous Material on, under or at any of the facilities or properties of
the SRFI Group or any part thereof, and none of such facilities or
properties, nor any part thereof have ever been used (whether by any
member of the SRFI Group or to Sellers' best knowledge by any other
person) as a permanent storage facility or disposal site for any Hazardous
Material.
(vi) Underground Storage Tanks. There are no underground storage
tanks, including any associated piping, active or abandoned, including
petroleum storage tanks, on or under any property now or previously owned
or leased by the SRFI Group that, singly or in the aggregate, have, or may
reasonably be expected to have, a material adverse effect on the financial
condition, operations, assets, business, or properties of the SRFI Group.
(vii) Off-Site Disposal. No member of the SRFI Group has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed, proposed for listing or, to the
best knowledge of Sellers, which if known to the state or federal
government would warrant listing on the National Priorities List pursuant
to CERCLA, on the CERCLIS or on any similar state list or which is or
reasonably could be the subject of federal, state or local enforcement
actions or other investigations which may reasonably be expected to lead
to material claims for any remedial work, damage to natural resources or
personal injury, including claims under CERCLA.
(viii) PCBs/Asbestos. There are no PCB's or friable asbestos
present at any property now or previously owned or leased by the SRFI
Group that, singly or in the aggregate, have, or may reasonably be
expected to have, a material
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adverse effect on the financial condition, operations, assets, business or
properties of the SRFI Group.
(ix) Pollution Control Equipment. All pollution control equipment
is in proper operating condition, has been properly maintained, and, in
the case of major ("end-of-pipe") wastewater treatment and air pollution
control facilities, has been designed to maintain compliance with
applicable Environmental Laws based upon the current production rates and
operating policies of SRFI in effect since January 1, 1995. All material
actions necessary to maintain in force any original, as delivered,
manufacturer warranties have been taken with respect to all major
components of wastewater and air pollution control facilities.
(x) Other Environmental Conditions Off-Site. To Sellers' best
knowledge there are no sites or locations currently owned or leased by the
SRFI Group where Hazardous Materials were disposed of which with the
passage of time, or the giving of notice or both could reasonably be
expected to give rise to any material liability under any Environmental
Law, to any member of the SRFI Group.
(b) Indemnity. Subject to the provisions of Section 18(c) below and the
limitations on indemnification set forth in Section 15(d) above, Parents shall
indemnify and hold Buyer and the members of the SRFI Group harmless from and
against any and all losses, liabilities, damages, injuries, penalties, fines,
costs, expenses and claims of any and every kind whatsoever (including
reasonable attorneys' and consultants' fees and expenses), paid, incurred or
suffered by Buyer as a result of any breach of warranties set forth in Section
18(a). With respect to any liability for disposal or arranging for disposal of
Hazardous Materials at sites or locations not currently owned or leased by the
SRFI Group this indemnity shall apply notwithstanding the fact that Buyer may
have received or obtained information before the Closing Date, other than that
information disclosed on Schedule 10(g) indicating or otherwise showing that a
claim exists or may exist under this indemnity, including, but not limited to,
any information relating to a breach of the warranties set forth in Section
18(a) above.
(c) Special Provisions. The following provisions shall apply in the
event of any breach of warranty under this Section 18.
(i) Notice. Buyer shall promptly, and in no event later than 90
days from the date Buyer has knowledge, notify Parents in writing of any
claim, demand or action, situation or event covered by the warranty and
indemnification provisions of Section 18, with respect to any work or
activities undertaken by Buyer which is subject to this indemnity, Buyer
shall provide Parents in a timely manner, written documentation prepared
in the normal course of business describing the work or activities.
(ii) Disclosure of On-Site Environmental Matters. Buyer agrees
that environmental matters associated with the Real Estate which are
contained in the environmental reports and documents listed on Schedule
10(g), as well as any
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information obtained by Buyer during its due diligence activities
conducted on the Real Estate between the signing of this Agreement and the
Closing Date, shall be considered disclosed to Buyer.
(iii) Election of Control Off-Site Work. At Parents' option, to
the extent Parents are obligated to indemnify Buyer under this Section for
the costs of investigating, remediating, restoring, cleaning-up any site
where Hazardous Materials were disposed and the site is located on
property not currently owned, leased or otherwise used by the SRFI Group
(nor reasonably anticipated to be used by the SRFI Group), Parents may
elect to take control of the investigation, remediation, restoration
and/or clean-up ("Environmental Cleanup"). If they elect to do so,
Parents shall so notify Buyer and Parents thereafter shall be solely
responsible (as between the parties hereto) for managing and paying for
such Environmental Cleanup (to the extent it is obligated to indemnify
Buyer) including any fines, penalties or third-party actions associated
with the Environmental Cleanup.
(iv) Buyer's Control of Work. Other than in connection with
off-site Environmental Cleanups, Buyer and/or the SRFI Group shall manage
and conduct any Environmental Cleanup work and shall manage and control
the repair and replacement of any pollution control equipment. All such
work shall be done in a commercially reasonable, cost-effective manner
using good faith business judgment and without regard to the availability
of indemnification hereunder.
(v) Pollution Control Equipment. In situations where the
installation of pollution control equipment is required in order to obtain
compliance with the Environmental Laws, Parents' liability under this
Section shall include both capital and reasonable operation and
maintenance costs (calculated on a reasonable present value basis).
(vi) Interference with Operations. In situations where the
Environmental Cleanup or the installation, repair or replacement of the
pollution control equipment will materially interfere with the conduct of
the operations of the SRFI Group, Parents shall be responsible for the
reasonable costs, expenses or losses associated with or attributable to
any material business interruption losses, provided that Buyer shall do
the work or activities in a manner that is least disruptive of the SRFI
Group's ongoing operations.
(d) Exclusive Remedy. This Section provides to Buyer, the respective
SRFI Group members, and anyone claiming under or through Buyer the exclusive
remedy against Parents with respect to any matter covered by this Section 18,
and such exclusive remedy shall lapse and be of no further force or effect on
and after the fifth anniversary of the Closing Date.
(e) Inspection of Books and Records. In the event of any claims made by
Buyer for indemnification under this Section 18, Sellers shall be entitled to
access, at
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times reasonably convenient to Buyer and the members of the SRFI Group, to such
books, records and data related to such claim for indemnification hereunder, as
Parents deem necessary to verify the basis or amount of such claim.
19. Termination of Agreement. This Agreement may be terminated upon ten
(10) business days prior written notice at any time prior to Closing without
liability of any party to the other:
(a) by mutual consent of Parents and Buyer;
(b) by Buyer, if notice of a material adverse development with respect
to the financial condition, results of operations or prospects of the SRFI
Group has been given, in accordance with Section 9(e) hereof;
(c) by Buyer, if Closing has not occurred on or before September 30,
1995 as a result of the nonfulfillment of any of the conditions to Buyer's
obligation to perform contained in Section 10 of this Agreement;
(d) by Parents, if notice of a material adverse development with respect
to the financial condition, results of operations or prospects of Buyer has
been given, in accordance with Section 9(e) hereof;
(e) by Parents, if Closing has not occurred on or before September 30,
1995 as a result of the nonfulfillment of any of the conditions to Sellers'
obligation to perform contained in Section 11 of this Agreement; and
(f) by any party, if Closing has not occurred by October 31, 1995.
Termination of this Agreement shall not affect in any way the continuing
obligations of the parties hereto pursuant to Section 12 relating to brokers
and Section 14 hereof relating to the treatment of confidential information.
20. Announcements. Buyer and Parents shall cooperate in the
preparation of any announcements regarding the transactions contemplated by
this Agreement. Except as required by law, no party shall issue any
announcement regarding the transactions contemplated hereby without the prior
consent of the other parties, which consents shall not be unreasonably
withheld. The covenants set forth in this Section shall be enforceable in law
or at equity by either party.
21. Records. After the Closing Date, Buyer shall retain the books,
records or other data of each member of the SRFI Group existing at the Closing
Date for a period of ten (10) years. During the retention period specified
above, Parents shall be entitled to access, at times reasonably convenient to
Buyer, to such books, records and data in connection with the preparation or
handling of Sellers' and Parents' tax returns, financial reports, tax audits,
W-2 forms, litigation matters or any other reasonable need of any Seller or
Parent. If Buyer wishes to dispose of such material (whether during or
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following the 10-year period), it shall give Parents prior notice and the
opportunity to remove such material at the expense of the Parent(s) requesting
the same.
22. Assistance after Closing. Buyer shall furnish, at no cost to
Parents and Sellers, such assistance to Parents and Sellers in the preparation
of their respective fiscal 1994 and 1995 financial and tax reports as Parents
and Sellers may reasonably request. All such assistance shall be on a
confidential basis and Parents and Sellers agree to comply with the
confidentiality and limitation on use provisions of Section 14 hereof with
respect to such confidential information.
Buyer shall also provide Parents with reasonable assistance, including,
without limitation, furnishing of documents and making available to Parents
potential witnesses within its control or that of any member of the SRFI Group
and the assistance of their respective engineers or experts, in the defense of
any claim, lawsuit or tax examination arising out of the operations of SRFI
prior to the Closing Date for which Parents or Sellers retain liability under
this Agreement. Parents shall reimburse Buyer or such member of the SRFI Group
for its out of pocket expenses incurred in providing such assistance.
23. Tax Matters; Payment of Taxes.
(a) Tax Returns. Parents and Sellers shall prepare or cause to be
prepared and shall timely file all Returns (including any amendments thereto)
relating to any Taxes of the members of the SRFI Group with respect to any tax
period ending on or before the Closing. Parents or Sellers shall pay or cause
to be paid all Taxes of the members of the SRFI Group with respect to any
period ending on or before the Closing as determined in accordance with
Sections 23(b) and 23(c) hereof.
(b) Apportionment of Income. Parents and Sellers will include the
income of the SRFI Group (including any deferred income and any excess loss
accounts pursuant to relevant rules and regulations of the Internal Revenue
Service) on Parents' and Sellers' federal and state income tax Returns for all
periods through the Closing Date and shall pay any federal and state income
taxes attributable to such income. The SRFI Group will furnish all tax
information requested by Parents and Sellers to it for inclusion in Parents'
and Sellers' income tax Returns for the period which includes the Closing Date
in accordance with Parents' and Sellers' past custom and practice. The income
of the SRFI Group will be apportioned to the period up to and including the
Closing Date and the period after the Closing Date by closing the books of the
SRFI Group as of the end of the Closing Date.
(c) Allocation of Taxes. For purposes of this Agreement, in the case of
any Taxes that are imposed on a periodic basis and are payable for a period
that begins before the Closing Date and ends after the Closing Date, Parents or
Sellers shall reimburse Buyer for the portion of such Taxes payable for the
period ending on the Closing Date to the extent such Taxes are not reflected on
the Statement of Net Book Value as of the Closing Date. For this purpose, the
portion of such Tax payable for the period ending on the Closing Date shall in
the case of any Taxes other than Taxes based
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upon or related to income or sales or use taxes, be deemed to be the amount of
such Taxes for the entire period multiplied by a fraction, the numerator of
which is the number of days in the period ending on the Closing Date, and the
denominator of which is the number of days in the entire period. The preceding
sentence shall be applied with respect to Taxes relating to capital (including
net worth or long-term debt) or intangibles by reference to the level of such
items on the Closing Date to the extent such Taxes are not reflected on the
Statement of Net Book Value as of the Closing Date.
(d) Indemnity. Notwithstanding anything to the contrary in this
Agreement whether expressed or implied, Parents shall indemnify and hold
harmless Buyer, and each member of the SRFI Group, against:
(1) all Taxes imposed on any member of the SRFI Group with respect to
any period ending on or before the Closing;
(2) all Taxes imposed on Buyer or on any member of the SRFI Group with
respect to any period which begins before the Closing Date and ends
after the Closing Date to the extent allocated to the portion of
such period ending on the Closing Date, determined in accordance
with Section 23 hereof;
(3) all Taxes imposed on Buyer or on any member of the SRFI Group with
respect to income earned by any member of the SRFI Group for the
period beginning January 1, 1995 and ending on the Closing Date,
determined in accordance with Section 23(b) hereof;
(4) all Taxes imposed on any member of the SRFI Group as a result of the
Section 338(h)(10) Elections contemplated by Section 24 hereof;
(5) all Taxes imposed on any member of an affiliated, consolidated,
combined or unitary group which includes or has included any member
of the SRFI Group with respect to any taxable period that ends on or
prior to the Closing;
(6) all liability resulting from or attributable to a breach of the
representations, warranties and covenants contained in Section 7(t)
and this Section 23; and
(7) any claim under Treas. Reg. Section 1.1502-6 by the Internal Revenue
Service against any member of the SRFI Group which was a member of
Parents' respective consolidated groups prior to the Closing Date
with respect to any federal income tax liability of Parents and
Sellers for any period ending on or prior to December 31, 1995.
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(e) Post-Closing Elections. Parents and Sellers will (or will cause
members of the SRFI Group, as the case may be to) make or join, as necessary,
with Buyer in making any election relating to income taxes, including, but not
limited to, elections under Section 732(d) and Section 754 of the Code, for the
year in which the Closing Date occurs. Prior to Closing, Buyer shall retain an
appraiser to appraise the assets of the SRFI Group. Sellers and the members of
the SRFI Group and their respective employees shall cooperate fully with Buyer
and its appraiser in connection with the appraisal. The cost of the appraisal
shall be borne by Buyer.
(f) Control of Contest. Parents shall have the right, at their own
expense, to control any audit or determination by any taxing authority,
initiate any claim for refund or amended Return and contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or proposed
adjustment of Taxes for any taxable period for which any Seller or Parent (or
any of their affiliates) is charged with responsibility for filing a Return
under this Agreement. Each party will allow the other and its counsel (at its
or their own expense) to be represented during any audits of income tax Returns
to the extent that disputed items therein relate to the SRFI Group. Buyer
shall, or shall cause its affiliates to, undertake or authorize actions in
their capacity as tax matters partner of the SRFI Group as requested by Parents
with respect to this Section 23(f).
(g) General. Each of Buyer, Parents and Sellers shall provide the
other, and Buyer shall following the Closing cause each member of the SRFI
Group to provide to Parents and Sellers, with the right, at reasonable times
and upon reasonable notice, to have access to personnel, and to copy and use,
any records or information that may be relevant in connection with the
preparation of any Returns, any audit or other examination by any taxing
authority or any litigation relating to liability for Taxes. Information
required in the filing of any Return shall be provided to the other party not
less than thirty (30) days before such Return is due. Parents and Sellers will
allow Buyer an opportunity to review and comment upon any Returns under
Subsection 23(a) (including any amended returns) to the extent that they relate
to any member of the SRFI Group. Parents and Sellers will take no position on
such Returns that relate to any member of the SRFI Group that would adversely
affect any member of the SRFI Group after the Closing. Parents, Sellers and
Buyer shall retain all records relating to Taxes for as long as the statute of
limitations with respect thereto shall remain open.
(h) Sales and Transfer Taxes. All sales and transfer Taxes (including
all stock transfer taxes, if any) incurred in connection with the transactions
contemplated hereby will be borne by the statutorily responsible party. If
required by applicable law, Buyer or Parents or Sellers, as the case may be,
will join in the preparation and execution of any Returns or other
documentation related to the payment of any sales or transfer Taxes.
(i) Tax Effective Time. For purposes of Taxes, the Closing shall be
deemed to have occurred, and shall be effective, as of the close of business on
the Closing.
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(j) Survival. All of the representations, warranties, covenants and
indemnities contained in this Agreement which relate to Taxes shall survive the
Closing (even if the Indemnified Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of the Closing)
and continue in full force and effect until the expiration of the applicable
statute of limitations (including any extensions thereof).
(k) Tax Agreements. Minnesota Power and Buyer agree that, upon Closing,
the Tax Agreement dated October 5, 1993 and the State Tax Agreement dated
October 5, 1993, both between Minnesota Power and its subsidiaries, including
SRFC, shall terminate as to SRFC, and, that notwithstanding Section 7 of each
such agreement, following termination of each agreement, SRFC and Buyer shall
not be bound by the terms of the agreements and not be entitled to receive or
obligated to make payments under the agreements attributable to any period
during which SRFC was a party to each agreement.
24. Section 338(h)(10) Election. Minnesota Power and Synertec agree to
jointly file with Buyer the election (the "Election") provided for by Section
338(h)(10) of the Code and the corresponding election under applicable state or
local tax law with respect to the sale and purchase of the Stock. In
connection with the Election:
(a) Buyer and Minnesota Power and Synertec shall each provide to the
other all necessary information, including information as to tax basis, to
permit the Election to be made and its consequences to be accurately reflected
for all relevant accounting and tax reporting purposes, and to take all other
actions necessary to enable Buyer and Minnesota Power and Synertec to make the
Election.
(b) Buyer shall retain at Buyer's cost an appraiser to prepare a report
(a "Report") appraising the value of the assets of SRFC to determine the proper
allocations (the "Allocations") of the "adjusted grossed-up basis" (within the
meaning of Treasury Regulation Section 1.338(b)-1) and the modified adjusted
deemed selling price ("MADSP") (within the meaning of Treasury Regulation
Section 1.338(h)(10)-1) among the assets of SRFC in accordance with
Section 338(b)(5) and (h)(10) of the Code and Treasury Regulations thereunder.
The Report shall be finalized no later than 120 days after the Closing
Date. At least thirty (30) days before such Report is finalized, Buyer shall
provide Parents a copy of the appraiser's preliminary report or indication of
the Allocations. After receipt of such preliminary report or indication,
Minnesota Power shall give to Buyer in writing any objections or questions
which Minnesota Power may have to such preliminary report or indication, and
the parties shall thereafter use their best efforts to resolve such objections
or questions so that the Report is finalized no later than 120 days after the
Closing Date and the Election is timely made.
(c) Buyer and Minnesota Power and Synertec shall jointly prepare a Form
80-23A, together with all required attachments, and the corresponding forms
required or
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appropriate under state tax laws (collectively, an "Election Form") in a manner
consistent with the Allocation.
(d) As promptly as practicable after the Closing Date, Buyer and
Minnesota Power and Synertec shall take all action and file all documents to
effect and preserve a timely Election.
(e) Minnesota Power and Synertec shall allocate the MADSP, if any,
resulting from the Election in a manner consistent with the Allocations and
shall not take any position inconsistent with the Election or the Allocations
in connection with any Return; provided, however, that Minnesota Power and
Synertec may take into account their transaction costs when calculating such
MADSP.
(f) Buyer shall allocate the "adjusted grossed-up basis" of the capital
stock of SRFC among the assets of SRFC in a manner consistent with the
Allocations and shall not take any position inconsistent with the Election or
the Allocations in any Return or otherwise; provided, however, that Buyer may
add its transaction costs to the "adjusted grossed-up basis" of the capital
stock of SRFC for purposes of allocating among the assets of SRFC.
(g) Synertec and Buyer acknowledge that for federal income tax purposes
(and for state income tax purposes in those states whose income tax provisions
follow the federal income tax treatment), the sale of the capital stock of SRFC
from Synertec to Buyer will be treated as a sale of assets by SRFC to Buyer
followed by a complete liquidation of SRFC with and into Synertec, and the
parties agree to report the transaction in a manner consistent with this
treatment and to take no positions inconsistent with this treatment. The
parties also agree that neither Buyer nor SRFC shall be liable for any Taxes
resulting from the sale of the capital stock of SRFC or the Election.
25. Limitations on Liability.
(a) Any amount of indemnity payable by Parents under Sections 12, 14,
15, 18, 19 or 23 of, or relating to the transactions contemplated by, this
Agreement, or arising in connection with the operations, properties or
financial condition of members of the SRFI Group shall be paid by Parents
severally, and not jointly or jointly and severally, in accordance with the
following principles:
(i) if the claim arises out of any misrepresentation or breach of
warranty made with respect to either Parent or its respective Affiliates,
the claim shall be the sole responsibility of such Parent;
(ii) if the claim arises out of any misrepresentation or breach of
warranty made with respect to LSPI Fiber, SRFI or SRFC, the claim shall be
the responsibility of both Parents, who shall each pay an amount of
indemnity with respect thereto in proportion to their respective equity
interests therein;
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(iii) if the claim arises out of the breach of any covenant or
agreement by either Parent or its respective Affiliates, the claim shall
be the sole responsibility of such Parent;
(iv) if the claim arises out of the breach of any covenant or
agreement by LSPI Fiber, SRFI or SRFC, the claim shall be the
responsibility of both Parents, who shall each pay an amount of indemnity
with respect thereto in proportion to their respective equity interests
therein;
(v) if the claim arises out of assertion by any third party of any
claim (including tax claims), liability or obligation against or with
respect to any member of the SRFI Group which is assumed, or indemnified
against, by either Parent, with respect to its respective Affiliates, the
claim shall be the sole responsibility of such Parent;
(vi) if the claim arises out of assertion by any third party of any
claim (including tax claims), liability or obligation against or with
respect to any member of the SRFI Group which is assumed, or indemnified
against, by both Parents, with respect to LSPI Fiber, SRFI or SRFC, the
claim shall be the responsibility of both Parents, who shall each pay an
amount of indemnity with respect thereto in proportion to their respective
equity interests therein; and
(vii) if the claim arises from the termination of this Agreement,
compensation for which is provided in Section 19 hereof, the Parent(s) in
breach shall be solely responsible for such claim.
To the extent that any amount of indemnity is payable by Buyer to Parent(s),
the foregoing principles shall apply to the determination of the Parent to whom
such indemnity is payable, mutatis mutandis.
(b) No party is responsible for, and no party may recover from any other
party, any amount of consequential (e. g., lost profits or the like) or
punitive damages. Notwithstanding the foregoing exclusion, to the extent any
party hereto sustains any loss or incurs any expense compensable under this
Agreement that contains or includes any measure of consequential or punitive
damages awarded to a third party, then such indirect consequential and punitive
damages may be recovered.
(c) Parents and Buyer specifically agree that the total amount of
indemnification payable by Parents pursuant to Sections 15, 18 and 23 together
shall not exceed the amount of the purchase price paid to each Parent in cash
hereunder.
26. Amendment and Waiver. This Agreement may not be amended or modified
at any time or in any respect other than by an instrument in writing executed
by Buyer and Parents.
27. Notices. Any notice or communication provided for in this Agreement
shall be in writing and shall be deemed given when delivered personally,
against receipt, or
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when deposited in the United States mail, registered or certified mail, return
receipt requested to the following address:
(a) If to Pentair:
Pentair, Inc.
1500 County Road B2 West
St. Paul, Minnesota 55113-3105
Attention: Ronald V. Kelly
Facsimile: (612) 639-5209
with a copy to:
Henson & Efron, P.A.
1200 Title Insurance Building
400 Second Avenue South
Minneapolis, Minnesota 55401
Attention: Louis L. Ainsworth
Facsimile: (612) 339-6364
(b) If to Minnesota Power:
Minnesota Power & Light Company
30 West Superior Street
Duluth , Minnesota 55802
Attention: David G. Gartzke
Facsimile: (218) 723-3960
with a copy to:
Minnesota Power & Light Company
30 West Superior Street
Duluth , Minnesota 55802
Attention: Steven W. Tyacke
Facsimile: (218) 723-3955
(c) If to Buyer:
Consolidated Papers, Inc.
231 First Avenue North
P. O. Box 8050
Wisconsin Rapids, WI 54495-8050
Attention: Carl H. Wartman
Facsimile: (715) 422-3203
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with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Attention: Robert A. Schreck, Jr.
Facsimile: (312) 984-3669
Any party may change the above address for notice by written notice to the
other parties in accordance with the provisions of this Section.
28. Parties in Interest. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Parents, Sellers and Buyer, their respective successors and permitted
assigns. No party may assign this Agreement without the express written
consent of the other parties, except that Buyer may assign this Agreement to an
affiliate of Buyer provided that no such assignment shall relieve Buyer of its
obligations hereunder or otherwise prejudice Parents or Sellers. This
Agreement shall not confer any rights or remedies upon any person other than
Buyer, Parents and Sellers and their respective successors and permitted
assigns.
29. Further Assurances. Each party shall from time to time execute and
deliver such further documents and do such further acts as the other parties
may reasonably require for carrying out the purposes and intent of this
Agreement.
30. No Waivers. No failure of any party to this Agreement to pursue any
remedy resulting from a breach of this Agreement shall be construed as a waiver
of that breach or as a waiver of any subsequent or other breach.
31. Governing Law. This Agreement shall be construed in accordance with
and governed by the substantive laws of the state of Minnesota without giving
effect to the choice of law provisions thereof. This Agreement shall be
subject to the exclusive jurisdiction of the courts of, and United States
federal courts sitting in, the state of Minnesota, and all parties hereby
irrevocably submit to the jurisdiction of such courts with respect to any claim
arising out of this Agreement.
32. Severability. Should any provision of this Agreement be or become
invalid in whole or in part or be incapable of performance for whatever reason,
then the validity of the remaining provisions of this Agreement shall not be
affected thereby. In such event, the parties hereby undertake to substitute
for any such invalid provision or for any provision incapable of performance, a
provision which corresponds to the spirit and purpose of such invalid or
unperformable provision as far as permitted under applicable law, so as to
realize to the fullest extent possible the economic purpose and effect of this
Agreement.
33. Miscellaneous. This Agreement constitutes the entire agreement
between the parties and supersedes all prior representations, understandings or
agreements between them, written or oral, respecting the within subject matter.
Headings are for
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convenience only and are not intended to alter any of the provisions of this
Agreement. Words importing the singular number include the plural and vice
versa. This Agreement may be signed in multiple copies, each of which shall be
considered an original, but all of which shall together constitute one and the
same instrument.
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IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its authorized officer as of the date first above written.
PENTAIR, INC.
By: Winslow H. Buxton
--------------------------------------
Its: CEO
--------------------------------------
MINNESOTA POWER & LIGHT COMPANY
By: Arend J. Sandbulte
--------------------------------------
Its: Chairman and President
--------------------------------------
SYNERTEC, INC.
By: Gerald B. Ostroski
--------------------------------------
Its: President and General Manager
--------------------------------------
LSPI FIBER CO.
By Pentair Duluth Pulp Corp.,
its general partner
By Conrad V. Kelly
--------------------------------------
its CEO
--------------------------------------
By Minnesota Pulp Incorporated II,
its general partner
By: David G. Gartzke
--------------------------------------
Its: V. President & Chief Financial Officer
--------------------------------------
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CONSOLIDATED PAPERS, INC.
By: Patrick F. Brennan
--------------------------------------
Its: President & CEO
--------------------------------------
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Exhibit 2(b)
<PAGE>
AGREEMENT FOR SALE AND PURCHASE
OF STOCK
OF
PENTAIR DULUTH CORP.
AND
MINNESOTA PAPER INCORPORATED
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TABLE OF CONTENTS
Page
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1. Definitions 1
2. Purchase and Sale of Stock 6
3. Purchase Price 6
4. Payment 7
5. Assumption of Liabilities 8
6. Closing 8
7. Sellers' Representations, Warranties and Covenants 9
(a) Organization and Authority of Seller 9
(b) Valid and Enforceable Agreement 9
(c) Organization of Subsidiaries 10
(d) Financial Statements 11
(e) No Material Change 11
(f) Leases 11
(g) Title to Personal Property 12
(h) Real Estate 12
(i) Plant and Equipment 14
(j) Intellectual Property 14
(k) Employee Matters 14
(l) Litigation 15
(m) Compliance with Laws 15
(n) Material Contracts 15
(o) Licenses and Permits 16
(p) Insurance 16
(q) Employee Benefits 16
(r) Transactions with Related Parties 18
(s) Bank Accounts 18
(t) Tax Matters 18
(u) Accounts Receivable 20
(v) Inventory 21
(w) Motor Vehicles 21
(x) Product Warranty 21
8. Buyer's Representations and Warranties 22
(a) Organization 22
(b) Authority 22
(c) Valid and Enforceable Agreement 22
(d) No Insolvency 22
(e) Financial Statements 22
(f) Investment Intent 22
9. Actions Pending Closing 23
(a) Operations 23
(b) Access to Records 23
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(c) Access to Facilities 23
(d) Release of Guarantees 23
(e) Hart-Scott-Rodino Filings 24
(f) Notice of Developments 24
(g) LSPI Restrictions 24
(h) Best Efforts 24
(i) Allocation of Pulp 25
10. Conditions Precedent to Obligations of Buyer 25
(a) No Errors; Performance of Obligations 25
(b) Officer's Certificates 25
(c) Certified Copy of Resolutions 25
(d) Opinion of Sellers' Counsel 25
(e) Injunctions 26
(f) Clayton Act Matters 26
(g) Environmental Matters 26
(h) LSPI Restrictions 26
(i) Financing 26
(j) FIRPTA Certificate 27
(k) Purchase of SRFI and Niagara Paper 27
(l) Real Estate Consents 27
(m) Title Insurance and Surveys 27
(n) Provision of Documentation 29
(o) Other Matters 29
11. Conditions Precedent to Obligations of Sellers 29
(a) No Errors; Performance of Obligations 29
(b) Officer's Certificate 29
(c) Certified Copy of Resolutions 29
(d) Opinion of Buyer's Counsel 29
(e) Injunctions 30
(f) Clayton Act Matters 30
(g) Financing 30
(h) Sale of SRFI and Niagara Paper 30
(i) Other Matters 30
12. Broker 30
13. Employees 31
14. Confidential Information 31
15. Indemnification 31
16. Guaranteed Obligations 34
17. Expenses 35
18. Environmental Matters 36
(a) Warranty 36
(b) Indemnity 37
(c) Special Provisions 38
(d) Exclusive Remedy 39
(e) Inspection of Books and Records 39
19. Termination of Agreement 39
20. Announcements 40
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21. Records 40
22. Assistance after Closing 40
(a) Retained Liabilities 40
(b) Allocation of Pulp 40
23. Tax Matters; Payment of Taxes 41
(a) Tax Returns 41
(b) Apportionment of Income 41
(c) Allocation of Taxes 41
(d) Indemnity 41
(e) Post-Closing Elections 42
(f) Control of Contest 42
(g) General 43
(h) Sales and Transfer Taxes 43
(i) Tax Effective Time 43
(j) Survival 43
(k) LSPI Leases Tax Rate Change Indemnity 43
(l) Refund of Tax Indemnity Payment 45
(m) Tax Agreements 45
24. Section 338(h)(10) Election 45
25. Limitations on Liability 46
26. Amendment and Waiver 47
27. Notices 47
28. Parties in Interest 49
29. Further Assurances 49
30. No Waivers 49
31. Governing Law 49
32. Severability 49
33. Miscellaneous 49
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THIS AGREEMENT is made and entered into as of the 8th day of May, 1995
between Pentair, Inc., a Minnesota corporation ("Pentair"), Minnesota Power &
Light Company, a Minnesota corporation ("Minnesota Power") and Consolidated
Papers, Inc., a Wisconsin corporation ("Buyer").
WHEREAS, Pentair is the owner of all of the issued and outstanding capital
stock of Pentair Duluth Corp., a Minnesota corporation ("Pentair Duluth"), and
Minnesota Power is the owner of all of the issued and outstanding capital stock
of Minnesota Paper Incorporated, a Minnesota corporation ("Minnesota Paper");
and
WHEREAS, Pentair Duluth and Minnesota Paper each own a 50% equity interest
in Lake Superior Paper Industries, a joint venture organized under the general
partnership laws of the state of Minnesota ("LSPI"); and
WHEREAS, Pentair and Minnesota Power (collectively, "Sellers") desire to
sell and Buyer desires to purchase from Sellers all of the issued and
outstanding capital stock of Pentair Duluth and Minnesota Paper in accordance
with the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and conditions herein contained, the parties agree as follows:
1. Definitions. The terms below shall have the following
meanings under this Agreement unless the context clearly requires otherwise:
(a) "Allocations" shall have the meaning set forth in Section 24(b).
(b) "CERCLA" shall have the meaning set forth in Section 18(a)(iii).
(c) "Change of Control Date" means the date on which any one or more of
the following events shall first have occurred:
(i) all or substantially all of the assets of Buyer are sold,
leased, exchanged or transferred in one transaction or a series of related
transactions;
(ii) beneficial ownership (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934 (the "1934 Act") as amended from
time to time) of more than fifty percent (50%) of the issued and
outstanding voting stock of Buyer is acquired by any person, as such term
is used in Section 13(d) and 14(d) of the 1934 Act; or
(iii) Buyer merges with or into another corporation or is
consolidated with another corporation and Buyer is not the surviving
corporation or Buyer is the surviving corporation but all or part of its
issued and outstanding voting stock shall be changed into or exchanged for
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stock or other securities of any other person or into cash or any other
property.
(d) "Clayton Act" means 15 U.S.C. Section 12, et seq., as amended, and
the rules and regulations promulgated thereunder from time to time.
(e) "Closing" means the actual transfer and delivery of the certificates
evidencing all of the LSPI Group Stock, the delivery of documents providing for
the assumption of certain specified liabilities and the exchange and delivery
by the parties of the other documents and instruments contemplated by this
Agreement.
(f) "Closing Date" means June 30, 1995 or such later month end date as
mutually agreed upon by the parties.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Commitments" shall have the meaning set forth in Section 10(m)(i).
(i) "Confidential Information" means all information designated as
"Evaluation Material" in the confidentiality letter agreement dated August 26,
1994 between Buyer and CS First Boston Corp., acting as agent for Pentair, and
in the confidentiality letter agreement dated January 9, 1995, between Buyer
and PaineWebber Incorporated, acting as agent for Minnesota Power, copies of
which are attached as Schedule 1(i).
(j) "Election" shall have the meaning set forth in Section 24.
(k) "Election Form" shall have the meaning set forth in Section 24(c).
(l) "Employee Benefits" means, with respect to the employees of the
LSPI Group, any and all pension or welfare benefit programs, plans,
arrangements, agreements and understandings for employees generally or specific
individual employees of the LSPI Group to which any member of the LSPI Group
contributes or is a party, by which any of them may be bound, or under which
any of them may have liability, including, without limitation, pension or
retirement plans, deferred compensation plans, bonus or incentive plans, early
retirement programs, severance pay policies, support funds, medical, dental,
life and disability insurance, and payment or reimbursement plans.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(n) "Environmental Cleanup" shall have the meaning set forth in Section
18(c)(iii).
(o) "Environmental Laws" means federal, state, regional, county and
local laws, statutes, rules, regulations and ordinances and common law
requirements as of the Closing Date relating to the environment, including,
without limitation, those relating to
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the public health or safety aspects thereof or to nuisance, trespasses,
releases, discharges, emissions or disposals to air, water, land or
groundwater, to the withdrawal or use of groundwater, to the use, handling or
disposal of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde,
to the treatment, storage, disposal or management of Hazardous Material
(including, without limitation, petroleum, its derivatives, by-products or
other hydrocarbons), to exposure to toxic, hazardous or other controlled,
prohibited or regulated substances, to the transportation, storage, disposal,
management or release of gaseous or liquid substances, and any regulation,
order, injunction, judgment, declaration, notice or demand issued thereunder.
(p) "GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with
prior financial practice of LSPI, or Pentair or Minnesota Power (and their
respective wholly-owned affiliates), as the case may be.
(q) "Guaranteed Obligations" means those obligations and liabilities of
Sellers, listed on Schedule 5 hereto, undertaken in respect of the LSPI Group,
including, without limitation, the Keepwell Obligations of Sellers under the
LSPI Leases.
(r) "Hazardous Material" means and includes (a) petroleum or petroleum
products, including crude oil, (b) any asbestos insulation or other material
composed of or containing asbestos, and (c) any hazardous, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, any so-called state or local "Superfund" or "Superlien" law, Section
115B.02 of the Minnesota Statutes or any other Environmental Laws.
(s) "Indemnitee" shall have the meaning set forth in Section 15(e).
(t) "Indemnitor" shall have the meaning set forth in Section 15(e).
(u) "Intellectual Property" means all patents, utility patents and
design patents and registrations therefor, trademarks, trade names, trademark
rights and trademark registrations, copyrights and licenses listed on Schedule
1(u) attached, as well as all technical documentation reflecting engineering
and production data, design data, plans, specifications, drawings,
technology, know-how, trade secrets, software (whether owned or licensed),
manufacturing processes and all documentary evidence thereof relating to the
LSPI Group and its business.
(v) "Joint Venturers" means both of Pentair Duluth and Minnesota Paper,
the joint venturers of LSPI, and "Joint Venturer" means any one of them.
(w) "Joint Venturer Stock" means all of the issued and outstanding
capital stock of each of Pentair Duluth and Minnesota Paper, respectively.
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(x) "Keepwell Obligations" means the obligations of Sellers under their
respective Keepwell Agreements and Assignments entered into in connection with
the LSPI Leases.
(y) "Knowledge" of Sellers or the "best knowledge" of Sellers when
modifying any representation or warranty shall mean that no officer or other
manager reporting directly to the President of any of the Sellers (who are
involved in or responsible for operations of LSPI or Superior Recycled Fiber
Industries, a joint venture organized under the general partnership laws of the
state of Minnesota) or of any member of the LSPI Group or the SRFI Group,
including the chief financial officer and the manager of environmental affairs,
if any, of Sellers or of any member of the LSPI Group or the SRFI Group, has
any knowledge that such representation and warranty is not true and correct to
the same extent as provided therein and that:
(i) Sellers and each member of the LSPI Group has exercised due
diligence and has made appropriate investigations and inquiries of the
officers and business records of each of Sellers, the LSPI Group and the
SRFI Group; and
(ii) nothing has come to the attention of Sellers or of any member
of the LSPI Group in the course of such investigation and review or
otherwise which would reasonably cause such party, in the exercise of due
diligence, to believe that such representation and warranty is not true
and correct.
Such terms shall have a cognate meaning as applied to Buyer.
(z) "LSPI Group" means all of Pentair Duluth, Minnesota Paper and LSPI.
(aa) "LSPI Group Financial Statements" means (i) the audited financial
statements (for the years ended December 31, 1991 through 1994) of LSPI and
(ii) the unaudited internal financial statements of the other members of the
LSPI Group for the fiscal years ended December 31, 1991 through 1994.
(ab) "LSPI Group Stock" means all of the issued and outstanding capital
stock of Pentair Duluth and Minnesota Paper.
(ac) "LSPI Leases" means the five separate Facility Leases dated December
31, 1987 between LSPI and First National Bank of Minneapolis, as Owner Trustee,
and all Transaction Documents (as defined in the Definition of Terms attached
as Appendix A to the Facility Leases) listed on Schedule 7(n) hereto.
(ad) "LSPI Restrictions" means, with respect to the shares of the Joint
Venturers, the right of first refusal granted by Pentair and Minnesota Power to
the other to purchase its stock in their respective Joint Venturer,
respectively, pursuant to Section 2 of the Restated Agreement to Restrict
Transfer of Shares dated April 25, 1986.
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(ae) "Leased Real Estate" shall have the meaning set forth in Section
7(h)(ii). The LSPI Leases are specifically excluded from the definition of
"Leased Real Estate."
(af) "MADSP" shall have the meaning set forth in Section 24(b).
(ag) "1933 Act" shall have the meaning set forth in Section 8(f).
(ah) "Net Book Value" means, with respect to the stock of each Joint
Venturer, the difference between (x) the assets of such Joint Venturer
(including therein, without duplication, its respective investment in the net
assets of LSPI), less (y) all liabilities of such Joint Venturer, excluding
current income tax accruals, deferred tax accruals and subordinated and other
debt, whether current or long-term, owing to Sellers, all as reflected on the
balance sheet of the respective Joint Venturers as of either December 31, 1994
or the Closing Date, as appropriate.
(ai) "Owned Real Estate" shall have the meaning set forth in Section
7(h)(i).
(aj) "PBGC" shall have the meaning set forth in Section 7(q)(vi).
(ak) "Pension Plans" shall have the meaning set forth in Section 7(q)(i).
(al) "Permitted Exceptions" shall have the meaning set forth in
Section 10(m)(i).
(am) "Real Estate" means all real property, whether owned, under contract
to purchase, or leased by the LSPI Group, including all land, buildings,
structures, easements, appurtenances and privileges relating thereto, and all
leaseholds, leasehold improvements, fixtures and other appurtenances and
options, including options to purchase and renew, or other rights thereunder,
used or intended for use in connection with the business of the LSPI Group,
including the eight parcels of real property adjacent to LSPI, which are owned
by Pentair Duluth and Minnesota Paper.
(an) "Report" shall have the meaning set forth in Section 24(b).
(ao) "Return(s)" means any return (including any consolidated or combined
return), report, claim for refund, information return or statement, relating to
any Tax, including any schedule or attachment thereto.
(ap) "SRFC" shall have the meaning set forth in Section 10(k).
(aq) "SRFI Group" means all of SRFC, LSPI Fiber Co., a joint venture
organized under the general partnership laws of the state of Minnesota,
Synertec, Inc., a Minnesota corporation, and Superior Recycled Fiber
Industries, a joint venture organized under the general partnership laws of the
state of Minnesota.
(ar) "Statement of Net Book Value" means the audited balance sheet of
each Joint Venturer as of the Closing Date in substantially the form reflected
in Schedule 3.2
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from which the calculation of the purchase price of the Joint Venturer Stock
will be made in accordance with Section 3 hereof.
(as) "Surveys" shall have the meaning set forth in Section 10(m)(ii).
(at) "Survey Defect" shall have the meaning set forth in Section
10(m)(iii).
(au) "Tax" or "Taxes" means all income, gross receipts, sales, use,
employment, franchise, profits, property or other taxes, fees, stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority with respect thereto.
(av) "Tax Indemnity Agreements" means all of the tax indemnity agreements
entered into in connection with the LSPI Leases.
(aw) "Title Company" shall have the meaning set forth in Section
10(m)(i).
(ax) "Title Policy" shall have the meaning set forth in Section 10(m)(i).
(ay) "Unpermitted Exception" shall have the meaning set forth in Section
10(m)(iii).
2. Purchase and Sale of Stock. Subject to the terms and conditions
herein stated, Sellers shall sell, transfer and deliver to Buyer, and Buyer
shall purchase from Sellers, at the Closing all of each Seller's right, title
and interest in all of the issued and outstanding capital stock of its Joint
Venturer. Promptly following Closing, Buyer shall cause Pentair Duluth to
change its name to exclude the word "Pentair" and shall promptly make all
filings necessary to reflect such change.
3. Purchase Price. The aggregate purchase price to be paid by Buyer to
each Seller for the purchase of all of the issued and outstanding capital stock
of its respective Joint Venturer, shall be:
(a) $58,800,000;
(b) increased for any increase, or decreased for any decrease, in the
Net Book Value of such Joint Venturer from December 31, 1994 to the Closing
Date; and
(c) less one-quarter of the aggregate amount of transition incentives to
be paid by LSPI pursuant to Section 13 to certain LSPI employees, which amount
is set forth on Schedule 3.1.
The Net Book Value shall be determined in accordance with GAAP as set forth on
Schedule 3.2, which Schedule sets forth sample calculations of the Net Book
Value as of
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December 31, 1994 and March 31, 1995 and the exceptions to GAAP used in
calculating Net Book Value.
Within sixty (60) days following the Closing Date, each Seller shall
prepare and deliver to Buyer a Statement of Net Book Value for its respective
Joint Venturer, which shall be audited by such Seller's auditors based upon an
audit of LSPI's books, including an inventory taken by LSPI beginning at 7:00
a.m. on the Closing Date and a review of the liabilities as of the Closing
Date. The taking of such inventory may be observed by Buyer and Buyer's
auditors. Each Statement of Net Book Value shall have attached thereto an
auditor's report in the form attached as Schedule 3.3. To the extent
possible, Sellers will provide Buyer with a preliminary draft of the Statement
of Net Book Value. Buyer and Sellers will in good faith attempt to resolve any
disputes with respect to such calculation before the final Statements of Net
Book Value are rendered.
Buyer may review the Statements of Net Book Value and Sellers shall make
available the work papers of Sellers' auditors to Buyer and its accountants and
Buyer and its accountants may make inquiries of representatives of Sellers and
their auditors. Buyer shall give written notice to Sellers of any objection to
their respective Statements of Net Book Value within thirty (30) days after
Buyer's receipt thereof. The notice shall specify in reasonable detail the
items in such Statement of Net Book Value to which Buyer objects and shall
provide a summary of Buyer's reasons for such objections.
Any dispute between Buyer and either or both Sellers with respect to the
respective Statements of Net Book Value which is not resolved within fifteen
(15) business days after receipt by Sellers of the written notice from Buyer
shall be referred for decision to Ernst & Young LLP who shall cause an audit
partner who is not engaged in providing services to Sellers or Buyer to decide
the dispute within thirty (30) days of such referral. The decision by the
partner shall be final and binding on Sellers and Buyer. In resolving any
disputed item such audit partner may not assign a value to any item greater
than the greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The cost of retaining
the audit partner with respect to resolving disputes as to the Statements of
Net Book Value shall be borne by the respective Seller and Buyer equally,
unless such partner determines, based on his or her evaluation of the good
faith of the parties, that the fees should be borne unequally.
4. Payment. The estimated purchase price shall be paid in U.S. dollars
in immediately available funds on the Closing Date. The amount to be paid on
the Closing Date shall be based upon preliminary Statements of Net Book Value
delivered to Buyer at least five (5) business days prior to Closing, which
shall be calculated based on the unaudited balance sheets of the respective
Joint Venturers as of the month end prior to the Closing Date, prepared by
Sellers on a basis consistent with Schedule 3.2, plus any amounts advanced by,
and less any distributions paid to each Seller or its respective Joint Venturer
between one month prior to the Closing Date and the Closing Date. Following
delivery of the final Statements of Net Book Value under Section 3, any balance
due to Sellers or refunds due to Buyer reflected thereon shall be paid within
ten (10) days of such delivery, (unless there is an objection under Section 3,
in
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which case the amount not in dispute shall be paid within ten (10) days of
such delivery, and the balance in dispute shall be paid within ten (10) days of
the resolution of such objection) together with interest on such amount from
the Closing Date at the announced large business prime rate of Morgan Guaranty
Trust Company of New York.
Except as Buyer may be otherwise advised in writing by Sellers at least
five (5) days prior to any payment, all payments of the purchase price by Buyer
to Sellers at the Closing or any other amounts owed by Buyer to Sellers shall
be by wire transfer to:
Seller Bank and Routing Number Bank Account Number
Pentair First Bank National Association xxx-xxxxxxx
(091000022) to attention of
Karen Johnson
Minnesota Power First Bank National Association xxx-xxxxxxx
(091000022) to attention of
Russell Arneson
Except as Sellers may be otherwise advised in writing by Buyer at least
five (5) days prior to any payment, payment of any refund to Buyer based on the
final determination of the purchase price pursuant to Section 3 or any other
amounts owed by Sellers to Buyer hereunder shall be made by wire transfer to
Harris Trust and Savings Bank - Consolidated Papers, Inc., Account No. xxxxxxx
(ABA wire transfer routing number xxxx-xxxx-x), marked to the attention of J.R.
Matsch.
All wire transfers shall be sent by 10:00 a.m. Minneapolis time on the
date of such payment, unless otherwise agreed by the parties.
5. Assumption of Liabilities. At Closing, Buyer shall assume and agree
to satisfy and perform, to the extent not satisfied or performed prior to the
Closing Date, without any cost or charge to Sellers, all obligations of Sellers
as guarantor under any Guaranteed Obligation. If the assumption of the
Guaranteed Obligations by Buyer under this Section 5 requires the consent of
any third party, Buyer and each respective Seller agree they will use their
best efforts to obtain such written consent to such assumption; provided,
however, that in no event shall Buyer be subject, without its consent, to terms
and conditions more restrictive than those set forth in the existing
obligations of Sellers being assumed. Failing the consent of such creditor,
Buyer shall indemnify Sellers in accordance with the provisions of Section 16
hereof against any claim arising out of the Guaranteed Obligations.
6. Closing. (a) The Closing shall take place on the Closing Date at
the offices of Henson & Efron, P.A. in Minneapolis, Minnesota, at 9:00 o'clock
a.m., local time, or at such other time and place as may be mutually agreed
upon. Buyer and Sellers each agree they shall use their best efforts and shall
cause all relevant affiliates to use their best efforts to obtain fulfillment
of all conditions to Closing set forth in Sections 10 and 11 hereof.
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(b) At the Closing, Sellers shall deliver to Buyer certificates
evidencing ownership of all of the LSPI Group Stock, in form ready for transfer
and duly endorsed to Buyer, together with such other documents and instructions
as provided herein, reasonably satisfactory in form and substance to Buyer and
its counsel, as shall be required to vest in Buyer good and marketable title,
free and clear of all liens, charges and encumbrances (except as specified in
this Agreement, if any) in and to the LSPI Group Stock. At the Closing, each
Seller shall deliver to Buyer a release of all claims of such Seller and any
person or entity affiliated therewith against all members of the LSPI Group, in
substantially the form of Schedule 6.
(c) At the Closing, Buyer shall deliver to Sellers such documents and
instruments as provided herein and such undertakings, and other instruments as
shall be required to cause Buyer to assume the obligations as provided in
Section 5, all of which shall be reasonably satisfactory in form and substance
to Sellers and their respective counsel.
7. Sellers' Representations, Warranties and Covenants. Subject to the
several liability of Sellers provided for in Section 25 hereof, Sellers
represent, warrant and covenant to Buyer as follows:
(a) Organization and Authority of Seller. Each Seller is a duly
organized and validly existing corporation in good standing in the state of
Minnesota. Sellers have the complete and unrestricted right, power and
authority to sell, transfer and assign all of the issued and outstanding
capital stock of their respective Joint Venturers pursuant to this Agreement
and to carry out the transactions contemplated hereby without the consent of
any other person (except as otherwise set forth herein), subject only to the
LSPI Restrictions. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Boards of Directors of each Seller.
(b) Valid and Enforceable Agreement. This Agreement constitutes a valid
and binding agreement of each respective Seller, enforceable in accordance with
its terms, except insofar as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally, and by general equitable principles. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the performance of its obligations
hereunder materially violates or conflicts with, results in a material breach
of, or constitutes a material default under (i) to the best knowledge of each
respective Seller, any law, rule or regulation, or (ii) subject to the
obtaining of necessary consents, which consents are listed on Schedule 7(b),
under various loan agreements, guarantees, leases, and other agreements
(including without limitation the LSPI Leases and the LSPI Restrictions), any
agreement or other restriction of any kind or character to which such Seller or
any member of the LSPI Group is a party, by which such Seller or any member of
the LSPI Group is bound, or to which any of the properties of any member of the
LSPI Group is subject. Neither the execution or delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the
performance of its obligations hereunder violates or conflicts with, results in
a breach of, or constitutes a default under (i) any judgment or order, decree,
award or ruling to which such Seller or
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any member of the LSPI Group is subject, or (ii) the Articles of Incorporation
or By-Laws of such Seller or its respective Joint Venturer, or the Joint
Venture Partnership Agreement, excluding the LSPI Restrictions.
(c) Organization of Subsidiaries.
(i) Each member of the LSPI Group is a duly organized and validly
existing corporation or joint venture general partnership, as the case may
be, in good standing, to the extent applicable, in its respective state of
incorporation or organization, as set forth in Schedule 7(c). Each member
of the LSPI Group has all requisite corporate or general partnership power
and authority, as the case may be, to carry on its respective business as
presently conducted in all states in which it currently does business.
Each member of the LSPI Group is duly licensed, registered and qualified
to do business as a foreign corporation, partnership or joint venture and,
to the extent applicable, is in good standing in all jurisdictions in
which the ownership, leasing or operation of its assets or the conduct of
its business requires such qualification, except where the failure to be
so licensed, registered or qualified would not have a material adverse
effect upon its business or assets.
(ii) All of the outstanding shares of capital stock of Pentair
Duluth and Minnesota Paper have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned, beneficially and of
record, by Pentair and Minnesota Power respectively and are free and clear
of all liens, claims, encumbrances and restrictions whatsoever, other than
the LSPI Restrictions. Pentair Duluth's entire equity capital consists of
25,000 authorized shares of common stock, par value $1.00 per share, of
which 1,000 shares are issued and outstanding. Minnesota Paper's entire
equity capital consists of 1,000 authorized shares of common stock, no par
value, of which 1,000 shares are issued and outstanding. No shares of
capital stock of, or other ownership interest in, either of the Joint
Venturers are reserved for issuance and there are no outstanding options,
warrants, rights (other than the LSPI Restrictions), subscriptions, claims
of any character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise (except for the
Keepwell Obligations), relating to the capital stock of, or other
ownership interest in, either of such corporations pursuant to which
either of such corporations is or may become obligated to issue or
exchange any shares of capital stock of, or other ownership interest in,
such corporation.
(iii) Except as set forth on Schedule 7(c), no member of the LSPI
Group owns, directly or indirectly, any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture (other than in LSPI) or other entity.
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(iv) True and complete copies of the LSPI Leases and the agreements
containing the LSPI Restrictions have been furnished to Buyer; each of
those agreements is currently in good standing and in full force and
effect and no default by either Seller or any member of the LSPI Group
party thereto, or to the best knowledge of Sellers, any other party
thereto, exists thereunder.
(d) Financial Statements.
(i) Attached hereto as Schedule 7(d) are the LSPI Group Financial
Statements. The LSPI Group Financial Statements were (and the Statements
of Net Book Value will be) prepared in accordance with the books and
records of the respective members of the LSPI Group which were used in the
preparation of each Seller's audited consolidated financial statements for
the fiscal years ended December 31, 1993 and December 31, 1994.
(ii) The LSPI Group Financial Statements were (and the Statements of
Net Book Value will be) prepared in accordance with GAAP, consistently
applied, but, except for the audited financial statements of LSPI, do not
include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The Statements
of Net Book Value will adequately reflect all liabilities and obligations
of the LSPI Group required to be shown thereon in accordance with GAAP
except for those exceptions to GAAP set forth on Schedule 3.2.
(iii) The LSPI Group Financial Statements as of such dates or for the
period ending on such dates present fairly the financial position and the
results of operations of the members of the LSPI Group for the periods
covered thereby. All adjustments, consisting of normal recurring accruals
and eliminations and other similar adjustments, considered necessary for a
fair presentation have been included.
(e) No Material Change. To the best knowledge of Sellers, since
December 31, 1994 there has been no material adverse change in the business,
financial position or results of operations of the LSPI Group, taken as a
whole.
(f) Leases. Sellers have furnished or made available to Buyer copies of
all leases and subleases of any personal property used in the operations of
members of the LSPI Group, including without limitation the LSPI Leases, to
which any member of the LSPI Group is a party, all of which are listed on
Schedule 7(f). Except as set forth on Schedule 7(f), no consents or
approvals are required in connection with the transactions contemplated
hereby. No event has occurred which is or, after the giving of notice or
passage of time, or both, would constitute, a default under or a material
breach of any lease by any member of the LSPI Group or, to the best knowledge
of Sellers, any other party to such leases. As of the Closing Date, each
lease (including without limitation
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the LSPI Leases) shall be in full force and effect in accordance with its
terms, as amended from time to time.
(g) Title to Personal Property. Each member of the LSPI Group has good
and marketable title to its respective owned personal property as reflected in
the LSPI Group Financial Statements, free and clear of all liens, claims,
encumbrances and restrictions, except (i) those reflected on Schedule 7(d)
attached and (ii) defects in title, and liens, charges and encumbrances, if
any, as do not materially detract from the value of or otherwise materially
impair the current operations or financial conditions of the LSPI Group, taken
as a whole.
(h) Real Estate.
(i) Schedule 7(h)(i) sets forth an accurate legal description of
all Real Estate owned by a member of the LSPI Group or for which a member
of the LSPI Group has contracted to become the owner (the "Owned Real
Estate"), including identification of the current owner of fee simple
title thereto. The party identified as the owner on Schedule 7(h)(i) is
the legal and equitable owner of good and marketable title in fee simple
absolute to such Owned Real Estate, including the buildings, structures,
spurtracks (as set forth on Schedule 7(h)(i)) and improvements situated
thereon and appurtenances thereto, in each case free and clear of all
tenancies and other possessory interests, security interests, conditional
sale or other title retention agreements, liens, encumbrances, mortgages,
pledges, assessments, easements, rights of way, covenants, restrictions,
reservations, options, rights of first refusal, defects in title,
encroachments and other burdens, except as disclosed on Schedule 7(h)(i).
Except as disclosed on Schedule 7(h)(i), a member of the LSPI Group is in
possession of the Owned Real Estate. All contracts, agreements, options
and undertakings affecting the Owned Real Estate are set forth in Schedule
7(h)(i) and are legally valid and binding and in full force and effect,
and, to Sellers' knowledge, there are no defaults, offsets, counterclaims
or defenses thereunder, and the LSPI Group has received no notice that any
default, offset, counterclaim or defense thereunder exists. Sellers have
delivered or made available to Buyer correct and complete copies of all
such contracts, agreements, options and undertakings.
On Schedule 7(h)(i), certain parcels of Owned Real Estate are
identified as "Buffer Real Estate." Such parcels are located across North
Central Avenue from the LSPI Mill, and are owned by either Pentair Duluth
or Minnesota Paper. The particular Seller who holds title to a parcel of
Buffer Real Estate represents and warrants to Buyer that it has not made
or done any act or thing to impair the quality or marketability of title
to the Buffer Real Estate. Except for the preceding sentence, none of the
representations, warranties or covenants of Section 7(h) shall apply to
the Buffer Real Estate.
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(ii) Schedule 7(h)(ii) sets forth an accurate, correct and complete
list of all Real Estate leased, subleased or occupied by a member of the
LSPI Group (such interests are the "Leased Real Estate"), including
identification of the lease or sublease and the parties thereto and list
of contracts, agreements, leases, subleases, options and commitments, oral
or written, affecting such Leased Real Estate or any interest therein to
which a member of the LSPI Group is a party or by which any of its
interest in the Leased Real Estate is bound. The LSPI Group member
identified in the Real Estate Lease has been in peaceable possession of
the Leased Real Estate since the commencement of the original term of such
Real Estate Lease. Sellers have delivered to Buyer correct and complete
copies of each Real Estate Lease.
(iii) To the knowledge of the LSPI Group, except as set forth on the
Flood Insurance Rate Map prepared by the Federal Emergency Management
Agency (Community/Panel No. 270420/004B; revised as of November 1992), no
Real Estate is located within a flood or lakeshore erosion hazard zone for
which flood insurance is now required under the National Flood Insurance
Program. Neither the whole nor any portion of any Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and
no notice of any such condemnation, requisition or taking has been
received, other than the condemnations conducted in connection with
acquisitions of the Real Estate for use by LSPI. To the knowledge of the
LSPI Group, no such condemnation, requisition or taking is threatened or
contemplated, except as set forth on Schedule 7(h)(iii). The LSPI Group
has no knowledge of any public improvements which may result in special
assessments against or otherwise affect the Real Estate, except as set
forth on Schedule 7(h)(iii).
(iv) The Real Estate is in good operating condition and repair
(reasonable wear and tear excepted) and is suitable and adequate for the
purposes for which it is presently being used.
(v) To the knowledge of the LSPI Group, except as set forth on
Schedules 7(h) or 7(o), the Real Estate is in compliance with all
applicable zoning, building, health, fire, water, use or similar statutes,
codes, ordinances, laws, rules or regulations. To the knowledge of the
LSPI Group, the zoning of each parcel of Real Estate permits the existing
improvements and the continuation following consummation of the
transaction contemplated hereby of the business of the LSPI Group as
presently conducted thereon. The LSPI Group has all certificates of
occupancy and authorizations required to utilize the Real Estate. To the
knowledge of the LSPI Group, the LSPI Group has all easements and rights
necessary to conduct its business, including easements for all utilities,
services, roadway, railway and other means of ingress and egress. To the
knowledge of the LSPI Group, the LSPI Group holds such rights to off-site
facilities as are necessary to ensure compliance in all material
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respects with all zoning, building, health, fire, water, use or similar
statutes, codes, ordinances, laws, rules or regulations and all such
rights, to the extent held by the LSPI Group or Sellers, shall be conveyed
as directed by Buyer at Closing. Except as disclosed on Schedule 7(h)(i),
to the knowledge of the LSPI Group, no fact or condition exists which
would result in the termination or impairment of access to the Real Estate
or discontinuation of sewer, water, electric, gas, telephone, waste
disposal or other utilities or services. Except as disclosed on Schedule
7(h)(i), to the knowledge of the LSPI Group, the facilities servicing the
Real Estate are in full compliance with all codes, laws, rules and
regulations.
(vi) Seller has delivered or made available to Buyer accurate,
correct and complete copies of all existing title insurance policies,
title reports and surveys, if any, with respect to each parcel of Real
Estate.
(i) Plant and Equipment. Sellers have furnished to Buyer an accurate
list of all plant and equipment, attached as Schedule 7(i), owned by LSPI.
To the best knowledge of Sellers, all plant, structures and equipment,
currently being used in the conduct of LSPI's operations are in all material
respects in good operating condition and repair, subject to normal wear and
tear, and to the best of each Seller's knowledge, are free from material
structural or mechanical deficiencies, except as disclosed on Schedule 7(i)
attached.
(j) Intellectual Property. Sellers have furnished to Buyer an accurate
list of all Intellectual Property, attached as Schedule 1(u), owned or used by
the LSPI Group. To the best knowledge of Sellers, no one is infringing upon
any rights of the LSPI Group with respect to any of the Intellectual Property,
no member of the LSPI Group is infringing on or otherwise acting adversely to
the rights of any person under, or in respect to, any patents, patent rights,
copyrights, licenses, trademarks, trade names or trademark rights owned by any
person or persons, and there is no claim or action pending or threatened with
respect thereto. Except as set forth in Schedule 1(u), there are no royalty,
commission or similar arrangements, and no licenses, sublicenses or agreements
pertaining to any of the Intellectual Property.
(k) Employee Matters. Except as set forth on Schedule 7(k),neither
Sellers nor any member of the LSPI Group has any pending complaint filed with
the National Labor Relations Board or any other governmental agency alleging
unfair labor practices, human rights violations, employment discrimination
charges or the like against any member of the LSPI Group which might have a
material adverse effect upon the LSPI Group, its operations or financial
condition, and to the best knowledge of Sellers, there are no existing facts
which might result in any such complaint or charge. Sellers have provided to
Buyer a complete list of all employees of the LSPI Group, including name,
title or position, present annual compensation, years of service and any
interest in Employee Benefits. Each member of the LSPI Group has complied in
all material respects with all laws, rules and regulations relating to the
employment of labor, including provisions related to wages, hours, equal
opportunity, occupational health and safety, severance, collective bargaining
and the payment of social security and other
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employment taxes. No member of the LSPI Group has any retired employees who
have elected to receive retiree medical benefits under any Employee Benefits.
No member of the LSPI Group has any collective bargaining agreement or other
such contracts. Other than with respect to LSPI, no member of the LSPI Group
has any employees.
(l) Litigation. Except as set forth on Schedule 7(l), there are no
legal actions, suits, arbitrations or other legal, administrative or
governmental proceedings or investigations (other than tax audits or
investigations) pending or, to the best knowledge of Sellers, threatened
against any member of the LSPI Group which might have a material adverse effect
upon the operations or financial condition of the LSPI Group, taken as a
whole. No member of the LSPI Group is subject to any judgment, order, writ,
injunction, stipulation or decree of any court or any governmental agency or
any arbitrator, except as may be set forth herein or in any Schedule hereto.
(m) Compliance with Laws.
(i) To the best knowledge of Sellers, the operations of the members
of the LSPI Group have been and are being conducted in accordance with all
applicable laws, rules and regulations of applicable governmental
authorities (other than those covered in Section 18 hereof), except for
such breaches that do not and cannot reasonably be expected to (either
individually or in the aggregate) materially and adversely affect the
financial condition or operations of the LSPI Group, taken as a whole.
(ii) To the best knowledge of Sellers, neither the LSPI Group, nor
any of their officers or employees, has, directly or indirectly, given or
agreed to give any rebate, gift or similar benefit to any supplier,
customer, distributor, broker, governmental employee or other person, who
was, is or may be in a position to help or hinder the business of the LSPI
Group (or assist in connection with any actual or proposed transaction)
which could subject Buyer or the business of the LSPI Group to any penalty
in any civil, criminal or governmental litigation or proceeding or which
would have a material adverse effect on the business of the LSPI Group.
(n) Material Contracts. Sellers have furnished to Buyer a list,
attached as Schedule 7(n), of all contracts and arrangements, written or oral,
which alone or together with other contracts and arrangements with the same
party are material to the LSPI Group taken as a whole. All members of the
LSPI Group have, in all material respects, performed all of the respective
obligations required to be performed by them to date and are not, and will not
be as of the Closing Date, in default under any material provision of such
contracts or arrangements. All such contracts and arrangements are and will be
in good standing as of the Closing Date and in full force and effect according
to their terms. For purposes of this Section 7(n), a contract shall be deemed
to be material, (i) if it involves remaining payments of more than $300,000, or
(ii) if it cannot by its terms be completed or terminated without penalty
within 180 days from the Closing Date, or (iii) if the absence of such contract
would have a material adverse effect on the business of the LSPI Group.
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(o) Licenses and Permits. Except as set forth on Schedule 7(o), each
member of the LSPI Group has all requisite licenses and permits to operate its
business as currently conducted and Sellers have not been advised of, nor to
the best knowledge of Sellers is there any basis for, any revocation or
anticipated revocation of any permits, licenses or zoning variances, or of any
changes to existing or pending zoning or other regulations, permits or licenses
which would materially and adversely affect the conduct of its operations as
presently conducted.
(p) Insurance. Schedule 7(p) contains an accurate and complete list and
description of insurance policies (including the name of the insurer, coverage,
premium and expiration date) which each member of the LSPI Group currently
maintains, or is named as an additional insured or is entitled to benefits
under (including coverage for events occurring under prior policies). To the
best knowledge of Sellers, except as set forth on Schedule 7(p), all such
policies are in full force and effect and shall survive the Closing for the
benefit of LSPI.
(q) Employee Benefits. Schedule 7(q) contains a complete listing of
Employee Benefits provided to employees of LSPI. To the best knowledge of
Sellers, except as set forth on Schedule 7(q), (i) the costs of all such
Employee Benefits which are paid currently by LSPI are reflected as expenses in
the LSPI Group Financial Statements; and (ii) the cost of such Employee
Benefits which are, in whole or in part, not paid currently are adequately
reserved for in the LSPI Group Financial Statements. Sellers do not provide
either directly or indirectly any Employee Benefits to the employees of LSPI.
(i) Pension Plans. Sellers have delivered to Buyer accurate,
correct and complete copies of (i) any pension plan (as defined in Section
3(2) of ERISA) in which the employees of LSPI currently participate a list
of which is set forth on Schedule 7(q) (the "Pension Plans"), (ii) the
three most recent annual reports on Form 5500 and attached Schedule B, if
any, filed with the Internal Revenue Service with respect to the Pension
Plans, (if any such report was required), (iii) each trust agreement and
group annuity contract relating to the Pension Plans, if any, and (iv)
certified financial statements, if any. Sellers have disclosed to Buyer
the information set forth in the attorney's responses to auditor's
requests for information related to the Pension Plans.
(ii) Pension Plan Funding. All contributions to, and payments from,
each Pension Plan that may have been required to be made in accordance
with each Pension Plan and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made. All such contributions
to, and payments from, the Pension Plans, except those payments to be made
from a trust qualified under Section 401(a) of the Code, for any period
ending on or before the Closing Date that are not yet, but will be,
required to be made, will be properly accrued and reflected in the
Statements of Net Book Value. No employee of the LSPI
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Group participates in or has previously participated in any defined
benefit plan, as defined in Section 3(35) of ERISA, of LSPI.
(iii) Pension Plan Compliance With the Code and ERISA. The Pension
Plans (and any related trust agreement or annuity contract or any other
funding instrument) materially comply currently, and have materially
complied in the past, both as to form and operation, with the provisions
of ERISA and the Code (including Section 410(b) of the Code relating to
coverage), where required in order to be tax-qualified under Section
401(a) of the Code, and all other applicable laws, rules and regulations;
all necessary governmental approvals for the Pension Plans have been
obtained. Except as set forth in Schedule 7(q), each Pension Plan (and
any related trust agreements or annuity contracts or other funding
instrument) has received a determination letter from the Internal Revenue
Service to the effect that such Pension Plan (and any related trust
agreements or annuity contracts or other funding instrument) is qualified
and exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been
revoked nor, to the knowledge of Sellers, has revocation been threatened,
nor has such Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect which would
adversely affect its qualification or materially increase its cost.
(iv) Employee Benefits Administration. The Pension Plans and
Employee Benefits have been administered to date in material compliance
with the requirements of the Code and ERISA. All legally required
reports, returns and similar documents with respect to the Pension Plans
and Employee Benefits required to be filed with any government agency or
distributed to any Pension Plans or Employee Benefits participant have
been duly and timely filed or distributed. Except as set forth in
Schedule 7(q), there are no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Pension Plans or Employee
Benefits), suits or proceedings against or involving the Pension Plans or
Employee Benefits or asserting any rights or claims to benefits under the
Pension Plans or Employee Benefits that could give rise to any material
liability, nor, to the knowledge of Sellers, are there any facts that
could give rise to any material liability in the event of any such
investigation, claim, suit or proceeding. No event has occurred and no
condition exists under the Pension Plans or Employee Benefits that would
subject the LSPI Group or Buyer to any tax under Code Sections 4971, 4972,
4977 or 4979 or to a fine under ERISA Section 502(c).
(v) Prohibited Transactions. No "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA) has occurred
which involves the assets of the Pension Plans or other Employee Benefits
and which could subject the LSPI Group or any of their
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respective employees, or a trustee, administrator or other fiduciary of
any trusts created under the Pension Plans to the tax or penalty on
prohibited transactions imposed by Section 4975 of the Code or the
sanctions imposed under Title I of ERISA. Neither the LSPI Group nor any
trustee, administrator or other fiduciary of the Pension Plans nor any
agent of any of the foregoing has engaged in any transaction or acted or
failed to act in a manner which could subject the LSPI Group, its business
or Buyer to any material liability for breach of fiduciary duty under
ERISA or any other applicable law.
(vi) Liabilities to PBGC or Multiemployer or Multiple Employer
Plans. No liability to the Pension Benefit Guaranty Corporation or to any
multiemployer or multiple employer plan has been incurred by the LSPI
Group. Sellers and LSPI are not under common control within the meaning
of Section 414(b) or 414(c) of the Code.
(r) Transactions with Related Parties.
(i) To the best knowledge of Sellers, except for interest and
corporate overhead and as set forth on Schedule 7(r), none of the
LSPI Group members are a party to any transaction or proposed
transaction, including, without limitation, the leasing of real or
personal property, the purchase or sale of raw materials or finished
goods, or the furnishing of services, with either Seller or with any
person who is related to or affiliated with Sellers (other than another
member of the LSPI Group), involving the payment or accrual of more than
$1,000,000 during fiscal years 1993 or 1994.
(ii) Except as set forth on Schedule 7(r) or as reflected in the
LSPI Group Financial Statements dated December 31, 1994, neither Sellers
nor any person who is related to or affiliated with Sellers has any cause
of action or other claim whatsoever against or owes any material amount
to, or is owed any material amount by, any member of the LSPI Group.
(s) Bank Accounts. Schedule 7(s) sets forth a true and complete list of
all banks in which any member of the LSPI Group has an account, safe deposit
box or line of credit, and the names and titles of all persons authorized
to draw thereon or to have access thereto, and a summary description of
the use thereof.
(t) Tax Matters.
(i) All Returns (including consolidated or combined Returns
including any member of the LSPI Group) required to be filed on or before
the Closing with respect to each member of the LSPI Group have been or
will be timely filed (within the time permitted by any timely filed
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extension) by or on behalf of each member of the LSPI Group and all Taxes
shown to be due on such Returns have been timely paid.
(ii) No member of the LSPI Group has been a member of an affiliated
group (within the meaning of Section 1504 of the Code) filing a
consolidated federal Return, other than a group the common parent of which
is a Seller.
(iii) Schedule 7(t) lists all Returns filed with respect to any of
the members of the LSPI Group for taxable periods which remain open,
indicates those Returns that have been audited and indicates those Returns
that are currently the subject of audit or scheduled for an examination by
any relevant taxing authority.
(iv) Except as disclosed in Schedule 7(t):
(1) no notice or claim has ever been made by a governmental
authority in a jurisdiction where any member of the LSPI Group does
not file Returns that it is or may be subject to Taxes in that
jurisdiction;
(2) no extension of the statute of limitations with respect to
any assessment or claim for Taxes has been granted by or on behalf
of any member of the LSPI Group;
(3) there are no liens for Taxes upon the assets of any member
of the LSPI Group except liens for Taxes not yet due;
(4) no amended Returns or refund claims have been or are
scheduled to be filed by or on behalf of any member of the LSPI
Group;
(5) all Taxes and other liabilities with respect to completed
and settled audits, examinations or concluded litigation have been
paid; and
(6) there are no pending appeals or other administrative
proceeding with respect to any Return of any member of the LSPI
Group, and there is no deficiency or refund litigation with respect
to any Return of any member of the LSPI Group. No material issues
have been raised by any relevant taxing authorities on audit of the
Returns of the LSPI Group. No member of the LSPI Group has received
any notice of any Tax deficiency or assessment.
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(v) No member of the LSPI Group has filed or had filed on its
behalf a consent to the application of Section 341(f) of the Code.
(vi) Except as disclosed in Schedule 7(t), no member of the LSPI
Group is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment
of any Taxes. Except as disclosed in Schedule 7(t), no claim has been
asserted, which has not been resolved or satisfied, for any payment under
any agreement disclosed in Schedule 7(t).
(vii) Except as disclosed in Schedule 7(t), no member of the LSPI
Group is a party to or a beneficiary of any financing, the interest on
which is tax-exempt under the Code, and none of the assets of any member
of the LSPI Group is "tax-exempt use property."
(viii) As of the Closing Date, no member of the LSPI Group is a party
to any agreement, contract, arrangement, or plan that has resulted or
would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the
Code.
(ix) Each member of the LSPI Group is a "United States person"
within the meaning of the Code. No member of the LSPI Group has been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. The transactions contemplated
herein are not subject to the tax withholding provisions of Section 3406
of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other
provision of law. No member of the LSPI Group has nor had a branch in any
foreign country.
(x) No member of the LSPI Group is a party to any joint venture,
partnership, or other arrangement or contract that could be treated as a
partnership for federal income Tax purposes, except for LSPI.
(xi) Each member of the LSPI Group has withheld and paid all Taxes
required to have been withheld and paid, including (1) amounts paid to any
employee or statutory employee or any foreign person or entity and (2) any
backup withholding required under Section 3406 of the Code.
(u) Accounts Receivable. Schedule 7(u) sets forth an accurate, correct
and complete aging of all outstanding accounts and notes receivable of LSPI as
of December 31, 1994. All outstanding accounts and notes receivable reflected
on the LSPI Group Financial Statements are, and on the Statements of Net Book
Value will be, due and valid claims against account debtors for goods or
services delivered or rendered and subject to no defenses, offsets or
counterclaims. All receivables arose in the ordinary course of business. No
receivables are subject to prior assignment, claim, lien or security interest,
except under the Credit Agreement dated April 19, 1991, as
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amended. The books and records of LSPI reflect amounts taken as a reserve
against noncollection of accounts receivable, which reserve has been
established in accordance with LSPI's normal accounting policies consistently
maintained for the fiscal years ended December 31, 1993 and December 31, 1994
and there is no reason to believe that such reserve will not be adequate for
its purpose. As of the Closing Date, LSPI will not have incurred any
liabilities to customers for discounts, returns, promotional allowances or
otherwise, except those granted in the ordinary course of LSPI's operations and
reflected on the Statements of Net Book Value. No other member of the LSPI
Group has any business operations which would result in the establishment of
any trade accounts receivable or the granting of any discounts, returns,
promotional allowances or similar charges.
(v) Inventory. All inventories reflected on the LSPI Group Financial
Statements are, and on the Statements of Net Book Value will be, properly
valued at the lower of cost or market value on a first-in, first-out basis in
accordance with GAAP. Inventories of finished goods are of good and
merchantable quality, whether of first line or job lot paper, contain no
material amounts that are not salable in the ordinary course of business and
meet the current standards and specifications of its business, except as
reserved for on the LSPI Group Financial Statements. Inventories of raw
materials, stores and replacement parts are, to the best knowledge of Sellers,
(i) of good and merchantable quality and contain no material amounts that are
not usable for the purposes intended in the ordinary course of LSPI's
operations; (ii) in conformity with warranties customarily given to purchasers
of like products; and (iii) at levels adequate for and not excessive in
relation to the ordinary course of LSPI's operations and in accordance with
past inventory stocking practices. Sales of inventories subsequent to December
31, 1994 have been made only in the ordinary course of business and at prices
and under terms that are normal and consistent with past practice.
(w) Motor Vehicles. Schedule 7(w) sets forth an accurate and complete
list of all motor vehicles used in the business of the LSPI Group, whether
owned or leased. All such vehicles are (i) properly licensed and registered in
accordance with applicable law; (ii) insured as set forth on Schedule 7(p);
(iii) in good operating condition and repair (reasonable wear and tear
excepted) and (iv) not subject to any lien or other encumbrance, except as set
forth on Schedule 7(w).
(x) Product Warranty. The books and records of LSPI reflect amounts
taken as a reserve against claims and allowances for product warranties, which
reserve has been established in accordance with LSPI's normal accounting
policies consistently maintained for the fiscal years ended December 31, 1993
and December 31, 1994 and there is no reason to believe that such reserve will
not be adequate for its purpose. As of the Closing Date, LSPI will not have
incurred any unpaid liabilities to customers for such claims and allowances,
except those granted in the ordinary course of business and reflected on the
Statements of Net Book Value.
Disclosure of any fact in any provision of this Agreement or in any
Schedule attached hereto shall constitute disclosure thereof for the purposes
of any other provision or Schedule.
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8. Buyer's Representations and Warranties. Buyer represents and
warrants to Sellers as follows:
(a) Organization. Buyer is a duly organized and validly existing
corporation in good standing under the laws of the state of Wisconsin. Buyer
has all requisite corporate power to own its property and carry on its business
as presently conducted.
(b) Authority. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Buyer.
(c) Valid and Enforceable Agreement. This Agreement constitutes a valid
and binding agreement of Buyer, enforceable in accordance with its terms,
except insofar as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally, and by general equitable principles. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the performance of Buyer's obligations hereunder
materially violates or conflicts with, results in a material breach of, or
constitutes a material default under (i) to the best knowledge of Buyer, any
law, rule or regulation, or (ii) subject to the obtaining of necessary consents
under various agreements, any agreement or other restriction of any kind or
character to which Buyer is a party, by which Buyer is bound, or to which any
of the properties of Buyer is subject. Neither the execution or delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
nor the performance of Buyer's obligations hereunder violates or conflicts
with, results in a breach of or constitutes a default under (i) any judgment or
order, decree, award or ruling to which Buyer is subject, or (ii) the Articles
of Incorporation or By-Laws of Buyer.
(d) No Insolvency. Buyer is not currently insolvent, and neither the
purchase of the LSPI Group Stock, the assumption of the Guaranteed Obligations
of Sellers pursuant to Section 5, nor any related transaction or event shall
render Buyer insolvent or leave Buyer with assets which are unreasonably small
in relation to the business of the LSPI Group and its own business operations,
nor does Buyer intend to incur debts beyond its ability to pay them as they
come due.
(e) Financial Statements. Buyer's financial statements for the year
ended December 31, 1994, as filed with the Securities and Exchange Commission
(copies of which have been delivered to Sellers) (i) were prepared in
accordance with, and accurately reflect, its books and records, (ii) were
prepared in accordance with generally accepted accounting principles,
consistently applied, and (iii) present fairly the financial position and the
results of operations of Buyer for the periods covered thereby.
(f) Investment Intent. Buyer is purchasing the LSPI Group Stock for its
own account and not with a view to, or present intention of, sale or
distribution thereof in violation of the Securities Act of 1933, as amended
(the "1933 Act") and such shares will not be disposed of in contravention of
the 1933 Act. Buyer acknowledges that the LSPI Group Stock is not and has not
been registered with the Securities and Exchange
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Commission or any securities commission or agency of any state, including the
state of Minnesota, and may not be transferred or disposed of without
registration under the 1933 Act and applicable state securities laws or an
exemption from such registration.
Disclosure of any fact in any provision of this Agreement or in any
Schedule attached hereto shall constitute disclosure thereof for the purposes
of any other provision or Schedule.
9. Actions Pending Closing. From the date hereof through the Closing
Date, Sellers shall take, or cause their respective Joint Venturers and LSPI to
take, all actions necessary and appropriate to comply with, or to refrain from
taking any action in breach of, the following provisions for the period between
the execution of this Agreement and the termination hereof or the Closing Date:
(a) Operations. Each member of the LSPI Group shall conduct its
operations only in the ordinary course of business and shall not enter or
permit any member of the LSPI Group to enter into any transaction or perform
any act that would constitute a breach of the representations, warranties, or
agreements contained herein. Each member of the LSPI Group shall use its best
efforts to preserve its business and its organization intact and to keep
available the services of its present employees. Attached as Schedule 9(a) is
a list of capital expenditures and commitments to be initiated by the LSPI
Group prior to the Closing Date. No member of the LSPI Group shall initiate
any capital expenditure or commitment, other than as set forth on Schedule 9(a)
or initiate any capital expenditure or commitment as set forth on Schedule 9(a)
in excess of $25,000, without Buyer's approval, which approval shall not be
unreasonably withheld; provided, however, that any member of the LSPI Group may
initiate emergency capital expenditures or commitments consistent with the past
practices of such LSPI Group member. Sellers shall promptly notify Buyer of
such emergency expenditures or commitments.
(b) Access to Records. Sellers shall, and shall cause each member of
the LSPI Group to, make available to Buyer, its agents and employees, all books
and records in its possession relating to the businesses of each member of the
LSPI Group; provided, however, that Sellers have not made, and shall not be
deemed to have made, any representations or warranties whatsoever with respect
to any of such books or records or any other documents provided to or made
available to Buyer, except as expressly set forth in this Agreement.
(c) Access to Facilities. Buyer, its agents and employees, shall be
given full access during regular business hours to the physical facilities of
LSPI upon appointment with the President thereof and accompanied by such
President or his designee(s). Sellers and each member of the LSPI Group and
their respective employees shall cooperate fully with Buyer in its examinations
and inspections, but not to the detriment of the ongoing business operations of
the LSPI Group prior to Closing.
(d) Release of Guarantees. Sellers and Buyer shall agree on the actions
to be taken with respect to the release of each Seller from, and the
substitution (as required)
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of Buyer as, the guarantor of the LSPI Leases and other Guaranteed
Obligations. Each party shall pay its own costs in connection with seeking and
obtaining such releases, but if any additional or different payments or terms
are imposed by any lease participants in connection therewith, the costs or the
performance thereof shall be borne as agreed upon by Sellers and Buyer.
(e) Hart-Scott-Rodino Filings. Sellers and Buyer shall cooperate in the
prompt preparation and filing of all notifications and reports which may be
required with respect to the transactions contemplated by this Agreement
pursuant to Section 7A of the Clayton Act. Sellers and Buyer shall also
cooperate in responding promptly to all inquiries from the Federal Trade
Commission or the Department of Justice resulting from the filing of such
notifications and reports.
(f) Notice of Developments. At least ten (10) business days prior to
the Closing Date, Sellers shall deliver to Buyer a complete update of the
Schedules from the date hereof. Each party hereto shall notify the others of
any development(s) which shall constitute a breach of any of the
representations and warranties in Sections 7 or 8 above. The party so notified
has the right to terminate this Agreement within the period of ten (10)
business days from the date of receipt of such notification, if as a result of
such development the financial condition, results of operations or prospects of
the LSPI Group as a whole, on the one hand, or Buyer, on the other hand, have
been materially and adversely affected. If within such ten (10) day period,
the party notified shall not have exercised its right to terminate this
Agreement, the written notice shall be deemed to have amended this Agreement
and the relevant schedules attached thereto, to have qualified the
representations and warranties contained in Sections 7 or 8 above and to have
cured any misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of such development, including for purposes of
Section 15 hereof.
(g) LSPI Restrictions. Prior to the Closing Date, each Seller shall
waive or abandon its right of first refusal with respect to the transfer of the
other's interest in its respective Joint Venturer pursuant to this Agreement.
(h) Best Efforts. Buyer and Sellers shall use their best efforts to
consummate the transactions contemplated by this Agreement and shall not take
any other action inconsistent with their respective obligations hereunder or
which could hinder or delay the consummation of the transactions contemplated
hereby. From the date hereof through the Closing Date, Buyer and Sellers shall
use their best efforts to fulfill the conditions to their obligations hereunder
and to cause their representations and warranties to remain true and correct as
of the Closing Date.
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(i) Allocation of Pulp. Pentair and Buyer shall take all necessary
action to transfer all contracts for purchase of kraft pulp currently in the
name of Pentair and allocated to LSPI into the name of LSPI or Buyer, as Buyer
may direct. Until such contracts are transferred or terminated, Pentair shall
continue to perform such contracts or direct delivery of pulp thereunder to
LSPI in the same manner as currently performed, and LSPI shall pay for such
kraft pulp delivered to the seller thereof, or if Pentair has paid therefor,
promptly to Pentair upon delivery.
10. Conditions Precedent to Obligations of Buyer. The obligations of
Buyer hereunder (unless expressly waived by Buyer) are subject to the
fulfillment, prior to or at Closing, as the case may be, of each of the
following conditions:
(a) No Errors; Performance of Obligations. The representations and
warranties of Sellers herein shall be true and correct as of the Closing Date.
Sellers shall have performed the obligations set forth in Section 9 and in all
material respects all of the other obligations to be performed by them
hereunder in the time and manner herein stated.
(b) Officer's Certificates. Sellers shall have delivered to Buyer
certificates, dated as of the Closing Date, executed by their respective
Secretaries, and in form and substance satisfactory to Buyer, certifying that
the covenants and conditions specified in this Agreement to be met by Sellers
have been performed or fulfilled and that the representations and warranties
herein made by Sellers are true and correct as of such date.
(c) Certified Copy of Resolutions. Sellers shall have delivered to
Buyer a certified copy of resolutions adopted by their respective Boards of
Directors authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(d) Opinion of Sellers' Counsel. Sellers shall have delivered to Buyer
the opinion of their respective counsel, dated as of the Closing Date, in form
and substance satisfactory to Buyer and its counsel, giving the following clean
legal opinions:
(1) valid organization of Sellers and each of the members of the
LSPI Group;
(2) corporate power and authority of each Seller to enter into the
Agreement;
(3) necessary foreign qualification of members of the LSPI Group;
(4) No Breach or Default Opinion with respect to members of the
LSPI Group;
(5) No Violation Opinion with respect to each Seller;
(6) Remedies Opinion with respect to each Seller, this Agreement
and the LSPI Leases;
(7) Legal Proceedings Opinion with respect to each Seller and
members of the LSPI Group;
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(8) other legal matters agreed upon between Sellers and Buyer; and
(9) no violation of registration provisions of the 1933 Act and
applicable state securities laws;
all in accordance with, and subject to the General Qualifications and other
limitations and provisions contained in, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(e) Injunctions. No injunction shall have issued restricting or
prohibiting the transactions contemplated by this Agreement.
(f) Clayton Act Matters. The waiting period required by Section 7A of
the Clayton Act shall have expired or been terminated.
(g) Environmental Matters. The results of any inspections, soil test
boring, soil tests, drainage tests, surveys, topographical analyses,
engineering studies or other investigations performed or obtained by Buyer
shall not have disclosed evidence of Hazardous Materials in, on or adjacent to
any of the real properties owned or occupied by any member of the LSPI Group,
other than those disclosed in any environmental studies or other information
listed on Schedule 10(g) which would materially and adversely affect the
operations of the LSPI Group taken as a whole. Buyer shall not have
received any evidence that there are existing violations of any Environmental
Law, other than those described in Schedule 10(g), or that any requisite
environmental license or permit or any occupance, use or building permits or
other approvals from applicable governmental authorities are currently required
for the continued operation of the facilities owned by the LSPI Group which
have not been obtained or are not in effect. In order to enable Buyer to
conduct a due diligence investigation, Sellers and LSPI, and any other entity
within the LSPI Group or SRFI Group with relevant information on the
environmental status of the operating facilities of LSPI, shall provide Buyer
with access to the environmental files, licenses, permits, permit applications,
consultant reports, notices from local, state and federal governmental
entities, environmental audit and inspection reports, insurance files, and
other information necessary for Buyer to assess the environmental status of the
operating facilities of LSPI as well as permit or obtain permission for Buyer
to conduct soil and groundwater testing on or beneath the real properties owned
or occupied by any member of the LSPI Group.
(h) LSPI Restrictions. Each Seller shall have waived or abandoned its
right of first refusal with respect to the transfer of the other's interest in
its respective Joint Venturer pursuant to this Agreement.
(i) Financing. Buyer shall have used its best efforts to maintain an
aggregate of at least $250 million available under Buyer's committed and
uncommitted lines of credit until the Closing Date, and such lenders shall not
have cancelled or revoked such lines of credit prior to the Closing Date.
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(j) FIRPTA Certificate. Sellers shall have furnished Buyer with a
certificate of non-foreign status signed by the appropriate party and
sufficient in form and substance to relieve Buyer of all withholding
obligations under Section 1445 of the Code. If Sellers cannot furnish such a
certificate or Buyer is not entitled to rely upon such certificate under the
provisions of Section 1445 of the Code and the regulations thereunder, Sellers
shall take and/or permit Buyer to take any and all steps necessary to allow
Buyer to satisfy the requirements of Section 1445 of the Code.
(k) Purchase of SRFI and Niagara Paper. On or prior to the Closing
Date, Buyer shall have purchased all of the assets of LSPI Fiber Co., a joint
venture organized under the general partnership laws of the state of Minnesota
and all of the issued and outstanding capital stock of Superior Recycled Fiber
Corporation, a Minnesota corporation, and all of the issued and outstanding
capital stock of Niagara of Wisconsin Paper Corporation, a Wisconsin
corporation.
(l) Real Estate Consents. Sellers shall deliver to Buyer any consents
or approvals of any parties required pursuant to (i) the terms of any contract,
agreement, option or undertaking affecting the Owned Real Estate; and (ii) the
terms of the Real Estate Leases and estoppel certificates in form and substance
reasonably acceptable to Buyer from all lessors under the Real Estate Leases.
(m) Title Insurance and Surveys.
(i) Buyer shall have obtained an ALTA Owners Policy of Title
Insurance Form B Owner's Form (the "Title Policy") for each parcel of
Owned Real Estate, except the Buffer Real Estate, issued by a nationally
recognized title company reasonably acceptable to Buyer (the "Title
Company"). The Title Policy shall be in the amount of the purchase price
allocated to the Owned Real Estate by Buyer, showing fee simple title to
the Real Estate in a member of the LSPI Group (or if the member of the
LSPI Group is a contract purchaser, the seller designated under the
applicable sales contract), subject only to current real estate taxes not
yet due and payable as of the Closing Date, liens and encumbrances
reflected on Schedule 10(m) hereto, and such other covenants, conditions,
easements and exceptions to title as Buyer may approve in writing
(collectively, the "Permitted Exceptions"). With reasonable promptness,
after the date of this Agreement, Buyer shall order commitments (the
"Commitments") for the Title Policy. Copies of the Commitments shall be
promptly delivered to Sellers. The Commitments and the Title Policy to be
issued by the Title Company shall have all Standard and General Exceptions
deleted so as to afford full "extended form coverage" and shall contain an
ALTA Zoning Endorsement 3.1, contiguity, non-imputation, and such other
endorsements as may be reasonably requested by Buyer. At Closing, Sellers
shall deliver to Buyer a seller's affidavit or similar instruments as the
Title Company may require. Buyer shall be responsible for the cost of all
title insurance charges, premiums and endorsements, title abstracts and
attorneys' opinions, including all search, continuation
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and later-date fees. To the extent that any parcel of Owned Real Estate
is registered Torrens title, Sellers shall deliver the owner's duplicate
certificates of titles.
(ii) Buyer shall have obtained an as-built plat of survey of each
parcel of the Owned Real Estate (the "Surveys"), prepared by a registered
land surveyor or engineer, licensed in the respective states in which the
Owned Real Estate is located, dated on or after the date hereof, certified
to Buyer, the Title Company and such other entities as Buyer may designate
and conforming to current ALTA Minimum Detail Requirements for Land Title
Surveys, sufficient to cause the Title Company to delete the standard
printed survey exception and to issue the Title Policy free from any
survey objections or exceptions whatsoever. Buyer shall pay the entire
cost of obtaining the Surveys. Any Survey may be a recertification of a
prior survey, provided that it meets the above-described criteria. Each
Survey shall show all conditions as then existing, including the location
of all pipes, wires and conduits serving the Owned Real Estate and their
connections to public ways, parking areas denominated as such, loading
docks and other improvements, the access to and from the improvements on
the Owned Real Estate, and a flood plain certification indicating no flood
zone classification or area which would materially interfere with the
normal operations of LSPI. With reasonable promptness after the date of
this Agreement, Buyer shall order the Surveys. Copies of the Surveys
shall be promptly delivered to Sellers.
(iii) If (i) any Commitment or owner's duplicate certificate of title
discloses a title exception, other than a Permitted Exception, that
represents a defect affecting the marketability of the title to any parcel
of Owned Real Estate (an "Unpermitted Exception") or (ii) any Survey
discloses that improvements located on the surveyed land encroach onto
adjoining land or onto any easements, building lines or set-back
requirements, or encroachments by improvements from adjoining land onto
the surveyed land, or onto any easements for the benefit of the surveyed
land or overlap or reflects that any utility service to the improvements
or access thereto does not lie wholly within the Owned Real Estate or an
unencumbered easement for the benefit of the Owned Real Estate or reflects
any other matter, any of which materially and adversely affects the use or
improvements of such parcel of Owned Real Estate, or any other matter
which renders title to any Owned Real Estate unmarketable (a "Survey
Defect"), then, in any such event, Sellers shall have thirty (30) days
from the date of delivery thereof to have the Unpermitted Exception
removed from such Commitment and owner's certificate of title, if
applicable, or the Survey Defect corrected or insured over by an
appropriate title insurance endorsement, all at Sellers' cost and in a
manner reasonably satisfactory to Buyer, and in any such event the Closing
shall be extended, if necessary, to the date which is five (5) business
days after the expiration of such 30-day period. If Sellers fail to
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have any Unpermitted Exception removed or any Survey Defect corrected or
otherwise insured over to the reasonable satisfaction of Buyer within the
time specified therefor, Buyer, at its sole option, upon not less than
three (3) days' prior written notice to Sellers, may terminate this
Agreement and all of Buyer's obligations hereunder.
(n) Provision of Documentation. Sellers shall provide, to Buyer's
reasonable satisfaction, copies of all documentation set forth on Schedule 7(q)
but not delivered prior to the date hereof.
(o) Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be delivered to Buyer and be
reasonably satisfactory in form and substance to Buyer and its counsel.
11. Conditions Precedent to Obligations of Sellers. The obligations of
Sellers hereunder (unless expressly waived by Sellers) are subject to
fulfillment by Buyer, prior to or at Closing, as the case may be, of each of
the following conditions:
(a) No Errors; Performance of Obligations. The representations and
warranties of Buyer herein shall be true and correct as of the Closing Date.
Buyer shall have performed in all material respects all of the obligations to
be performed by it hereunder in the time and manner herein stated.
(b) Officer's Certificate. Buyer shall have delivered to Sellers a
certificate, dated as of the Closing Date, executed by an officer of Buyer, and
in form and substance satisfactory to Sellers, certifying that the covenants
and conditions specified in this Agreement to be met by Buyer have been
performed or fulfilled and that the representations and warranties herein made
by Buyer are true and correct as of such date.
(c) Certified Copy of Resolutions. Buyer shall have delivered to
Sellers a certified copy of resolutions adopted by the Board of Directors of
Buyer authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(d) Opinion of Buyer's Counsel. Buyer shall have delivered to Sellers
the opinion of its counsel, dated as of the Closing Date, in form and substance
satisfactory to Sellers and their counsel, giving the following clean legal
opinions:
(1) valid organization of Buyer;
(2) corporate power and authority of Buyer to enter into the
Agreement;
(3) No Breach or Default Opinion;
(4) No Violation Opinion;
(5) Legal Proceedings Opinion;
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(6) Remedies Opinion with respect to this Agreement; and
(7) other legal matters agreed upon between Sellers and Buyer;
all in accordance with, and subject to the General Qualifications and other
limitations and provisions contained in, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(e) Injunctions. No injunctions shall have issued restricting or
prohibiting the transactions contemplated by this Agreement.
(f) Clayton Act Matters. The waiting period required by Section 7A of
the Clayton Act shall have expired or been terminated.
(g) Financing. Buyer shall have used its best efforts to maintain an
aggregate of at least $250 million available under Buyer's committed and
uncommitted lines of credit until the Closing Date and such lenders shall not
have cancelled or revoked such lines of credit prior to the Closing Date.
(h) Sale of SRFI and Niagara Paper. On or prior to the Closing Date,
Buyer shall have purchased all of the assets of LSPI Fiber Co., a joint venture
organized under the general partnership laws of the State of Minnesota, and all
of the issued and outstanding capital stock of Superior Recycled Fiber
Corporation, a Minnesota corporation, and all of the issued and outstanding
capital stock of Niagara of Wisconsin Paper Corporation, a Wisconsin
corporation.
(i) Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be delivered to Sellers and be
reasonably satisfactory in form and substance to Sellers and their counsel.
12. Broker. Pentair represents and warrants that CS First Boston was
retained by it to represent it in this transaction. Minnesota Power represents
and warrants that PaineWebber Incorporated was retained by it to represent it
in this transaction. Buyer represents and warrants that Dillon, Read & Co.
Inc. has been retained by Buyer to represent it. Each Seller shall be
responsible for payment of all fees and expenses of its respective investment
banker and Buyer shall be responsible for payment of all fees and expenses of
Dillon, Read & Co. Inc. Should any claims for commissions be made by any other
person claiming an interest in this Agreement, or in the underlying
transactions, by reason of any agreement, understanding or other arrangement
with Buyer or with either Seller, or their respective agents, servants,
employees, or other representatives, then the party through, or on account of,
whom such claims are made shall indemnify and hold harmless the other parties
from any and all liabilities and expenses in connection therewith in accordance
with the provisions of Section 15 below. The foregoing provisions of this
Section 12 shall survive not only the Closing hereunder, but also any
termination or cancellation of this Agreement.
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13. Employees. (a) Sellers and LSPI agree to use all reasonable
efforts to keep the present employees of LSPI, during the period between the
execution hereof and the Closing Date. Buyer agrees that in the event that
employee health and retirement benefit programs currently provided to employees
of LSPI are changed or substituted for, all prior years of service of such
employees with LSPI or with other affiliates of Sellers will be recognized for
all purposes. Buyer and LSPI shall indemnify and hold Sellers harmless against
any severance or termination pay obligations based upon prior policies of
Sellers or LSPI or arising from the transactions contemplated hereby.
(b) Sellers have announced to selected employees of LSPI transition
incentives heretofore disclosed to Buyer, to encourage their continued
employment and achievement of performance targets for LSPI prior to Closing.
The costs and administration of all such transition incentives shall be the
sole responsibility of LSPI which shall pay such transition incentives promptly
after Closing, in accordance with the terms thereof.
14. Confidential Information. (a) Buyer acknowledges that pursuant to
its right to inspect Sellers and LSPI's records and facilities under Section 9,
Buyer shall become privy to Confidential Information. Buyer agrees that in the
event the transaction contemplated by this Agreement is not completed, all
Confidential Information disclosed to Buyer shall remain confidential, shall
not be used for the benefit of Buyer or any of Buyer's affiliates or disclosed
to any person or entity, and all recorded evidence thereof shall be delivered
to Sellers together with an officer's certificate to the effect that no copies
thereof or any extracts, derivatives or compilations thereof remain in
possession of Buyer, its employees, affiliates, agents, counsel or auditors.
The confidentiality and nonuse provisions hereof shall survive any termination
of this Agreement until August 26, 1997 with respect to Pentair and January 9,
1998 with respect to Minnesota Power. Buyer acknowledges that it has entered
into a confidentiality letter dated August 26, 1994 between itself and CS First
Boston on behalf of Pentair, and a confidentiality letter dated January 9, 1995
between itself and PaineWebber on behalf of Minnesota Power, and agrees that
such confidentiality letters shall continue in full force and effect for the
duration of their respective terms in addition to the provisions of this
Section 14.
(b) Sellers agree that in the event the transaction contemplated by this
Agreement is completed, all confidential and proprietary information related to
the LSPI Group shall remain confidential, shall not be used for the benefit of
Sellers or any of Sellers' affiliates or disclosed to any person or entity.
The confidentiality and nonuse obligations of Sellers hereunder shall be on the
same terms and conditions as the confidentiality letters set forth in Section
14(a) and shall survive any termination of this Agreement until August 26, 1997
with respect to Pentair and January 9, 1998 with respect to Minnesota Power.
15. Indemnification. (a) Without limiting any remedy Buyer may have
hereunder, Sellers hereby agree to indemnify, defend and hold Buyer harmless
from and against and in respect of any and all liabilities, losses, damages,
claims, costs and expenses, including reasonable attorneys fees, suffered or
incurred by Buyer, Pentair
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Duluth, Minnesota Paper or LSPI, when so suffered or incurred, by reason of or
relating to:
(i) any representation or warranty of Sellers contained in this
Agreement being breached or untrue;
(ii) any covenant or agreement of Sellers contained in this
Agreement being breached or not fulfilled in any material respect, and not
waived;
(iii) the assertion against Buyer of any other liability of either
Seller not assumed by Buyer hereunder; or
(iv) the assertion against Buyer or the LSPI Group of any liability
of the LSPI Group assumed by Sellers;
provided, however, that any claim arising out of any breach of warranty or
otherwise relating to (x) environmental conditions, permits or liabilities or
obligations with respect to Hazardous Materials shall be dealt with solely in
accordance with Section 18 hereof and (y) taxes shall be dealt with solely in
accordance with Section 23 hereof.
(b) Without limiting any remedy Sellers may have hereunder, Buyer hereby
agrees to indemnify, defend, and hold Sellers harmless from and against and in
respect of any and all liabilities, losses, damages, claims, costs and
expenses, including reasonable attorneys fees, by reason of or relating to:
(i) any representation or warranty by Buyer contained in this
Agreement being breached or untrue;
(ii) any covenant or agreement of Buyer contained in this Agreement
being breached or not fulfilled in a material respect, and not waived; or
(iii) the failure of Buyer to pay, discharge, or perform any
guaranty, obligation or liability assumed by Buyer hereunder (including
without limitation the Guaranteed Obligations).
(c) Notice of any claim of indemnification under this Agreement (other
than for claims pursuant to Sections 16, 18 and 23) shall be effective only if
such notice shall have been given in writing to the Indemnitor (as hereinafter
defined) on or prior to December 31, 1997. Notice of claims by Sellers against
Buyer regarding Guaranteed Obligations shall be effective only if given in
writing on or prior to the date six months following the date on which the
liability of Sellers is discharged with respect to the last outstanding
Guaranteed Obligation.
(d) The first $1,500,000 in the aggregate of claims made by Buyer or by
Sellers as a group (except claims against Sellers under Sections 19 or 23 or
under
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subparagraphs 15(a)(iii) and (iv) above, claims against Buyer under Section 19
or under subparagraphs 15(b)(iii) above or claims against either Buyer or
Sellers under Sections 12, 13, 14, or 16 hereof) pursuant to this Section shall
be borne by that party and shall not be indemnifiable. The minimum amount of
each such claim shall be not less than $50,000 in the aggregate.
(e) In the event that indemnification is sought with respect to any
obligation of Buyer and Sellers under this Agreement, the party seeking
indemnification (the "Indemnitee") shall give the party from whom
indemnification is sought (the "Indemnitor") notice of any claim of the
commencement of any action or proceeding promptly after the Indemnitee receives
notice thereof, and shall permit the Indemnitor to assume the defense of any
such claim or litigation resulting from such claim.
If the Indemnitor assumes the defense of any such claim or litigation
resulting therefrom, the obligations of Indemnitor as to such claim shall be
limited to taking all steps necessary in the defense or settlement of such
claim or litigation resulting therefrom and to holding the Indemnitee harmless
from and against any and all losses, damages and liabilities caused by or
arising out of any settlement approved by the Indemnitor or any judgment in
connection with such claim or litigation resulting therefrom.
The Indemnitee may participate, at its expense, in the defense of any such
claim or litigation, provided that the Indemnitor shall direct and control the
defense of such claim or litigation.
Except with the written consent of the Indemnitee, the Indemnitor shall
not, in the defense of such claim or any litigation resulting therefrom,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnitee of a release from all liability with respect to the
claim or litigation.
If the Indemnitor shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against such claim or
litigation in such manner as it may deem appropriate and, unless the Indemnitor
shall deposit with the Indemnitee a sum equivalent to the total amount demanded
in such claim or litigation, or shall deliver to Indemnitee a surety bond for
such amount in form and substance reasonably satisfactory to Indemnitee,
Indemnitee may settle such claim or litigation on such terms as it may
reasonably deem appropriate, and the Indemnitor shall promptly reimburse
Indemnitee for the amount of all costs and expenses, legal or otherwise,
reasonably incurred by the Indemnitee in connection with the defense against or
settlement of such claims or litigation. If no settlement of such claim or
litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for
the amount of any final judgment rendered with respect to such claim or in such
litigation and for all reasonable costs and expenses, legal or otherwise,
incurred by the Indemnitee in the defense against such claim or litigation, but
only to the extent that such amounts are actually paid.
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16. Guaranteed Obligations. In the event that Sellers' release from the
Guaranteed Obligations is not obtained, Sellers and Buyer agree that they will
continue to use their best efforts to obtain the complete release of Sellers
from the Guaranteed Obligations. Buyer shall indemnify Sellers against any and
all demands, payments, expenses and costs incurred by Sellers in connection
with such Guaranteed Obligations in accordance with Section 15 hereof for so
long as Sellers have any potential liability under any such Guaranteed
Obligations. Buyer and Sellers agree that the provisions of this Section 16
shall continue in full force and effect until the complete discharge of Sellers
under such Guaranteed Obligations.
Until Sellers are released from all of the Guaranteed Obligations, Sellers
agree to comply with any and all of their non-monetary obligations and
covenants under the LSPI Leases. In the event of any breach by Sellers of such
obligations and covenants, Sellers shall indemnify Buyer against any and all
demands, payments, expenses and costs incurred by Buyer or any member of the
LSPI Group in excess of those which would have been incurred by any member of
the LSPI Group in the course of performance of the Guaranteed Obligations but
for any breach by Sellers, in connection with the foregoing sentence in
accordance with Section 15 hereof for so long as Sellers have any obligations
under such Guaranteed Obligations. Buyer and Sellers agree that the provisions
of this Section 16 shall continue in full force and effect until the complete
discharge of Sellers under such Guaranteed Obligations.
In addition, with respect to the Keepwell Obligations of Sellers, until
complete discharge of Sellers thereunder, on the earlier to occur of (x) the
second anniversary of the Midterm Purchase Date or (y) the Change of Control
Date, and on each succeeding anniversary date thereof,
(a) Buyer shall post with Sellers irrevocable Letters of Credit for
the benefit of the members of the LSPI Group having a face value equal to
the nominal maximum amount of such Keepwell Obligations, which Letters of
Credit shall
(i) be in substantially the form set forth in Schedule 16
hereto,
(ii) be issued by a national banking institution with a rating
by Standard & Poor's of A or better or otherwise acceptable to
Sellers in their sole discretion,
(iii) be immediately payable to the respective Indenture
Trustees under the Trust Indentures entered into in connection with
the LSPI Lease, upon written notice to the issuing bank by the
respective Sellers of any demand, notice or claim for payment or
performance made upon such Seller under its Keepwell Obligations,
and
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(iv) shall be renewed (not less than thirty (30) days prior to
the expiration of any previous Letters of Credit) by substitute
Letters of Credit satisfying the conditions hereof.
Buyer shall use its best efforts to procure such Letters of Credit
for as long as its obligations under this subparagraph 16(a) continue.
(b) If Buyer is unable to post such Letters of Credit, for so long
as such Letters of Credit have not been provided, Buyer shall pay to
Sellers an annual guaranty fee equal to 2.0% of the then current nominal
remaining maximum amount of such Keepwell Obligations, not as penalty but
as compensation for Sellers' continuing guaranty thereof for the benefit
of Buyer.
(c) Following the Closing Date, Buyer agrees that it shall not
pledge, sell, transfer, assign or otherwise dispose of all or any part of
the LSPI Group Stock or all or substantially all of the assets of LSPI
without the written consent of Sellers, which consent may be granted or
withheld in its sole discretion. At any time, Buyer may merge with to
into, or consolidate with, any other corporation or sell any members of
the LSPI Group or the assets thereof, provided that:
(i) Buyer remains absolutely and unconditionally obligated
under this Agreement including specifically, but without limitation,
Section 15 and 16 hereof; and
(ii) prior to such transaction there shall have been delivered
to Sellers an opinion of Buyer's counsel reasonably satisfactory to
Sellers stating in effect that Buyer's obligations under Section 15
and 16 of this Agreement are legal, valid and binding obligations of
Buyer enforceable in accordance with their terms against Buyer,
subject to customary qualifications as to enforceability.
17. Expenses. Sellers and Buyer shall each be responsible for
all of their own expenses incurred in connection with the transactions
contemplated hereby. Sellers shall be responsible for the accounting and
auditing fees and expenses related to the preparation of the Statement of Net
Book Value. Sellers shall cooperate and cause their respective accountants and
the accountants for LSPI to cooperate and assist Buyer and its accountants
(including consenting to the use of the LSPI Group Financial Statements with
respect to any filings by Buyer with the Securities and Exchange Commission in
connection with the transactions contemplated hereby. Sellers shall be
responsible for any and all fees and expenses of Sellers' and LSPI's
accountants with respect to the foregoing. Buyer will pay the incremental
costs and expenses of auditing the LSPI financial statements or other
information required by Buyer, other than the statement of Net Book Value as of
the Closing Date. Buyer will pay the cost of the Commitments, Title Policies
and Surveys set forth in Section 10(n).
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18. Environmental Matters.
(a) Warranty. Sellers warrant that, other than as disclosed to Buyer
pursuant to Schedule 10(g) attached:
(i) Compliance with Environmental Laws. The business and
operations of each member of the LSPI Group comply in all material
respects with all applicable Environmental Laws, except to the extent that
such noncompliance could not be reasonably expected to have a material
adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the LSPI Group.
(ii) Notice/Receipt of Notice. No member of the LSPI Group has
given, or is required to give, nor has any member received, any written
notice, letter, citation, or order, or any written warning, complaint,
inquiry, claim or demand (or if verbal, to the extent the warning,
complaint, inquiry, claim or demand is recorded in a written log) that:
(i) any member of the LSPI Group has violated, or is about to violate, any
Environmental Law; (ii) there has been a release, or there is a threat of
release, of a non-de minimis quantity of Hazardous Material from any of
the LSPI Group's property, facilities, equipment or vehicles or previously
owned or leased properties; (iii) any member of the LSPI Group may be or
is liable, in whole or in part, for material costs of cleaning up,
remediating, restoring or responding to a release of Hazardous Material;
(iv) any of the LSPI Group's property or assets or previously owned or
leased properties or assets are subject to a lien in favor of any
governmental entity for any liability, costs or damages, under any
Environmental Law; and (v) any member of the LSPI Group may be or is
liable in whole or in part, for natural resource damages; provided, that
for purposes of liability for natural resource damages such notice,
letter, citation, order, inquiry, claim or demand was made by a
governmental agency.
(iii) Property on Environmental Cleanup Lists. No property now or
previously owned or leased by the LSPI Group is listed (or with respect to
Owned Real Estate proposed for listing) on the National Priorities List
pursuant to Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.)
("CERCLA"), on the CERCLIS or on any similar state list of sites
requiring investigation or clean-up.
(iv) Intentionally left blank.
(v) Past Disposal -- On site. Neither any member of the LSPI Group
nor to the best knowledge of Sellers any previous owner or other person,
has ever caused or permitted any material release or disposal of any
Hazardous Material on, under or at any of the facilities or properties of
the LSPI Group or any part thereof, and none of such facilities or
properties, nor any part thereof have ever been used (whether by the LSPI
Group or to Sellers' best knowledge by any
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other person) as a permanent storage facility or disposal site for any
Hazardous Material.
(vi) Underground Storage Tanks. There are no underground storage
tanks, including any associated piping, active or abandoned, including
petroleum storage tanks, on or under any property now or previously owned
or leased by the LSPI Group that, singly or in the aggregate, have, or may
reasonably be expected to have, a material adverse effect on the financial
condition, operations, assets, business, or properties of the LSPI Group.
(vii) Off-Site Disposal. No member of the LSPI Group has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed, proposed for listing or, to the
best knowledge of Sellers, which if known to the state or federal
government would warrant listing on the National Priorities List pursuant
to CERCLA, on the CERCLIS or on any similar state list or which is or
reasonably could be the subject of federal, state or local enforcement
actions or other investigations which may reasonably be expected to lead
to material claims for any remedial work, damage to natural resources or
personal injury, including claims under CERCLA.
(viii) PCBs/Asbestos. There are no PCB's or friable asbestos present
at any property now or previously owned or leased by the LSPI Group that,
singly or in the aggregate, have, or may reasonably be expected to have, a
material adverse effect on the financial condition, operations, assets,
business or properties of the LSPI Group.
(ix) Pollution Control Equipment. All pollution control equipment,
including any monitoring devices or related equipment, is in proper
operating condition, has been properly maintained, and, in the case of
major ("end-of-pipe") wastewater treatment and air pollution control
facilities, has been designed to maintain compliance with applicable
Environmental Laws based upon the current production rates and operating
policies of LSPI in effect since January 1, 1995. All material actions
necessary to maintain in force any original, as delivered, manufacturer
warranties have been taken with respect to all major components of
wastewater and air pollution control facilities.
(x) Other Environmental Conditions Off-Site. To Sellers' best
knowledge there are no sites or locations not currently owned or leased by
the LSPI Group where Hazardous Materials were disposed of which with the
passage of time, or the giving of notice or both could reasonably be
expected to give rise to any material liability under any Environmental
Law, to any member of the LSPI Group.
(b) Indemnity. Subject to the provisions of Section 18(c) below and the
limitations on indemnification set forth in Section 15(d) above, Sellers shall
indemnify and hold Buyer and the members of the LSPI Group harmless from and
against any and all losses, liabilities, damages, injuries, penalties, fines,
costs, expenses and claims of any
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and every kind whatsoever (including reasonable attorneys' and consultants'
fees and expenses), paid, incurred or suffered by Buyer as a result of any
breach of warranties set forth in Section 18(a). With respect to any liability
for disposal or arranging for disposal of Hazardous Materials at sites or
locations not currently owned or leased by the LSPI Group, this indemnity shall
apply notwithstanding the fact that Buyer may have received or obtained
information before the Closing Date, other than that information disclosed on
Schedule 10(g) indicating or otherwise showing that a claim exists or may exist
under this indemnity, including, but not limited to, any information relating
to a breach of the warranties set forth in Section 18(a) above.
(c) Special Provisions. The following provisions shall apply in the
event of any breach of warranty under this Section 18.
(i) Notice. Buyer shall promptly, and in no event later than 90
days from the date Buyer has knowledge, notify Sellers in writing of any
claim, demand or action, situation or event covered by the warranty and
indemnification provisions of Section 18. With respect to any work or
activities undertaken by Buyer which is subject to this indemnity, Buyer
shall provide Sellers in a timely manner, written documentation prepared
in the normal course of business describing the work or activities.
(ii) Disclosure of On-Site Environmental Matters. Buyer agrees that
environmental matters associated with the Real Estate which are contained
in the environmental reports and documents listed on Schedule 10(g), as
well as any information obtained by Buyer during its due diligence
activities conducted on the Real Estate between the signing of this
Agreement and the Closing Date, shall be considered disclosed to Buyer.
(iii) Election of Control Off-Site Work. At Sellers' option, to the
extent Sellers are obligated to indemnify Buyer under this Section for the
costs of investigating, remediating, restoring or cleaning-up any site
where Hazardous Materials were disposed and the site is located on
property not currently owned, leased or otherwise used by the LSPI Group
(nor reasonably anticipated to be used by the LSPI Group), Sellers may
elect to take control of the investigation, remediation, restoration
and/or clean-up ("Environmental Cleanup"). If they elect to do so,
Sellers shall so notify Buyer and Sellers thereafter shall be solely
responsible (as between the parties hereto) for managing and paying for
such Environmental Cleanup (to the extent it is obligated to indemnify
Buyer) including any fines, penalties or third-party actions associated
with the Environmental Cleanup.
(iv) Buyer's Control of Work. Other than in connection with off-
site Environmental Cleanups, Buyer and/or the LSPI Group shall manage and
conduct any Environmental Cleanup work and shall manage and control the
repair and replacement of any pollution control equipment. All such work
shall be done in a commercially reasonable, cost-effective manner using
good faith
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business judgment and without regard to the availability of
indemnification hereunder.
(v) Pollution Control Equipment. In situations where the
installation of pollution control equipment is required in order to obtain
compliance with the Environmental Laws, Sellers' liability under this
Section shall include both capital and reasonable operation and
maintenance costs (calculated on a reasonable present value basis).
(vi) Interference with Operations. In situations where the
Environmental Cleanup or the installation, repair or replacement of the
pollution control equipment will materially interfere with the conduct of
the operations of the LSPI Group, Sellers shall be responsible for the
reasonable costs, expenses or losses associated with or attributable to
any material business interruption losses, provided that Buyer shall do
the work or activities in a manner that is least disruptive of the LSPI
Group's ongoing operations.
(d) Exclusive Remedy. This Section provides to Buyer, the respective
LSPI Group members and anyone claiming under or through them the exclusive
remedy against Sellers with respect to any matter covered by this Section 18,
and such exclusive remedy shall lapse and be of no further force or effect on
and after the fifth anniversary of the Closing Date.
(e) Inspection of Books and Records. In the event of any claim made by
Buyer for indemnification under this Section 18, Sellers shall be entitled to
access, at times reasonably convenient to Buyer and the members of the LSPI
Group, to such books, records and data related to such claim for
indemnification hereunder, as Sellers deem necessary to verify the basis or
amount of such claim.
19. Termination of Agreement. This Agreement may be terminated upon ten
(10) business days prior written notice at any time prior to Closing without
liability of any party to the other:
(a) by mutual consent of Sellers and Buyer;
(b) by Buyer, if notice of a material adverse development with respect
to the financial condition, results of operations or prospects of the LSPI
Group has been given, in accordance with Section 9(f) hereof;
(c) by Buyer, if Closing has not occurred on or before September 30,
1995 as a result of the nonfulfillment of any of the conditions to Buyer's
obligation to perform contained in Section 10 of this Agreement;
(d) by Sellers, if notice of a material adverse development with respect
to the financial condition, results of operations or prospects of Buyer has
been given, in accordance with Section 9(f) hereof;
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(e) by Sellers, if Closing has not occurred on or before September 30,
1995 as a result of the nonfulfillment of any of the conditions to Sellers'
obligation to perform contained in Section 11 of this Agreement; and
(f) by any party, if the Closing has not occurred by October 31, 1995.
Termination of this Agreement shall not affect in any way the continuing
obligations of the parties hereto pursuant to Section 12 relating to brokers
and Section 14 hereof relating to the treatment of confidential information.
20. Announcements. Buyer and Sellers shall cooperate in the preparation
of any announcements regarding the transactions contemplated by this
Agreement. Except as required by law, no party shall issue any announcement
regarding the transactions contemplated hereby without the prior consent of the
other parties, which consents shall not be unreasonably withheld. The
covenants set forth in this Section shall be enforceable in law or at equity
by either party.
21. Records. After the Closing Date, Buyer shall retain the books,
records or other data of each member of the LSPI Group existing at the Closing
Date for a period of ten (10) years. During the retention period specified
above, Sellers shall be entitled to access, at times reasonably convenient to
Buyer, to such books, records and data in connection with the preparation or
handling of Sellers' tax returns, financial reports, tax audits, W-2 forms,
litigation matters or any other reasonable need of either Seller. If the LSPI
Group or Buyer wish to dispose of such material (whether during or following
the 10-year period), it shall give Sellers prior notice and the opportunity to
remove such material at the expense of the Seller(s) requesting the same.
22. Assistance after Closing. Buyer shall furnish, at no cost to
Sellers, such assistance to Sellers in the preparation of their respective
fiscal 1994 and 1995 financial and tax reports as Sellers may reasonably
request. All such assistance shall be on a confidential basis and Sellers
agree to comply with the confidentiality and limitation on use provisions of
Section 14 hereof with respect to such confidential information.
(a) Retained Liabilities. Buyer shall also provide Sellers with
reasonable assistance, including without limitation furnishing of documents and
making available to Sellers potential witnesses within its control or that of
any member of the LSPI Group and the assistance of their respective engineers
or experts, in the defense of any claim, lawsuit or tax examination arising out
of the operations of LSPI prior to the Closing Date for which Sellers retain
liability under this Agreement. Sellers shall reimburse Buyer or such member
of the LSPI Group for its out of pocket expenses incurred in providing such
assistance.
(b) Allocation of Pulp. Pentair and Buyer shall take all necessary
action to transfer all contracts for purchase of kraft pulp currently in the
name of Pentair and allocated to LSPI into the name of LSPI or Buyer, as Buyer
may direct. Until such contracts are transferred or terminated, Pentair shall
continue to perform such contracts and direct delivery of pulp thereunder to
LSPI in the same manner as currently
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performed, and LSPI shall pay for such kraft pulp delivered to the seller
thereof, or if Pentair has paid therefor, promptly to Pentair upon delivery.
23. Tax Matters; Payment of Taxes.
(a) Tax Returns. Sellers shall prepare or cause to be prepared and
shall timely file all Returns (including any amendments thereto) relating to
any Taxes of the members of the LSPI Group with respect to any tax period
ending on or before the Closing. Sellers shall pay or cause to be paid all
Taxes of the members of the LSPI Group with respect to any period ending on or
before the Closing as determined in accordance with Sections 23(b) and 23(c)
hereof.
(b) Apportionment of Income. Sellers will include the income of the
LSPI Group (including any deferred income and any excess loss accounts pursuant
to relevant rules and regulations of the Internal Revenue Service) on Sellers'
federal and state income tax Returns for all periods through the Closing Date
and shall pay any federal and state income taxes attributable to such income.
The LSPI Group will furnish all tax information requested by Sellers to it for
inclusion in Sellers' income tax Returns for the period which includes the
Closing Date in accordance with Sellers' past custom and practice. The income
of the LSPI Group will be apportioned to the period up to and including the
Closing Date and the period after the Closing Date by closing the books of the
LSPI Group as of the end of the Closing Date.
(c) Allocation of Taxes. For purposes of this Agreement, in the case of
any Taxes that are imposed on a periodic basis and are payable for a period
that begins before the Closing Date and ends after the Closing Date, Sellers
shall reimburse Buyer for the portion of such Taxes payable for the period
ending on the Closing Date to the extent such Taxes are not reflected on the
Statement of Net Book Value as of the Closing Date. For this purpose, the
portion of such Tax payable for the period ending on the Closing Date shall in
the case of any Taxes other than Taxes based upon or related to income or sales
or use taxes, be deemed to be the amount of such Taxes for the entire period
multiplied by a fraction, the numerator of which is the number of days in the
period ending on the Closing Date, and the denominator of which is the number
of days in the entire period. The preceding sentence shall be applied with
respect to Taxes relating to capital (including net worth or long-term debt) or
intangibles by reference to the level of such items on the Closing Date to the
extent such Taxes are not reflected on the Statement of Net Book Value as of
the Closing Date.
(d) Indemnity. Notwithstanding anything to the contrary in this
Agreement whether expressed or implied, Sellers shall indemnify and hold
harmless Buyer, and each member of the LSPI Group against:
(1) all Taxes imposed on any member of the LSPI Group with respect to
any period ending on or before the Closing;
(2) all Taxes imposed on Buyer or on any member of the LSPI Group with
respect to any period which begins before the Closing Date
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and ends after the Closing Date to the extent allocated to the
portion of such period ending on the Closing Date, determined in
accordance with Section 23 hereof;
(3) all Taxes imposed on Buyer or on any member of the LSPI Group with
respect to income earned by any member of the LSPI Group for the
period beginning January 1, 1995 and ending on the Closing Date,
determined in accordance with Section 23(b) hereof;
(4) all Taxes imposed on any member of the LSPI Group as a result of the
Section 338(h)(10) Elections contemplated by Section 24 hereof;
(5) all Taxes imposed on any member of an affiliated, consolidated,
combined or unitary group which includes or has included any member
of the LSPI Group with respect to any taxable period that ends on or
prior to the Closing;
(6) all liability resulting from or attributable to a breach of the
representations, warranties and covenants contained in Section 7(t)
and this Section 23; and
(7) any claim under Treas. Reg. Section 1.1502-6 by the Internal Revenue
Service against any member of the LSPI Group which was a member of
Sellers' respective consolidated groups prior to the Closing Date
with respect to any federal income tax liability of any Sellers for
any period ending on or prior to December 31, 1995.
(e) Post-Closing Elections. Sellers will (or will cause members of the
LSPI Group, as the case may be to) make or join, as necessary, with Buyer in
making any election relating to income taxes, including, but not limited to,
elections under Section 732(d) and Section 754 of the Code, for the year in
which the Closing Date occurs. Prior to Closing, Buyer shall retain an
appraiser to appraise the assets of the LSPI Group. Sellers and the members of
the LSPI Group and their respective employees shall cooperate fully with Buyer
and its appraiser in connection with the appraisal. The cost of the appraisal
shall be borne by Buyer.
(f) Control of Contest. Sellers shall have the right, at their own
expense, to control any audit or determination by any taxing authority,
initiate any claim for refund or amended Return and contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or proposed
adjustment of Taxes for any taxable period for which any Sellers (or any of its
affiliates) is charged with responsibility for filing a Return under this
Agreement. Each party will allow the other and its counsel (at its or their
own expense) to be represented during any audits of income tax Returns to the
extent that disputed items therein relate to the LSPI Group. Buyer shall, or
shall cause its affiliates to, undertake or authorize actions in their capacity
as tax matters partner of LSPI as requested by Sellers with respect to this
Section 23(f).
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(g) General. Each of Buyer and Sellers shall provide the other, and
Buyer shall following the Closing cause each member of the LSPI Group to
provide to Sellers, with the right, at reasonable times and upon reasonable
notice, to have access to personnel, and to copy and use, any records or
information that may be relevant in connection with the preparation of any
Returns, any audit or other examination by any taxing authority or any
litigation relating to liability for Taxes. Information required in the filing
of any Return shall be provided to the other party not less than thirty (30)
days before such Return is due. Sellers will allow the Buyer an opportunity to
review and comment upon any Returns under Subsection 23(a) (including any
amended returns) to the extent that they relate to any member of the LSPI
Group. Sellers will take no position on such Returns that relate to any member
of the LSPI Group that would adversely affect any member of the LSPI Group
after the Closing. Sellers and Buyer shall retain all records relating to
Taxes for as long as the statute of limitations with respect thereto shall
remain open.
(h) Sales and Transfer Taxes. All sales and transfer Taxes (including
all stock transfer taxes, if any) incurred in connection with the transactions
contemplated hereby will be borne by the statutorily responsible party. If
required by applicable law, Buyer or Sellers, as the case may be, will join in
the preparation and execution of any Returns or other documentation related to
the payment of any sales or transfer Taxes.
(i) Tax Effective Time. For purposes of Taxes, the Closing shall be
deemed to have occurred, and shall be effective, as of the close of business on
the Closing.
(j) Survival. All of the representations, warranties, covenants and
indemnities contained in this Agreement which relate to Taxes shall survive the
Closing (even if the Indemnified Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of the Closing)
and continue in full force and effect until the expiration of the applicable
statute of limitations (including any extensions thereof).
(k) LSPI Leases Tax Rate Change Indemnity. In the event of an
adjustment of rents under the LSPI Leases, as a result of a Change in Tax Law
which becomes effective after the date hereof and on or prior to the date (the
"Midterm Purchase Date") on which LSPI may make the Midterm Purchase in
accordance with Section 13(b) of the Facility Leases (whether or not such
Midterm Purchase is made),
(i) if such adjustment occurs as a result of an increase in
corporate tax rates, Sellers shall indemnify and hold harmless Buyer and
each member of the LSPI Group (without duplication) against
(A) any increase in Basic Rent, payable to any Lessor not
affiliated with Buyer, over the amount of Basic Rent payable as of
the Closing Date under each of the LSPI Leases, for the period from
the effective date of such increase to the Midterm Purchase Date;
and
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(B) if and only if LSPI exercises its option to purchase the
Undivided Interests on the Midterm Purchase Date pursuant to Section
13(b) under the LSPI Leases, any increase in the Agreed Fair Market
Value, paid to any Lessor not affiliated with Buyer, over the Agreed
Fair Market Value payable as of the Closing Date under each of the
LSPI Leases;
in each event payable at the time such increased amount is paid by
such member of the LSPI Group;
(ii) if such adjustment occurs as a result of a decrease in
corporate tax rates, Buyer shall pay to Sellers
(A) any decrease in Basic Rent, payable to any Lessor not
affiliated with Buyer, over the amount of Basic Rent payable as of
the Closing Date under each of the LSPI Leases, for the period from
the effective date of such decrease to the Midterm Purchase Date;
and
(B) if and only if LSPI exercises its option to purchase the
Undivided Interests on the Midterm Purchase Date pursuant to Section
13(b) under the LSPI Leases, any decrease in the Agreed Fair Market
Value, paid to any Lessor not affiliated with Buyer, over the Agreed
Fair Market Value payable as of the Closing Date under each of the
LSPI Leases;
in each event payable at the time such decreased amount is paid by
such member of the LSPI Group;
Attached hereto as Schedule 23 is a schedule of Basic Rent, Agreed Fair
Market Values and other pricing items for the LSPI Leases, in effect as of
the Closing Date. Capitalized terms used in this Section 23(k) but not
defined in this Agreement shall have the meanings ascribed to them in the
LSPI Leases.
(l) Refund of Tax Indemnity Payment. In accordance with the Tax
Indemnity Agreement with NYNEX Credit Corporation ("NYNEX") under the LSPI
Leases, LSPI advanced funds to NYNEX in connection with its tax audit as
affected by a tax audit relating to LSPI's tax years 1985-87. LSPI has
transferred to the Sellers as of December 31, 1994 a receivable from NYNEX with
respect to any refund of such advance. If and to the extent LSPI is repaid by
NYNEX for such advance, Buyer agrees to cause LSPI to pay such refunded amounts
one-half to each Seller promptly upon receipt. Notwithstanding the foregoing,
Sellers shall indemnify and hold harmless Buyer and each member of the LSPI
Group from and against any and all demands, payments, expenses and costs
incurred by Buyer or any member of the LSPI Group under the Tax
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Indemnity Agreements with respect to any actions taken by Sellers or any
members of the LSPI Group or events occurring prior to the Closing Date.
(m) Tax Agreements. Minnesota Power and Buyer agree that, upon Closing,
the Tax Agreement dated October 5, 1993 and the State Tax Agreement dated
October 5, 1993, both between Minnesota Power and its subsidiaries, including
Minnesota Paper, shall terminate as to Minnesota Paper, and, that
notwithstanding Section 7 of each such agreement, following termination of each
agreement, Minnesota Paper and Buyer shall not be bound by the terms of the
agreements and not be entitled to receive or obligated to make payments under
the agreements attributable to any period during which Minnesota Paper was a
party to each agreement.
24. Section 338(h)(10) Election. Each Seller agrees to jointly file
with Buyer the election (the "Election") provided for by Section 338(h)(10) of
the Code and the corresponding election under applicable state or local tax law
with respect to the sale and purchase of capital stock of each of the Joint
Venturers, as the case may be. In connection with the Election:
(a) Buyer and Sellers shall each provide to the other all necessary
information, including information as to tax basis, to permit the Election to
be made and its consequences to be accurately reflected for all relevant
accounting and tax reporting purposes, and to take all other actions necessary
to enable Buyer and Sellers to make the Election.
(b) Buyer shall retain at Buyer's cost an appraiser to prepare a report
(a "Report") appraising the value of the assets of the Joint Venturers to
determine the proper allocations (the "Allocations") of the "adjusted grossed-
up basis" (within the meaning of Treasury Regulation Section 1.338(b)-(1) and
the modified adjusted deemed selling price ("MADSP") (within the meaning of
Treasury Regulation Section 1.338(h)(10)-1) among the assets of the Joint
Venturers in accordance with Section 338(b)(5) and (h)(10) of the Code and
Treasury Regulations thereunder.
The Report shall be finalized no later than 120 days after the Closing
Date. At least thirty (30) days before such Report is finalized, Buyer shall
provide Sellers a copy of the appraiser's preliminary report or indication of
the Allocations. After receipt of such preliminary report or indication,
Sellers shall give to Buyer in writing any objections or questions which
Sellers may have to such preliminary report or indication, and the parties
shall thereafter use their best efforts to resolve such objections or questions
so that the Report is finalized no later than 120 days after the Closing Date
and the Election is timely made.
(c) Buyer and Sellers shall jointly prepare a Form 8023-A, together with
all required attachments, and the corresponding forms required or appropriate
under state tax laws (collectively, an "Election Form") in a manner consistent
with the Allocation.
(d) As promptly as practicable after the Closing Date, Buyer and Sellers
shall take all action and file all documents to effect and preserve a timely
Election.
-45-
<PAGE>
(e) Each Seller shall allocate the MADSP resulting from the Election in
a manner consistent with the Allocations and shall not take any position
inconsistent with the Election or the Allocations in connection with any
Return; provided, however, that each Seller may take into account its
transaction costs when calculating such MADSP.
(f) Buyer shall allocate the "adjusted grossed-up basis" of the capital
stock of the Joint Venturers among the assets of the Joint Venturers in a
manner consistent with the Allocations and shall not take any position
inconsistent with the Election or the Allocations in any Return or otherwise;
provided, however, that Buyer may add its transaction costs to the "adjusted
grossed-up basis" of the capital stock of the Joint Venturers for purposes of
allocating among the assets of the Joint Venturers.
(g) Sellers and Buyer acknowledge that for federal income tax purposes
(and for state income tax purposes in those states whose income tax provisions
follow the federal income tax treatment), the sale of the capital stock of the
Joint Venturers from Sellers to Buyer will be treated as a sale of assets by
each Joint Venturer to Buyer followed by a complete liquidation of each Joint
Venturer with and into Sellers, and the parties agree to report the transaction
in a manner consistent with this treatment and to take no positions
inconsistent with this treatment. The parties also agree that neither Buyer
nor the Joint Venturers shall be liable for any Taxes resulting from the sale
of the capital stock of Joint Venturers or the Election.
25. Limitations on Liability.
(a) Any amount of indemnity payable by Sellers under Sections 12, 14,
15, 16, 18, 19 or 23 of, or relating to the transactions contemplated by, this
Agreement, or arising in connection with the operations, properties or
financial condition of members of the LSPI Group shall be paid by Sellers
severally, and not jointly or jointly and severally, in accordance with the
following principles:
(i) if the claim arises out of any misrepresentation or breach of
warranty made with respect to either Seller or its respective Joint
Venturer, the claim shall be the sole responsibility of such Seller;
(ii) if the claim arises out of any misrepresentation or breach of
warranty made with respect to LSPI, the claim shall be the responsibility
of both Sellers, who shall each pay one-half of any amount of indemnity
with respect thereto;
(iii) if the claim arises out of the breach of any covenant or
agreement by either Seller or its respective Joint Venturer, the claim
shall be the sole responsibility of such Seller;
(iv) if the claim arises out of the breach of any covenant or
agreement by LSPI, the claim shall be the responsibility of both Sellers,
who shall each pay one-half of any amount of indemnity with respect
thereto;
-46-
<PAGE>
(v) if the claim arises out of assertion by any third party of any
claim (including tax claims), liability or obligation against or with
respect to any member of the LSPI Group which is assumed, or indemnified
against, by either Seller, with respect to its respective Joint Venturer,
the claim shall be the sole responsibility of such Seller;
(vi) if the claim arises out of assertion by any third party of any
claim (including tax claims), liability or obligation against or with
respect to any member of the LSPI Group which is assumed, or indemnified
against, by both Sellers, with respect to LSPI, the claim shall be the
responsibility of both Sellers, who shall each pay one-half of any amount
of indemnity with respect thereto; and
(vii) if the claim arises from the termination of this Agreement,
compensation for which is provided in Section 19 hereof, Seller(s) in
breach shall be solely responsible for such claim.
To the extent that any amount of indemnity is payable by Buyer to
Seller(s), the foregoing principles shall apply to the determination of the
Seller to whom such indemnity is payable, mutatis mutandis.
(b) No party is responsible for, and no party may recover from any other
party, any amount of consequential (e. g., lost profits or the like) or
punitive damages. Notwithstanding the foregoing exclusion, to the extent any
party hereto sustains any loss or incurs any expense compensable under this
Agreement that contains or includes any measure of consequential or punitive
damages awarded to a third party, then such indirect consequential and punitive
damages may be recovered.
(c) Sellers and Buyer specifically agree that the total amount of
indemnification payable by Sellers pursuant to Sections 15, 16, 18 and 23
together shall not exceed the amount of the purchase price paid to each Seller
in cash hereunder.
26. Amendment and Waiver. This Agreement may not be amended or modified
at any time or in any respect other than by an instrument in writing executed
by Buyer and Sellers.
27. Notices. Any notice or communication provided for in this Agreement
shall be in writing and shall be deemed given when delivered personally,
against receipt, or when deposited in the United States mail, registered or
certified mail, return receipt requested to the following address:
(a) If to Pentair:
Pentair, Inc.
1500 County Road B2 West
St. Paul, Minnesota 55113-3105
Attention: Ronald V. Kelly
-47-
<PAGE>
Facsimile: (612) 639-5209
with a copy to:
Henson & Efron, P.A.
1200 Title Insurance Building
400 Second Avenue South
Minneapolis, Minnesota 55401
Attention: Louis L. Ainsworth
Facsimile: (612) 339-6364
(b) If to Minnesota Power:
Minnesota Power & Light Company
30 West Superior Street
Duluth , Minnesota 55802
Attention: David G. Gartzke
Facsimile: (218) 723-3960
with a copy to:
Minnesota Power & Light Company
30 West Superior Street
Duluth , Minnesota 55802
Attention: Steven W. Tyacke
Facsimile: (218) 723-3955
(c) If to Buyer:
Consolidated Papers, Inc.
231 First Avenue North
P. O. Box 8050
Wisconsin Rapids, WI 54495-8050
Attention: Carl H. Wartman
Facsimile: (715) 422-3203
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Attention: Robert A. Schreck, Jr.
Facsimile: (312) 984-3669
Any party may change the above address for notice by written notice to the
other parties in accordance with the provisions of this Section.
-48-
<PAGE>
28. Parties in Interest. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Sellers and Buyer, their respective successors and permitted assigns. No
party may assign this Agreement without the express written consent of the
other parties, except that Buyer may assign this Agreement to an affiliate of
Buyer provided that no such assignment shall relieve Buyer of its obligations
hereunder or otherwise prejudice Sellers. This Agreement shall not confer any
rights or remedies upon any person other than Buyer and Sellers and their
respective successors and permitted assigns.
29. Further Assurances. Each party shall from time to time execute and
deliver such further documents and do such further acts as the other parties
may reasonably require for carrying out the purposes and intent of this
Agreement.
30. No Waivers. No failure of any party to this Agreement to pursue any
remedy resulting from a breach of this Agreement shall be construed as a waiver
of that breach or as a waiver of any subsequent or other breach.
31. Governing Law. This Agreement shall be construed in accordance with
and governed by the substantive laws of the state of Minnesota without giving
effect to the choice of law provisions thereof. This Agreement shall be
subject to the exclusive jurisdiction of the courts of, and United States
federal courts sitting in, the state of Minnesota, and all parties hereby
irrevocably submit to the jurisdiction of such courts with respect to any claim
arising out of this Agreement.
32. Severability. Should any provision of this Agreement be or become
invalid in whole or in part or be incapable of performance for whatever reason,
then the validity of the remaining provisions of this Agreement shall not be
affected thereby. In such event, the parties hereby undertake to substitute
for any such invalid provision or for any provision incapable of performance, a
provision which corresponds to the spirit and purpose of such invalid or
unperformable provision as far as permitted under applicable law, so as to
realize to the fullest extent possible the economic purpose and effect of this
Agreement.
33. Miscellaneous. This Agreement constitutes the entire agreement
between the parties and supersedes all prior representations, understandings or
agreements between them, written or oral, respecting the within subject
matter. Headings are for convenience only and are not intended to alter any of
the provisions of this Agreement. Words importing the singular number include
the plural and vice versa. This Agreement may be signed in multiple copies,
each of which shall be considered an original, but all of which shall together
constitute one and the same instrument.
* * *
-49-
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its authorized officer as of the date first above written.
PENTAIR, INC.
By: Winslow H. Buxton
-----------------------------------
Its: CEO
-----------------------------------
MINNESOTA POWER & LIGHT
COMPANY
By: Arend J. Sandbulte
-----------------------------------
Its: Chairman and President
-----------------------------------
CONSOLIDATED PAPERS, INC.
By: Patrick F. Brennan
-----------------------------------
Its: President & CEO
-----------------------------------
-50-
<PAGE>
Exhibit 99(a)
<PAGE>
ADESA Corporation
Index to Consolidated Financial Statements
Years ended December 31, 1994, 1993 and 1992
Contents
Report of Independent Auditors .........................................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets ............................................F-2
Consolidated Statements of Income ......................................F-4
Consolidated Statements of Shareholders' Equity.........................F-5
Consolidated Statements of Cash Flows ..................................F-6
Notes to Consolidated Financial Statements .............................F-8
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
ADESA Corporation
We have audited the accompanying consolidated balance sheets of ADESA
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ADESA Corporation
at December 31, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 9, 1995, except for
Note 14, as to which the date
is February 23, 1995
F-1
<PAGE>
<TABLE>
ADESA Corporation
Consolidated Balance Sheets
<CAPTION>
December 31
1994 1993
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,203,992 $ 11,902,141
Trade receivables, less allowances
of $1,054,872 in 1994 and
$116,892 in 1993 48,790,083 22,330,319
Accounts receivable, related parties 405,984 563,188
Other current assets 4,231,166 1,836,355
-------------------------------
Total current assets 63,631,225 36,632,003
Property and equipment:
Land 23,493,707 16,611,091
Buildings 23,427,232 16,816,888
Land improvements 17,689,729 14,447,682
Autos and trucks 5,674,504 3,786,942
Furniture, fixtures and equipment 5,651,839 4,031,341
Construction in progress 4,965,265 4,170,279
-------------------------------
80,902,276 59,864,223
Less accumulated depreciation 9,788,055 6,964,099
-------------------------------
71,114,221 52,900,124
Intangible assets:
Goodwill 31,323,126 28,393,675
Customer lists 8,456,966 6,640,300
Other 9,264,954 8,271,369
-------------------------------
49,045,046 43,305,344
Less accumulated amortization 10,473,533 7,632,931
-------------------------------
38,571,513 35,672,413
Other assets 407,388 321,245
-------------------------------
Total assets $173,724,347 $125,525,785
===============================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
December 31
1994 1993
--------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 23,068,467 $ 13,713,033
Accrued expenses 3,679,331 1,829,084
Notes payable 20,647,135 377,700
Current portion of long-term debt 4,994,649 4,538,852
--------------------------------
Total current liabilities 52,389,582 20,458,669
Long-term debt, less current portion 34,276,936 32,371,481
Capital lease obligation 3,617,573 -
Deferred income taxes 452,113 530,563
Minority interest in equity of subsidiaries 1,289,280 1,297,777
Shareholders' equity:
Preferred stock, without par value:
Authorized shares - 5,000,000
No shares issued and outstanding - -
Common stock, without par value:
Authorized shares - 40,000,000
Issued and outstanding shares -
11,102,166 in 1994 and
10,894,675 in 1993 66,162,853 62,967,603
Retained earnings 15,751,929 7,968,813
Cumulative translation adjustment (215,919) (69,121)
--------------------------------
Total shareholders' equity 81,698,863 70,867,295
--------------------------------
Total liabilities and shareholders' equity $173,724,347 $125,525,785
================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
ADESA Corporation
Consolidated Statements of Income
<CAPTION>
Year ended December 31
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Operating revenues $94,129,173 $70,135,948 $45,689,640
Operating expenses:
Direct 35,615,106 27,654,981 18,536,643
Selling, general and
administrative:
Operating 35,587,921 24,424,570 14,456,544
Related parties 180,000 295,000 355,600
Depreciation 3,450,476 2,770,256 2,451,564
Amortization 3,743,345 3,625,970 2,576,317
----------------------------------------------
78,576,848 58,770,777 38,376,668
----------------------------------------------
Operating income 15,552,325 11,365,171 7,312,972
Other income (expense):
Interest income 694,262 181,733 453,615
Interest expense (4,147,133) (2,576,810) (2,399,636)
Other, net 1,347,012 756,843 428,738
----------------------------------------------
(2,105,859) (1,638,234) (1,517,283)
----------------------------------------------
Income before income taxes
and extraordinary item 13,446,466 9,726,937 5,795,689
Income taxes 5,663,350 3,915,657 1,737,000
----------------------------------------------
Income before extraordinary
item 7,783,116 5,811,280 4,058,689
Extraordinary item -
loss from early
extinguishment of debt - - 477,125
----------- ----------- -----------
Net income $ 7,783,116 $ 5,811,280 $ 3,581,564
==============================================
Earnings per share:
Income before
extraordinary item $ .69 $ .60 $ 0.51
Extraordinary item - - 0.06
----------------------------------------------
Net income $ .69 $ .60 $ 0.45
==============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
ADESA Corporation
Consolidated Statements of Shareholders' Equity
<CAPTION>
Employee
Common Stock Retained Accounts
Shares Amount Earnings Receivable
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 - $ 2,363,000 $ 211,623 $ -
Retirement of common stock - (159,500) - -
Dividends - - (539,268) -
Conversion to C corporations -
transfer of retained earnings
at April 1, 1992 - 1,096,386 (1,096,386) -
Share exchanges:
ADE Companies 5,158,086 - - -
Indianapolis Auto
Auction, Inc. 1,766,914 13,646,276 - -
Greater Buffalo Auto
Auction, Inc. 92,983 1,070,000 - -
Sale of common stock 2,094,500 21,172,186 - -
Advances to employees - - - (199,865)
Net income - - 3,581,564 -
-------------------------------------------------------------
Balance at December 31, 1992 9,112,483 39,188,348 2,157,533 (199,865)
Sale of common stock 1,650,000 21,107,193 - -
Net income - - 5,811,280 -
Collection of advances to
employees - - - 199,865
Exchange of common stock for
redeemable preferred stock 132,192 2,672,062 - -
Foreign currency translation
adjustment - - - -
-------------------------------------------------------------
Balance at December 31, 1993 10,894,675 62,967,603 7,968,813 -
Exercise of stock options 12,500 91,250 - -
Share exchanges:
Automotive Finance
Corporation 145,036 2,404,000 - -
R.A.D. Investments, Inc. 49,955 700,000 - -
Net income - - 7,783,116 -
Foreign currency translation
adjustment - - - -
-------------------------------------------------------------
Balance at December 31, 1994 11,102,166 $66,162,853 $15,751,929 $ -
=============================================================
<CAPTION>
Cumulative
Translation
Adjustment Total
------------------------------------------
<S> <C> <C>
Balance at December 31, 1991 $ - $ 2,574,623
Retirement of common stock - (159,500)
Dividends - (539,268)
Conversion to C corporations -
transfer of retained earnings
at April 1, 1992 - -
Share exchanges:
ADE Companies - -
Indianapolis Auto
Auction, Inc. - 13,646,276
Greater Buffalo Auto
Auction, Inc. - 1,070,000
Sale of common stock - 21,172,186
Advances to employees - (199,865)
Net income - 3,581,564
------------------------------------------
Balance at December 31, 1992 - 41,146,016
Sale of common stock - 21,107,193
Net income - 5,811,280
Collection of advances to employees - 199,865
Exchange of common stock for
redeemable preferred stock - 2,672,062
Foreign currency translation adjustment (69,121) (69,121)
------------------------------------------
Balance at December 31, 1993 (69,121) 70,867,295
Exercise of stock options - 91,250
Share exchanges:
Automotive Finance
Corporation - 2,404,000
R.A.D. Investments, Inc. 4 - 700,000
Net income - 7,783,116
Foreign currency translation
adjustment (146,798) (146,798)
------------------------------------------
Balance at December 31, 1994 $(215,919) $81,698,863
==========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
ADESA Corporation
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 7,783,116 $ 5,811,280 $3,581,564
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,450,476 2,770,256 2,451,564
Amortization 3,743,345 3,625,970 2,576,317
Deferred income taxes 6,550 320,404 210,282
Gain on disposal of property
and equipment (888,019) (351,312) (59,194)
Write-off of intangible assets - - 197,334
Changes in operating assets
and liabilities:
Trade receivables (17,179,102) (4,062,521) (3,408,038)
Accounts receivable,
related parties 157,204 15,430 121,635
Other current assets (2,403,308) (502,279) 510,555
Accounts payable and
accrued expenses 9,167,137 (3,082,432) 8,551,018
-----------------------------------------
Net cash provided by
operating activities 3,837,399 4,544,796 14,733,037
Investing activities
Purchase acquisitions:
Property and equipment (5,219,431) (6,874,479) (4,453,026)
Intangibles and other net assets (3,407,711) (7,374,162) (11,546,974)
Purchases of property and equipment (14,239,112) (3,766,660) (12,063,775)
Proceeds from the sale of property
and equipment 2,224,578 932,523 560,772
Notes receivable, related parties - - 2,329,554
Other investing activities (877,503) (722,139) (845,453)
Employee accounts receivable - 199,865 (199,865)
-----------------------------------------
Net cash used by investing
activities (21,519,179) (17,605,052) (26,218,767)
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Financing activities
Net change in notes payable 13,576,224 (1,152,300) (6,092,501)
Proceeds from long-term debt 14,213,870 8,995,137 41,500,000
Payments on long-term debt:
Banks (11,852,619) (12,110,888) (25,771,293)
Related parties - - (11,944,431)
Proceeds from the sale of
common stock - 21,107,193 21,172,186
Proceeds from the exercise of
stock options 91,250 - -
Retirement of common stock - - (159,500)
Dividends paid - - (539,268)
------------------------------------------
Net cash provided by financing
activities 16,028,725 16,839,142 18,165,193
Effect of exchange rate changes
on cash (45,094) 13,448 -
------------------------------------------
Net (decrease) increase in cash (1,698,149) 3,792,334 6,679,463
Cash and cash equivalents at
beginning of year 11,902,141 8,109,807 1,430,344
------------------------------------------
Cash and cash equivalents at
end of year $10,203,992 $11,902,141 $ 8,109,807
==========================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements
December 31, 1994
1. Basis of Organization and Acquisitions
ADESA Corporation (ADESA or the Company) owns and operates auto auctions
through which used cars and other vehicles are sold to franchised automobiles
dealers and licensed used car dealers. The Company also offers floorplan
financing to the dealers as well as other miscellaneous services. ADESA was
formed on April 22, 1992, through a share exchange agreement between ADESA, a
group of companies under common ownership (the ADE Companies) and Indianapolis
Auto Auction, Inc. (IAA). The combination was treated as a purchase transaction
in which the ADE Companies, ADESA's predecessor, acquired IAA.
Effective April 22, 1992, ADESA offered and sold 2,094,500 shares of common
stock for $11.50 per share in an initial public offering. Concurrent with the
offering, ADESA refinanced approximately $42 million of debt. On September 24,
1993, ADESA offered and sold 1,650,000 shares of common stock for $13.75 per
share in a secondary public offering.
IAA was acquired on April 22, 1992 through an exchange of 1,766,914 shares of
ADESA common stock. The acquisition was recorded using the purchase method of
accounting and the results of operations have been included in the consolidated
financial statements since the date of acquisition. The purchase price of
approximately $13,600,000 was allocated to the net assets acquired, including
approximately $14,600,000 to goodwill, based upon the fair market value at the
date of acquisition.
The Company acquired Greater Buffalo Auto Auction, Inc. in 1992 through a share
exchange. The Company subsequently constructed an auction facility and
operations began on September 22, 1992. The acquisition was recorded using the
purchase method of accounting and the results of operations have been included
in the consolidated financial statements from the date of acquisition. The
purchase price of $1,070,000 was allocated to the assets acquired based upon
the fair market value at the date of acquisition.
The Company acquired certain assets of Concord Auto Auction, Inc. and
affiliated entities on November 5, 1992. The acquisition was recorded using the
purchase method of accounting and the results of operations have been included
in the consolidated financial statements from the date of acquisition. The
purchase price of $16,000,000 was allocated to the assets acquired, including
$7,627,000 to goodwill, based upon the fair market value at the time of the
acquisition.
F-8
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
1. Basis of Organization and Acquisitions (continued)
The Company acquired certain assets of Knoxville Auto Auction, Inc. and Lenoir
City Auto Auction on June 3, 1993. The acquisition was recorded using the
purchase method of accounting and the results of operations have been included
in the consolidated financial statements from the date of acquisition. The
purchase price of $827,000 was allocated to the assets acquired based upon the
estimated fair market value at the time of acquisition.
ADESA (Montreal) Inc. (subsequently renamed ADESA Canada, Inc.) was formed by
the Company to acquire certain assets of Montreal Auto Auction on August 17,
1993. The acquisition was recorded using the purchase method of accounting and
the results of operations have been included in the consolidated financial
statements from the date of the acquisition. The purchase price of $6,590,378
was allocated to the assets acquired, including $4,412,451 to goodwill, based
upon the fair market value at the time of the acquisition.
Ottawa Auto Dealers Exchange, Inc. and Greater Halifax Auto Exchange
Incorporated were acquired on December 1, 1993 for $1,909,695 and an exchange
of 13,266 shares of ADESA Canada, Inc. common stock totaling $2,358,406, which
are convertible into common stock of ADESA based on a formula and contingent
upon the occurrence of certain events as set forth in the purchase agreement.
The acquisition was recorded using the purchase method of accounting and the
results of operations have been included in the consolidated financial
statements since the date of acquisition. The total purchase price of
$4,268,101 was allocated to the net assets acquired, including $1,902,840 to
goodwill, based upon the fair market value at the date of acquisition.
On January 6, 1994, the Company acquired Automotive Finance Corporation (AFC),
a finance company previously affiliated through common ownership, for 145,036
shares of ADESA common stock. The acquisition was recorded using the purchase
method of accounting and the results of operations have been included in the
consolidated financial statements since the date of acquisition. The purchase
price was allocated to the net assets acquired, including $1,813,000 to
goodwill, based upon the fair market value at the date of acquisition.
On February 9, 1994, the Company acquired certain assets of Gulf Coast Auto
Auction, Inc. in Bradenton, Florida and renamed the auction ADESA
Sarasota/Bradenton. The acquisition was recorded using the purchase method of
accounting and the results of operations have been included in the consolidated
financial statements since the date of acquisition. The purchase price of
$2,750,000 was allocated to the assets acquired based upon the fair market
value at the date of acquisition.
F-9
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
1. Basis of Organization and Acquisitions (continued)
On February 28, 1994, the Company acquired certain assets of Northfield Auto
Auction, Corp. in Cleveland, Ohio and renamed the auction ADESA Cleveland. The
acquisition was accounted for using the purchase method of accounting and the
results of operations have been included in the consolidated financial
statements since the date of acquisition. The purchase price of $850,000 was
allocated to the assets acquired based upon the fair market value at the date
of acquisition.
On August 22, 1994, the Company paid $1,150,000 in exchange for a 51% ownership
interest in ADESA - South Florida, LLC, which operates an auction in Miami,
Florida. The Company is also responsible for managing the operations of this
joint venture. The results of operations as well as the minority interest in
the joint venture have been recognized in the consolidated financial statements
since the commencement of operations. After July 31, 1998 the Company may, at
its sole option, purchase the remaining 49% interest at the greater of fair
market value or a price defined in the joint venture agreement.
On October 1, 1994, the Company acquired certain assets of R.A.D. Investments,
Inc. which owned and operated an auction in Austin, Texas, in exchange for
$1,900,000 and 49,955 shares of ADESA common stock. The acquisition was
accounted for using the purchase method of accounting and the results of
operations have been included in the consolidated financial statements since
the date of acquisition. The total purchase price of $2,600,000 was allocated
to the assets acquired based upon the fair market value at the date of
acquisition.
The following unaudited pro forma financial information presents the results of
operations as though the acquisitions occurred at the beginning of the year
immediately prior to the year in which the transactions occurred. Pro forma
information does not purport to be indicative of the results that actually
would have been achieved had the acquisitions occurred at the beginning of
those years.
<TABLE>
<CAPTION>
Year ended December 31
1994 1993 1992
------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C>
Operating revenues $96,767 $81,104 $69,181
======= ======= =======
Income before extraordinary item $ 7,584 $ 6,078 $ 5,999
======= ======= =======
Net income $ 7,584 $ 6,078 $ 5,522
======= ======= =======
Net income per share $ 0.67 $ 0.61 $ 0.51
======= ======= =======
</TABLE>
F-10
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Trade Receivables and Payables
Trade receivables include the unremitted purchase price of automobiles sold at
the auctions and fees to be collected from the buyers. Accounts payable include
those amounts due sellers from the proceeds of the sale of their automobiles.
Trade receivables also include floorplan receivables created by financing
dealer purchases of automobiles at the Company's auctions in exchange for a
security interest in those automobiles.
Trade receivables also include amounts for services related to certain
consigned automobiles in the Company's possession in accordance with contracts
with several entities. These amounts are billed to the entities upon the
eventual auction or other disposition of the related consigned automobiles.
Due to the nature of the Company's business, substantially all trade accounts
receivable are due from automobile dealers. The Company has possession of car
titles collateralizing a significant portion of the trade receivables.
The allowance for doubtful accounts is based on management's evaluation of the
receivables portfolio under current conditions, the volume of the portfolio,
overall portfolio quality, review of specific problems and such other factors
which in management's judgment deserve recognition in estimating losses.
F-11
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the respective assets.
Intangible Assets
Intangible assets consist of noncompete agreements, customer lists and
acquisition and mortgage costs which are amortized over periods of three to
fifteen years, and goodwill which is amortized over periods ranging from
fifteen to forty years.
Revenues
Revenues and the related costs are recognized when the services are performed.
Revenues include only the Company's fees for such services. Interest on
floorplan receivables is based on the current prime rate and is recognized
based on the number of days the vehicle remains financed.
Income Taxes
Prior to April 1, 1992, the shareholders of certain of the ADE Companies had
elected under Subchapter S of the Internal Revenue Code to include the income
of the ADE Companies in their own income for income tax purposes. Accordingly,
all significant ADE Companies were not subject to federal and state income
taxes until that date.
Foreign Currency Translation
Results of operations for foreign subsidiaries are translated into U.S. dollars
using the average exchange rates during the period. Assets and liabilities are
translated into U.S. dollars using the exchange rate at the balance sheet date,
except for intangibles and fixed assets, which are translated at historical
rates. Resulting translation adjustments are recorded in the cumulative
translation adjustment section of shareholders' equity.
Extraordinary Item
In connection with the initial public offering and debt refinancing, the
Company realized a loss on the early extinguishment of debt. The loss,
consisting of prepayment penalties and accelerated amortization of capitalized
debt issuance costs and debt discount, aggregated $795,000 and has been
reported net of the applicable income tax benefit of $318,000.
F-12
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Per Share Disclosures
Earnings per share are based on the weighted average number of shares of common
stock outstanding. The weighted average number of shares outstanding, including
the effect of dilutive stock options, was 11,275,232, 9,672,584 and 7,892,740
shares for 1994, 1993, and 1992, respectively.
Financial Instruments
All financial instruments in the accompanying financial statements are stated
at cost which approximates market value.
3. Allowance for Doubtful Accounts
An analysis of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Year ended December
1994 1993 1992
---------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 116,892 $ 73,360 $55,000
Provision for bad debts 1,085,039 168,114 78,391
Uncollectible accounts written off (147,059) (124,582) (60,031)
---------- -------- -------
Balance at end of year $1,054,872 $116,892 $73,360
========== ======== =======
</TABLE>
4. Related Party Transactions
The Company enters into transactions in the ordinary course of business with
entities wholly or partially owned by the principal shareholder. As a result,
the Company had receivables from related parties of approximately $170,000 and
$403,000 at December 31, 1994 and 1993, respectively. The Company also had
receivables from employees approximating $236,000 and $160,000 at December 31,
1994 and 1993, respectively.
The principal shareholder is a trustee of a qualified charitable organization
that collects funds and distributes the funds to other charitable
organizations. During 1994, 1993 and 1992, the Company made charitable
contributions of $155,000, $25,000 and $283,600, respectively, to the related
charitable organization.
F-13
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
4. Related Party Transactions (continued)
The Company leases its principal offices from an entity wholly-owned by the
principal shareholder. The lease requires monthly payments of $12,000 and
expires on December 31, 1995.
The Company entered into agreements with an entity wholly-owned by the
principal shareholder to lease certain equipment used in daily operations. The
operating leases were month-to-month leases. The Company incurred expense of
$352,300 for the leases during 1992. The assets were purchased by the Company
during 1992 for their estimated fair value of $276,000.
The Company advanced the principal shareholder approximately $3,406,000 for
construction costs related to an auction facility used by the Company from May
1994 to December 1994. The facility was sold to an unrelated third party, and
the loan was paid in full in December 1994.
During 1994, the Company sold property to an entity affiliated through common
ownership at a gain of approximately $640,000. The selling price was based upon
the average of two independent appraisals of the property.
The Company paid $80,000 and $126,000 to a former director for certain
promotional activities in 1994 and 1993, respectively.
The Company leases its Austin, Texas auction facility pursuant to an operating
lease from the general manager of that facility. The lease is for a fifteen
year term and requires monthly payments of $15,000, adjusted periodically at
the end of five years based on certain inflation indices. The agreement also
contains renewal options of up to twenty years and allows the Company to
purchase property at its fair market value at the end of ten years.
F-14
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
5. Credit Arrangements
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
----------------------------
<S> <C> <C>
Floating rate option notes $24,670,002 $29,050,998
Borrowings on ADESA Revolver, bearing
interest at either the bank's prime plus
0% to .5% or LIBOR plus 1.5% to 2.25%
contingent upon financial performance,
maturing on May 31, 1996 13,900,000 -
Mortgage note payable, with interest
accruing at the bank's prime rate; monthly
principal payments due through April, 2010 375,158 973,302
Senior subordinated note, repaid during 1994 - 5,000,000
Revolving line of credit, repaid during 1994 - 1,784,976
Other 326,425 101,061
---------------------------
39,271,585 36,910,322
4,994,649 4,538,852
---------------------------
$34,276,936 $32,371,421
===========================
</TABLE>
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
----------------------------
<S> <C> <C>
Borrowings on Line of Credit, bearing
interest at the bank's prime plus 0% to
.5% contingent upon financial performance,
maturing on May 31, 1995 $11,625,000 $ -
Borrowings on AFC Revolver, bearing
interest at either the bank's prime plus
0% to .5% or LIBOR plus 1.5% to 2.25%
contingent upon financial performance,
maturing on May 31, 1995 9,000,000 -
Other 22,135 377,700
---------------------------
$20,647,135 $377,700
===========================
</TABLE>
F-15
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
5. Credit Arrangements (continued)
The Company issued $35,000,000 of floating rate option notes (Notes) on April
22, 1992, which are collateralized by an irrevocable direct pay letter of
credit (Letter of Credit). The proceeds were used to retire various other debt
facilities. The Notes amortize over a seven-year period, with a final maturity
on April 1, 1999 and the interest rate resets every seven days. The effective
interest rate on the Notes at December 31, 1994 was 8.84%. The Company is
required to make increasing monthly deposits of $388,000 up to $533,000 over
the remaining life of the Notes into a sinking fund to provide for the periodic
repayment of the Notes.
The Letter of Credit, an $18 million working capital line of credit (Line of
Credit), a $22 million ADESA Revolver and a $12 million AFC Revolver were
issued pursuant to a credit agreement with a commercial bank. The Line of
Credit requires a monthly paydown while borrowings under the AFC Revolver are
limited to the lesser of $12 million or a percentage of eligible receivables,
as defined in the credit agreement. As of December 31, 1994, $6,375,000 of the
Line of Credit, $8.1 million of the ADESA Revolver and $2.4 million of the AFC
Revolver were available for use by the Company. The weighted average borrowing
rate on these short term borrowings was 7.93% and 6.75% at December 31, 1994
and 1993, respectively. The Letter of Credit, Line of Credit, ADESA Revolver
and AFC Revolver are collateralized by substantially all of the Company's
assets.
At December 31, 1994, aggregate future principal payments on long-term debt are
as follows:
1995 $ 4,994,649
1996 19,062,698
1997 5,688,465
1998 6,050,459
1999 3,222,491
Thereafter 252,823
-----------
$39,271,585
===========
Interest paid was approximately $3,898,000, $2,604,000 and $2,645,000 for 1994,
1993, and 1992, respectively.
The Company has agreed to certain restrictions which, among other things,
require minimum levels of current ratio, total indebtedness to earnings (as
defined in the credit agreement) and tangible net worth. The credit agreements
also place restrictions on issuing
F-16
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
5. Credit Arrangements (continued)
new debt, mergers and acquisitions, sales of all or substantially all of the
Company's assets, purchases or retirements of the Company's capital stock,
payment of dividends and capital expenditures.
6. Leasing Agreements
In November 1994, the Company executed three operating lease arrangements for
auction facilities located in North Carolina, Massachusetts and Tennessee with
an unrelated third party. The term for each of the three leases is for five
years (all commencing on August 1, 1995) with no renewal options. However,
during April, 1999, the Company has the option to purchase the leased
facilities at a collective price of $26,500,000. In the event the Company does
not exercise its option to purchase, it is required to guarantee any deficiency
in sales proceeds the lessor realizes in disposing of the leased properties
should the selling price fall below $25,705,000. The Company receives any
excess sales proceeds over the option price.
The Company has guaranteed the payment of principal and interest on the
lessor's indebtedness which consists of $25,705,000 mortgage notes payable, due
August 1, 2000. Interest on the notes accrues at 9.82% per annum and is payable
monthly beginning on January 1, 1995. The Company has also guaranteed the
completion of construction which will take place at these properties during
1995.
The Company executed a capital lease agreement on February 28, 1994 for land
and a building with monthly payments of $19,167 due through February 28, 1998.
A balloon payment of $3,900,000 is due upon expiration of the lease. Land and
buildings at December 31, 1994 includes $2,957,652 and $1,361,658,
respectively, in relation to this lease agreement.
F-17
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
6. Leasing Agreements (continued)
The Company leases other properties in addition to those listed above pursuant
to operating lease agreements with terms expiring through March 1, 1999. Total
future minimum lease payments as of December 31, 1994 for all operating and
capital lease arrangements are as follows:
<TABLE>
<CAPTION>
Operating
Total Leases Capital Lease
----------- ----------- -------------
<S> <C> <C> <C>
1995 $ 2,289,438 $ 2,059,434 $ 230,004
1996 3,844,299 3,614,295 230,004
1997 3,799,917 3,569,913 230,004
1998 3,736,638 3,506,634 230,004
1999 7,010,639 3,072,305 3,938,334
Thereafter 2,646,760 2,646,760 -
----------- ----------- ----------
$23,327,691 $18,469,341 4,858,350
=========== =========== ==========
Amounts representing
interest 1,240,777
----------
$3,617,573
==========
</TABLE>
Total rent expense was $1,240,000, $465,400 and $196,000 for 1994, 1993 and
1992, respectively.
7. Shareholders' Equity
The Company has authorized 5,000,000 shares of preferred stock which remains
unissued at December 31, 1994. The Board of Directors of the Company has not
yet determined the preferences, qualifications, relative voting or other rights
of the authorized shares of preferred stock.
The Company had issued, through one of its subsidiaries, 2,166,667 shares of
redeemable preferred stock. The Company redeemed all outstanding shares of the
non-voting preferred stock on December 16, 1993 in exchange for 132,192 shares
of common stock. The exchange was based on the market value of the common stock
at the time of the exchange and the fair value of the preferred stock as
determined by a third party appraisal.
Prior to April 22, 1992, the ADE Companies consisted of separate corporations
affiliated through common ownership and control. The capital structures of the
entities were similar and not complex, and therefore were combined on the
balance sheet. Due to the separate
F-18
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
7. Shareholders' Equity (continued)
capital structures, presentation of the number of shares of common stock
authorized, issued and outstanding is deemed not meaningful. In connection with
the conversion of the various S corporations to C corporations, retained
earnings of S corporations as of April 1, 1992 were transferred to common
stock.
The Company has an incentive stock option plan for which 1,000,000 shares of
common stock are reserved. In accordance with the plan, options are granted
with exercise prices equivalent to the market price of the underlying common
stock on the date of grant.
The following table summarizes option activity pursuant to the plan:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
-----------------------------
<S> <C> <C>
Options outstanding at December 31, 1992 263,000 $7.00 - $11.50
Granted 244,500 $9.50 - $15.63
Canceled (25,500) $7.00 - $13.25
-------
Options outstanding at December 31, 1993 482,000 $7.00 - $15.63
Granted 392,450 $13.25 - $14.25
Canceled (85,000) $7.00 - $15.63
Exercised (12,500) $7.00 - $9.50
-------
Options outstanding at December 31, 1994 776,950 $7.00 - $15.63
=======
Options exercisable at December 31, 1994 42,400 $7.00 - $12.75
=======
</TABLE>
8. Income Taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." As permitted by the new
rules, prior years financial statements have not been restated. The effect of
the accounting change was not material to operating results or the financial
position of the Company.
F-19
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. These differences relate
primarily to depreciation of property and equipment, amortization of certain
intangible assets over longer periods for financial reporting purposes, and
allowances for bad debts recognized for financial reporting purposes but not
yet deductible for tax purposes.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current:
Federal $3,553,821 $2,629,811
Foreign 951,873 258,955
State 1,151,106 706,487
---------- ----------
5,656,800 3,595,253
Deferred (credit):
Federal 17,806 218,260
Foreign 104,676 40,288
State (115,932) 61,856
---------- ----------
6,550 320,404
---------- ----------
$5,663,350 $3,915,657
========== ==========
</TABLE>
The reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Tax at U.S. statutory rates 34.0% 34.0%
State income taxes, net of federal tax benefit 5.1 5.2
Amortization of nondeductible goodwill 2.8 2.4
Foreign tax rates 1.3 0.5
Other, net (1.1) (1.8)
----- -----
42.1% 40.3%
===== =====
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries were approximately
$1,908,000 at December 31, 1994. Those earnings are considered to be
indefinitely reinvested, and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income tax (subject to an
F-20
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
adjustment for foreign tax credits) and withholding taxes payable to Canada.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practical due to the complexities associated with its hypothetical
calculations; however, unrecognized foreign tax credit carryforwards would be
available to reduce some portion of the U.S. liability. Withholding taxes of
approximately $190,800 would be payable upon remittance of all previously
unremitted earnings at December 31, 1994.
Cash paid for income taxes during 1994, 1993 and 1992 was approximately
$4,558,000, $3,098,000 and $1,304,000, respectively.
9. Geographic and Business Segments
The Company acquired its Canadian operations in late 1993 through its
acquisitions of auctions in Montreal, Ottawa and Halifax. United States and
Canadian operations were as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Operating revenue from unaffiliated
customers:
United States $ 82,182,964 $ 67,527,284
Canada 11,946,209 2,608,664
------------ ------------
Consolidated $ 94,129,173 $ 70,135,948
============ ============
Income before income taxes:
United States $ 10,936,679 $ 8,973,211
Canada 2,509,787 753,726
------------ ------------
Consolidated $ 13,446,466 $ 9,726,937
============ ============
Total assets:
United States $154,302,073 $108,739,840
Canada 19,422,274 16,785,945
------------ ------------
Consolidated $173,724,347 $125,525,785
============ ============
</TABLE>
Selected 1994 income data by business segment data is as follows:
<TABLE>
<CAPTION>
Auction Financial
Services Services Total
----------- ---------- -----------
<S> <C> <C> <C>
Operating revenues $90,436,171 $3,693,002 $94,129,173
=========== ========== ===========
Operating income $13,087,805 $2,464,520 $15,552,325
=========== ========== ===========
</TABLE>
F-21
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
9. Geographic and Business Segments (continued)
Total assets presented by business segment and inclusive of the Company's
headquarters as of December 31, 1994 were as follows:
Auction services $145,747,391
Financial services 17,950,221
Corporate headquarters 10,026,735
------------
$173,724,347
============
10. Benefit Plan
During 1994, the Company adopted a defined contribution 401(k) plan which
covers substantially all employees. Participants are generally allowed to make
nonforfeitable contributions, up to 15% of their annual salary. The Company
currently matches 50% of the amounts contributed by each individual
participant, up to 6% of the participant's compensation, up to a maximum of
$1,000. Participants are not vested in the Company's contributions until after
completion of five years of service, at which time they become fully vested.
11. Major Customers
The Company derives a significant amount of revenue from three major customers.
In 1994, revenues from the three customers accounted for 21%, 19% and 3% of
total revenues. In 1993, revenues from the three customers accounted for 18%,
16% and 4% of total revenues. In 1992, revenues from the three customers
accounted for 33%, 15% and 7% of total revenues.
12. Commitments and Contingencies
The Company stores a significant number of automobiles owned by various
entities and consigned to the Company to be auctioned. The Company is
contingently liable for each consigned automobile until the eventual sale or
other disposition. Insurance coverage is maintained on the consigned
automobiles. At December 31, 1994, the Company had approximately 25,000
automobiles on consignment, no more than 7,000 of which were stored at any one
location. These automobiles are consigned to the Company and are therefore not
included in the consolidated balance sheets.
F-22
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies
In November 1994, the Company agreed to acquire certain real estate for a
purchase price of $1 million (subject to rezoning and site plan approval) and
committed to spend an additional $3.9 million for various site work. In
connection with the real estate purchase, the Company is responsible for any
potential future environmental cleanup costs which may arise with respect to
this property, up to $1 million.
The Company agreed to sell its auction facility located in Massachusetts for
$8,250,000 during 1994. The sale is pending as of December 31, 1994 (subject to
zoning approval) and will close upon the Company's new leased facility in that
state (see Note 6) becoming ready for occupancy in May 1995.
13. Quarterly Results of Operations (Unaudited)
Quarterly results of operations are summarized as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994
- ----
Operating revenues $21,571 $23,539 $23,868 $25,151
Gross profit 13,263 14,983 14,986 15,282
Net income 1,974 2,472 1,970 1,367
Net income per share .18 .22 .18 .12
1993
- ----
Operating revenues $17,575 $17,771 $16,712 $18,078
Gross profit 11,145 10,883 10,109 10,344
Net income 1,789 1,555 1,194 1,273
Net income per share .20 .17 .13 .12
</TABLE>
F-23
<PAGE>
ADESA Corporation
Notes to Consolidated Financial Statements (continued)
14. Subsequent Events
On February 23, 1995 the Company announced that its Board of Directors had
approved a definitive merger agreement with Minnesota Power & Light Company
(MPL), a diversified electric company headquartered in Duluth, Minnesota. The
agreement provides that, upon consummation of the merger, and upon purchase by
MPL of additional newly issued shares of the Company's common stock, MPL will
own 80% of the issued and outstanding capital stock of the Company and certain
officers of the Company will own the remaining 20%. The merger is subject to
shareholder approval by the Company's shareholders and the satisfaction of
various other customary conditions. If approved, it is expected that the merger
will be completed in the second quarter of 1995.
<PAGE>
Exhibit 99(b)
<PAGE>
ADESA Corporation
Index to Consolidated Financial Statements
For the Quarter Ended March 31, 1995
Unaudited Consolidated Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statement of Income Statements 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
<PAGE>
<TABLE>
ADESA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1995 December 31, 1994
------------ ------------
(Unaudited) (Note)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,642,067 $ 10,203,992 $13,438,075
Trade receivables, net 62,606,171 48,790,083 $13,816,088
Other current assets 7,495,616 4,637,150 $ 2,858,466
------------ ------------
Total current assets 93,743,854 63,631,225
Property and equipment, net 79,894,339 71,114,221 $ 8,780,118
Intangible assets, net 37,967,750 38,571,513 (603,763)
Other assets 351,288 407,388 (56,100)
------------ ------------
Total assets $211,957,231 $173,724,347
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 61,222,070 $ 26,747,798
Notes payable 21,270,829 20,647,135
Current portion of
long-term debt 4,882,102 4,994,649
------------ ------------
Total current liabilities 87,375,001 52,389,582
Long-term liabilities 38,990,958 37,894,509
Deferred income taxes 488,213 452,113
Minority interest in equity
of subsidiary 1,399,035 1,289,280
Shareholders' equity:
Common stock 66,181,978 66,162,853
Retained earnings 17,748,610 15,751,929
Cumulative translation
adjustment (226,564) (215,919)
------------ ------------
Total shareholders' equity 83,704,024 81,698,863
------------ ------------
Total liabilities and
shareholders' equity $211,957,231 $173,724,347
============ ============
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted account principals for completed
financial statements.
See accompanying notes.
</TABLE>
1
<PAGE>
<TABLE>
ADESA CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<CAPTION>
Three Months Ended March 31
1995 1994
------------ -----------
<S> <C> <C>
Operating revenues $29,609,345 $21,571,324
Operating expenses:
Direct 11,119,327 8,308,036
Selling, general and administrative:
Operating 12,201,242 7,814,669
Depreciation 1,011,107 744,486
Amortization 749,458 935,314
------------ -----------
Operating income 4,528,211 3,768,819
Other income (expense):
Interest income 115,931 67,292
Interest expense (1,272,034) (676,654)
Other, net (71,642) 71,965
------------ -----------
(1,227,745) (537,397)
------------ -----------
Income before income taxes 3,300,466 3,231,422
Income taxes (1,303,780) (1,257,706)
------------ -----------
Net income $1,996,686 $1,973,716
============ ===========
Weighted average shares outstanding 11,397,557 11,243,628
============ ===========
Net income per share $0.18 $0.18
============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
ADESA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net income $1,996,686 $1,973,716
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation 1,011,107 744,486
Amortization 749,458 935,314
Gain on disposal of assets (22,691) (17,471)
Minority interest in subsidiary 109,754 33,267
Changes in operating asset and
liabilities:
Trade receivables (13,816,088) (19,135,445)
Other current assets (2,858,466) (1,651,533)
Accounts payable and accrued
expenses 34,474,274 24,238,820
----------- -----------
Net cash provided (used) by operating
activities 21,644,034 7,121,154
Investing activities:
Purchases of property, and equipment, net (9,780,374) (6,130,640)
Other assets 659,863 (1,228,461)
----------- -----------
Net cash used by investing activities (9,120,511) (7,359,101)
Financing activities:
Proceeds from notes and long-term debt 2,998,697 8,561,193
Payments on notes and long-term debt (2,148,346) (5,357,840)
Proceeds from the issuance of common stock 19,125 0
----------- -----------
Net cash provided by financing activities 869,476 3,203,353
Effect of exchange rate changes on cash 45,076 (92,774)
----------- -----------
Net increase (decrease) in cash 13,438,075 2,872,632
Cash and cash equivalents at beginning of
period 10,203,992 11,902,141
----------- -----------
Cash and cash equivalents at end of period $23,642,067 $14,774,773
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
ADESA CORPORATION
Notes to Condensed Consolidated Financial Statements - (Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, all
adjustments (consisting of only normal recurring accruals) considered necessary
to present fairly the consolidated financial statements have been included.
Quarterly results of operations are not necessarily indicative of annual
results. These statements should be read in conjuction with the consolidated
financial statements and footnotes thereto included in the Company's annual
report for the year end December 31, 1994.
2. Business Segments
-----------------
Selected first quarter 1995 income data by business segment is as follows:
<TABLE>
<CAPTION>
Auction Financial
Services Services Total
----------- ---------- -----------
<S> <C> <C> <C>
Operating revenues $28,063,574 $1,545,771 $29,609,345
----------- ---------- -----------
Operating income $ 3,544,071 $ 984,140 $ 4,528,211
----------- ---------- -----------
</TABLE>
Total assets presented by business segment and inclusive of the Company's
headquarters as of March 31, 1995 were as follows:
Auction services $177,759,511
Financial services 24,558,742
Corporate headquarters 9,638,979
------------
$211,957,232
------------
3. Per-Share Data
--------------
Earnings per share data are based on the weighted average number of shares
outstanding during the applicable periods, including the effect of dilutive
stock options.
4
<PAGE>
4. Credit Arrangements
-------------------
On April 26, 1995, the company's subsidiary Automotive Finance Corporation
("AFC") established a $40,000,000 revolving line of credit (AFC Revolver) at
200 basis points over LIBOR or 50 basis points over the bank's prime rate.
Borrowing under the AFC Revolver are limited to the lessor of $40,000,000 or a
percentage of eligible receivables, as defined in the credit agreement. The AFC
Revolver is for a term of 364 days and will be used to finance floor plan
receivables. Additional, ADESA provides no parental guarantee of capital. This
line of credit was used to replace $12,000,000 revolving line of credit held
prior thereto.
5. Pending Merger
--------------
On February 23, 1995 the Company announced that its Board of Directors had
approved a definitive agreement with Minnesota Power & Light company (MPL), a
diversified electric utility company headquarted in Duluth, Minnesota. This
agreement provides that, upon consummation of the merger and upon purchase by
MPL of additional newly issued shares of the Company's common stock, MPL will
own 80% of the issued and outstanding capital stock of the Company and certain
officers of the Company will own the remaining 20%. The merger is subject to
approval by the Company's shareholders and the satisfaction of various other
customary conditions. If approved, it is expected that the merger will be
completed in the second quarter of 1995.
6. Other Events
------------
Currently, individual auctions owned by the Company separately contract with
the General Motors ("GM") for the auction of rental repurchase units under
master contracts, which state various sales procedures, pursuant to which they
conduct business with the Company. These contracts do not require GM to sell
any minimum number of vehicles through the Company's auctions and may be
terminated upon 30 days' notice. . ADESA currently has three United States
auctions which sell rental repurchase units under such contracts with GM. In
1995 GM requested that auctions bid for the right to sell rental repurchase
units which will have a term of three years commencing January 1, 1996. GM has
informally announced its intentions to reduce the number auctions in the US it
uses for such sales from 42 to 32. The Company was invited in February 1995 to
take part in this process and on May 10, 1995 submitted a bid for all of the
ADESA's United States auctions including a greenfield auction in Manville, New
Jersey. There can be no assurance as to whether the Company will receive an
increased or decreased number of contracts pursuant to this process but any
change could be expected to impact revenues. During 1994 GM, including their
respective captive finance subsidiaries which are not part of this process and
auction off-lease and repossessed vehicles, accounted for more that 10% of the
Company's revenues. GM has stated that it intends to award the contracts in the
Summer or Fall of 1995.
5
