<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1999 Commission File No. 1-4290
K2 INC.
(exact name of registrant as specified in its charter)
DELAWARE 95-2077125
(State of Incorporation) (I.R.S. Employer Identification No.)
4900 South Eastern Avenue
Los Angeles, California 90040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (323) 724-2800
Former name, former address and former fiscal year, if changed since last
report:
Not applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1999.
Common Stock, par value $1 16,545,406 Shares
<PAGE>
FORM 10-Q QUARTERLY REPORT
PART - 1 FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF CONSOLIDATED INCOME (condensed)
(Dollars in thousands, except per share figures)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------------- ----------------------------
1999 1998 1999 1998
---------------------------- ----------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $158,292 $156,791 $321,352 $307,832
Cost of products sold 110,122 109,115 228,871 218,714
-------- -------- -------- --------
Gross profit 48,170 47,676 92,481 89,118
Selling expenses 22,855 21,533 45,951 42,587
General and administrative expenses 11,787 11,987 25,244 25,258
-------- -------- -------- --------
Operating income 13,528 14,156 21,286 21,273
Interest expense 3,031 3,175 6,328 6,314
Other income, net (14) (78) (114) (140)
-------- -------- -------- --------
Income before income taxes 10,511 11,059 15,072 15,099
Provision for income taxes 3,365 3,630 4,823 4,951
-------- -------- -------- --------
Income from continuing operations 7,146 7,429 10,249 10,148
Discontinued operations, net of taxes 858 650 1,007 1,076
-------- -------- -------- --------
Net income $ 8,004 $ 8,079 11,256 $ 11,224
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings per share:
Continuing operations $ 0.43 $ 0.45 $ 0.62 $ 0.61
Discontinued operations 0.05 0.04 0.06 0.07
-------- -------- -------- --------
Net income 0.48 0.49 0.68 0.68
-------- -------- -------- --------
-------- -------- -------- --------
Diluted earnings per share:
Continuing operations $ 0.43 $ 0.45 $ 0.62 $ 0.61
Discontinued operations 0.05 0.04 0.06 0.07
-------- -------- -------- --------
Net income 0.48 0.49 0.68 0.68
-------- -------- -------- --------
-------- -------- -------- --------
Basic shares outstanding 16,566 16,548 16,565 16,544
Diluted shares outstanding 16,566 16,629 16,565 16,624
Cash dividend $ - $ 0.11 $ 0.11 $ 0.22
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS (condensed)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1999 1998
---------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,957 $ 3,394
Accounts receivable, net 113,549 126,011
Inventories, net 153,798 188,348
Deferred taxes 9,601 12,780
Prepaid expenses and other current assets 6,884 5,037
---------------- -------------------
Total current assets 288,789 335,570
Property, plant and equipment 152,696 151,071
Less allowance for depreciation and amortization 85,428 84,480
---------------- -------------------
67,268 66,591
Intangibles, principally goodwill, net 20,502 19,564
Net assets of discontinued operations 27,283 27,511
Other 4,292 3,759
---------------- -------------------
Total Assets $ 408,134 $ 452,995
---------------- -------------------
---------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank loans $ 36,262 $ 64,350
Accounts payable 9,663 20,807
Accrued payroll and related 16,379 15,982
Other accruals 22,520 21,555
Current portion of long-term debt 4,444 4,444
---------------- -------------------
Total current liabilities 89,268 127,138
Long-term debt 97,724 110,724
Deferred taxes 13,014 13,014
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value, authorized 12,500,000 shares, none issued
Common Stock, $1 par value, authorized 40,000,000 shares, issued shares
17,190,652 in 1999 and 1998 17,191 17,191
Additional paid-in capital 132,488 132,488
Retained earnings 76,661 67,227
Employee Stock Ownership Plan and stock option loans (1,975) (1,981)
Treasury shares at cost, 638,610 shares in 1999 and 623,759 in 1998 (8,150) (8,106)
Accumulated other comprehensive loss (8,087) (4,700)
---------------- -------------------
Total Shareholders' Equity 208,128 202,119
---------------- -------------------
Total Liabilities and Shareholders' Equity $ 408,134 $ 452,995
---------------- -------------------
---------------- -------------------
</TABLE>
See notes to consolidated condensed financial statements
3
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed)
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
-------------------------------------------
1999 1998
------------------ -------------------
(unaudited)
<S> <C> <C>
Operating Activities
Income from continuing operations $ 10,249 $ 10,148
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 6,221 6,663
Deferred taxes 2,323 3,035
Changes in operating assets and liabilities:
Accounts receivable 12,462 (496)
Inventories 34,550 4,606
Prepaid expenses and other current assets (2,192) 566
Accounts payable (11,144) (9,273)
Payrolls and other accruals 1,362 (4,111)
------------------ -------------------
Net cash provided by operating activities 53,831 11,138
Investing Activities
Property, plant & equipment expenditures (6,136) (10,422)
Disposals of property, plant & equipment 136 276
Purchase of business, net of cash acquired (2,961)
Other items, net (329) 410
------------------ -------------------
Net cash used in investing activities (9,290) (9,736)
Financing Activities
Borrowings under long-term debt 11,500 26,000
Payments of long-term debt (24,500) (14,001)
Net decrease in short-term bank loans (28,088) (12,246)
Dividends paid (1,820) (3,639)
------------------ -------------------
Net cash used in financing activities (42,908) (3,886)
------------------ -------------------
Net increase (decrease) in cash and cash equivalents from continuing operations 1,633 (2,484)
Discontinued operations
Income from discontinued operations 1,007 1,076
Adjustments to reconcile income from discontinued operations to net cash
provided by (used in) discontinued operations:
Depreciation and amortization 1,510 1,512
Capital expenditures (1,824) (2,257)
Other items, net (763) 314
------------------ -------------------
Cash provided by (used in) discontinued operations (70) 645
Net increase (decrease) in cash and cash equivalents 1,563 (1,839)
Cash and cash equivalents at beginning of year 3,394 5,706
------------------ -------------------
Cash and cash equivalents at end of period $ 4,957 $ 3,867
------------------ -------------------
------------------ -------------------
Supplemental disclosure of cash flow information:
Interest paid $ 8,567 $ 6,597
Income taxes paid 3,247 8,577
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 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 management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999.
The balance sheet at December 31, 1998 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 accounting principles for complete
financial statements.
For further information, refer to the Consolidated Financial Statements and
Notes to Financial Statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND ALLOWANCES
Accounts receivable are net of allowances for doubtful accounts of $5,061,000 at
June 30, 1999 and $5,798,000 at December 31, 1998.
INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
------------- -------------
(Thousands)
<S> <C> <C>
Finished goods $ 117,321 $ 146,233
Work in process 8,181 8,078
Raw materials 31,825 37,911
------------- -------------
Total at lower of FIFO cost or market
(approximates current cost) 157,327 192,222
Less LIFO valuation reserve 3,529 3,874
------------- -------------
$ 153,798 $ 188,348
------------- -------------
------------- -------------
</TABLE>
5
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K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 3 - ACQUISITIONS
On March 26, 1999, the Company acquired certain assets relating to the Morrow
snowboard business, including the Morrow trademark, from Morrow Snowboards, Inc.
On July 22, 1999 the Company entered into a definitive agreement to acquire
Ride, Inc., a designer and manufacturer of snowboard equipment, apparel and
accessories. Under the terms of the agreement, the Company will acquire all
outstanding shares of Ride, Inc. preferred or common stock in exchange for
shares of K2 Inc. common stock. Based on the current number of Ride, Inc.
preferred and common shares outstanding, the value of the transaction is
approximately $14.8 million and will result in the issuance of approximately
1.5 million new K2 Inc. common shares, and, reserving approximately 42,000
additional shares for possible future issuance on exercise of options and
warrants. The merger transaction, which is subject, among other things, to
approval by Ride's shareholders, is expected to be completed in the fourth
quarter and will be accounted for under the purchase method of accounting.
NOTE 4 - SALE OF ASSETS
On August 4, 1999 the Company signed a definitive agreement to sell its Simplex
products division subject to several contingencies including the buyer's ability
to obtain adequate financing. The transaction is priced at $32 million plus a
performance based payment of up to $3 million subject to final adjustment. The
Company has accounted for Simplex as discontinued operations since September 30,
1998. The transaction is expected to be completed in the fourth quarter.
NOTE 5 - BORROWINGS AND OTHER FINANCIAL INSTRUMENTS
Covenants contained in the Company's $100 million credit line and accounts
receivable financing arrangement, among other things, restrict amounts available
for payment of cash dividends and stock repurchases by the Company. As of June
30, 1999, $11.5 million of retained earnings were free of such restrictions.
At June 30, 1999, $50 million of accounts receivable were sold, fully utilizing
the existing accounts receivable purchase facility.
NOTE 6 - COMPREHENSIVE INCOME
During the three and six months ended June 30, 1999 total comprehensive income
amounted to $7.0 million and $7.9 million, respectively. For the three and six
months ended June 30, 1998, total comprehensive income amounted to $7.3 million
and $10.3 million, respectively.
6
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 7- EARNINGS PER SHARE DATA
Basic earnings per share ("EPS") is determined by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS
reflects the potential dilutive effects of stock options, using the treasury
stock method. For the three and six month periods ended June 30, 1999,
computation of diluted EPS excluded all 1,095,000 stock options outstanding
since their inclusion would have been antidilutive. For both the three and
six month periods ended June 30, 1998, computation of diluted EPS included
the dilutive effects of 81,000 stock options and excluded 612,000 and 592,000
stock options, respectively, since their inclusion would have been
antidilutive.
NOTE 8 - SEGMENT INFORMATION
The segment information presented below is for the three months ended June 30:
<TABLE>
<CAPTION>
Net Sales to Unaffiliated
Customers Intersegment Sales Operating Profit (Loss)
-------------------------------- -------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
------------- ----------------- ------------ ------------ ------------ --------------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Sporting goods $ 115.9 $ 111.2 $ 8.1 $ 6.4 $ 9.5 $ 9.6
Other recreational 10.4 10.5 0.1 - (0.1) -
Industrial 32.0 35.1 0.2 0.2 5.5 5.4
------------- ----------------- ------------ ------------ ------------ --------------
Total segment data $ 158.3 $ 156.8 $ 8.4 $ 6.6 14.9 15.0
------------- ----------------- ------------ ------------ ------------ --------------
------------- ----------------- ------------ ------------
Corporate expenses, net 1.4 0.7
Interest expense 3.0 3.2
------------ --------------
Income from continuing operations before provision for income taxes $ 10.5 $ 11.1
------------ --------------
------------ --------------
</TABLE>
7
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
The segment information presented below is for the six months ended June 30:
<TABLE>
<CAPTION>
Net Sales to Unaffiliated
Customers Intersegment Sales Operating Profit (Loss)
------------------------------ ------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
------------- --------------- ---------- ------------ ------------- --------------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Sporting goods $ 237.2 $ 218.3 $ 13.9 $ 11.7 $ 14.4 $ 14.0
Other recreational 20.3 19.9 0.1 - (0.8) (0.8)
Industrial 63.9 69.6 0.5 0.5 10.6 10.4
------------- --------------- ---------- ------------ ------------- --------------
Total segment data $ 321.4 $ 307.8 $ 14.5 $ 12.2 24.3 23.6
------------- --------------- ---------- ------------ ------------- --------------
------------- --------------- ---------- ------------
Corporate expenses, net 2.8 2.2
Interest expense 6.3 6.3
------------- --------------
Income from continuing operations before provision for income taxes $ 15.1 $ 15.1
------------- --------------
------------- --------------
</TABLE>
NOTE 9 - CONTINGENCIES
The Company is subject to various legal actions and proceedings in the normal
course of business. While the ultimate outcome of these matters cannot be
predicted with certainty, management does not believe these matters will have
a material adverse effect on the Company's financial statements.
The Company is one of several named potentially responsible parties ("PRP")
in three Environmental Protection Agency matters involving discharge of
hazardous materials at old waste sites in South Carolina and Michigan.
Although environmental laws technically impose joint and several liability
upon each PRP at each site, the extent of the Company's required financial
contribution to the cleanup of these sites is expected to be limited based
upon the number and financial strength of the other named PRPs and the volume
and types of waste involved which might be attributable to the Company.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation
may require, the complexity of environmental regulation and the continuing
advancement of remediation technology. The Company's environmental engineers,
consultants and legal counsel have developed estimates based upon cost
analyses and other available information for this particular site. The
Company accrues for these costs when it is probable that a liability has been
incurred and the amount can be reasonably estimated. At June 30, 1999 and
December 31, 1998, the Company had accrued approximately $1,103,000 and
$963,000, respectively, with no provision for expected insurance recovery.
The ultimate outcome of these matters cannot be predicted with certainty,
however, management does not believe these matters will have a material
adverse effect on the Company's financial statements.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARATIVE SECOND QUARTER RESULTS OF OPERATIONS
Net sales from continuing operations for the three months ended June 30, 1999
rose slightly to $158.3 million from $156.8 million in the year-earlier
period. Income from continuing operations for the second quarter of 1999
declined 3.8% to $7.1 million, or $.43 per diluted share, from $7.4 million,
or $.45 per diluted share, in the second quarter a year ago. Net income for
the quarter was $8.0 million, or $.48 per diluted share, as compared with
$8.1 million, or $.49 per diluted share, in the prior year quarter.
NET SALES. In the sporting goods segment, net sales rose 4.3% to $115.9
million from $111.2 million in the 1998 second quarter. Shakespeare fishing
tackle sales experienced a double digit percentage increase, reflecting
strong performance domestically. Demand for the Ugly Stik, certain packaged
rods and reels and outdoor furniture, a new product category, fueled the
increase. K2 in-line skate sales continued to improve driven by the growing
market worldwide for soft boot in-line skates. The restructured bike group
reported higher sales for the second consecutive quarter. As expected, ski
shipments declined in the seasonally slow second quarter reflecting the
impact of a mild winter on preseason orders. Snowboard product sales declined
due to the timing impact of international shipments, partially offset by the
benefits of the recently acquired Morrow brand. Sales of Stearns products
were comparable with the prior-year quarter reflecting lower water ski vest
and wetsuit sales, offset by higher shipments of new outdoor products.
In the other recreational products segment, net sales were comparable with
the prior year quarter. Lower apparel sales to the advertising specialty
market due to continued sluggish market conditions were more than offset by a
strong sales performance of our skateboard shoes.
Net sales of the two businesses in the industrial products group, Shakespeare
composites and electronics and Shakespeare monofilaments and specialty
resins, declined 9.1% to $32.0 million from $35.1 million in the prior year's
quarter. The sales decline reflected lower demand for paperweaving
monofilament line, partially offset by an increase in sales of marine
antennas.
GROSS PROFIT. Gross profit for the second quarter of 1999 increased slightly
to $48.2 million, or 30.4% of net sales, as compared with $47.7 million, or
30.4% of net sales, in the year ago quarter. The gross profit improvement is
consistent with the increase in net sales.
COSTS AND EXPENSES. Selling expenses increased 6.1% to $22.9 million, or
14.4% of net sales, from $21.5 million, or 13.7% of net sales, in the prior
year's quarter. The increase largely reflects the impact of the new brand
acquired and new products developed this year along with the inclusion of
selling expenses of a recently acquired affiliate in Japan where
corresponding sales will not be reflected until the third quarter. General
and administrative expenses declined slightly to $11.8 million, or 7.4% of
net sales, from $12.0 million, or 7.6% of net sales, in the 1998 first
quarter. The decline as a percentage of net sales reflects the benefit of
ongoing expense controls throughout the Company.
9
<PAGE>
OPERATING INCOME. Operating income for the second quarter declined 4.4% to
$13.5 million or 8.5% of net sales, as compared to operating income of $14.2
million, or 9.0% of net sales, a year ago. The decline is attributable to the
increase in selling expenses of the sporting goods group.
INTEREST EXPENSE. Interest expense decreased $144,000 to $3.0 million in the
second quarter of 1999 compared to $3.2 million in the year-earlier period.
The lower figure for the quarter reflected a $461,000 benefit from lower
interest rates and $317,000 of additional interest from higher average
borrowings incurred to support the growth in sales.
COMPARATIVE SIX-MONTH RESULTS OF OPERATIONS
Net sales from continuing operations for the six months ended June 30, 1999
increased 4.4% to $321.4 million from $307.8 million in the year-earlier
period. Income from continuing operations for the first six months of 1999
was $10.2 million, or $.62 per diluted share, as compared with $10.1 million,
or $.61 per diluted share, in the first six months of 1998. Net income was
$11.3 million, or $.68 per diluted share, as compared with $11.2 million, or
$.68 per diluted share, in the prior year six months.
NET SALES. In the sporting goods segment, net sales increased 8.7% to $237.2
million from $218.3 million in the 1998 period. The growth was the result of
increases in worldwide skate, fishing tackle and bike sales. Partially
offsetting these increases were lower sales of ski and snowboard products due
to the mild winter. In the case of snowboard products, sales declined due to
the timing impact of international shipments. Sales of Stearns products were
off slightly reflecting a decline in the water ski vest and wetsuit business.
In the other recreational products segment, net sales were comparable with
the prior year reflecting improvement in sales of skateboard shoes which
offset lower apparel sales to the advertising specialty market due to
continued sluggish market conditions.
Net sales of the two businesses in the industrial products group, Shakespeare
composites and electronics and Shakespeare monofilaments and specialty
resins, declined 8.3% to $63.9 million from $69.6 million in the prior year.
The sales decline reflected lower demand for paperweaving monofilament line,
which was partially offset by an increase in sales of cutting line and marine
antennas.
GROSS PROFIT. Gross profit for the first half of 1999 increased slightly to
$92.5 million, or 28.8% of net sales, from $89.1 million, or 28.9% of net
sales, in the prior year period. The gross profit improvement is primarily
sales related.
COSTS AND EXPENSES. Selling expenses increased 7.9% to $46.0 million, or
14.3% of net sales, from $42.6 million, or 13.8% of net sales, in the prior
year. The increase is attributable to expanded marketing of the various
brands and products throughout the Company along with the inclusion of
selling expenses of a recently acquired affiliate in Japan where
corresponding sales will not be reflected until the third quarter. General
and administrative expenses were $25.2 million, or 7.9% of net sales as
compared with $25.3
10
<PAGE>
million or 8.2% of net sales, in the prior year. The decline as a percentage
of net sales reflects the benefit of ongoing expense controls throughout
this Company.
OPERATING INCOME. Operating income for the first six months was $21.3
million, or 6.6% of net sales as compared with $21.3 million, or 6.9% in the
prior year. The decline as a percentage of net sales is primarily
attributable to increased selling expenses of the sporting goods group.
INTEREST EXPENSE. Interest expense was comparable at $6.3 million for the first
half of 1999 compared to the year-earlier period. Higher average borrowings
incurred to support the growth in sales increased interest expense by $805,000,
which was offset by a reduction of $791,000 of interest due to lower interest
rates.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's continuing operating activities provided $53.8 million of cash
during the six months ended June 30, 1999 as compared with $11.1 million of
cash provided during the six month period a year ago. The $42.7 million
year-to-year improvement in cash is attributable to reduced accounts
receivable and inventory levels from the same prior year period.
Net cash used for investing activities was $9.3 million in the first half of
1999, compared to $9.7 million in the first half of 1998. The 1999 period
reflected $4.2 million of lower capital expenditures and $3.0 million used in
the acquisition of certain assets of Morrow Snowboards, Inc. There were no
material commitments for capital expenditures at June 30, 1999.
Net cash used in financing activities was $42.9 million during the six months
ended June 30, 1999 as compared with $3.9 million used during the six months
a year ago. The year to year increase of $39.0 million in cash used was due
largely to higher debt repayment.
The Company anticipates its remaining cash needs in 1999 will be provided from
operations and borrowing under existing credit lines.
YEAR 2000 ISSUE
As is more fully described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, the Company is modifying or replacing
portions of its software as well as certain hardware to enable the
uninterrupted continuation of its operations beyond December 31, 1999. As of
June 30, 1999, the Company estimates that its progress toward completion of
its Year 2000 remediation plan is as described below.
The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all systems that it believes could
have a material impact on the sales, liquidity or operations of the Company and
that could be significantly affected by the Year 2000
11
<PAGE>
issue. The completed assessment indicated that most of the Company's
significant information technology systems could be affected. That assessment
also indicated that certain software and hardware (embedded chips) used in
production and manufacturing systems (hereafter also referred to as operating
equipment) are at risk. Based on a review of its product line, the Company
has determined that the products it has sold and will continue to sell do not
require remediation to be Year 2000 compliant. Accordingly, the Company does
not believe that the Year 2000 presents a material exposure as it relates to
the Company's products. In addition, the Company has gathered information
about the Year 2000 compliance status of its significant suppliers and
subcontractors and continues to monitor their compliance.
For its information technology exposures, to date the Company is
approximately 85% complete on the remediation phase overall. The Company
expects to complete software reprogramming and replacement no later than
September 30, 1999. Once software is reprogrammed or replaced for a system,
the Company begins testing and implementation. These phases run concurrently
for different systems. To date, the Company has completed approximately 70%
of its testing overall and has implemented approximately 75% of its
remediated systems where such remediation was found to be necessary.
Completion of the testing and remediation phases for all significant systems
is expected by September 30, 1999. The Company is approximately 90% complete
in the remediation phase of its operating equipment and 100% complete with
the testing of its remediated operating equipment.
The Company's billing system interfaces directly with certain significant
customers. The Company is in the process of working with these customers to
ensure that the Company's systems that interface directly with them are Year
2000 compliant by December 31, 1999. The Company has completed its assessment
and is approximately 90% complete with the remediation and testing phases.
The Company has queried its significant suppliers and subcontractors that do not
share information systems with the Company (external agents). To date, the
Company is not aware of any external agent with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Year 2000 ready. The inability of external agents to complete their Year
2000 resolution process in a timely fashion could materially impact the Company.
The effect of non-compliance by external agents is not determinable.
The total cost of the Year 2000 issue is estimated at $1.7 million and is
being funded through operating cash flows. To date, the Company has incurred
approximately $830,000 ($340,000 expensed and $490,000 capitalized for new
systems) related to all phases of the Year 2000 project. Management's
assessment of the risks associated with the Year 2000 issue are unchanged
from that described in the 1998 annual report on Form 10-K.
The Company's plan to complete the Year 2000 modifications is based on
management's best estimates, which are based on numerous assumptions about
future events including the continued availability of certain resources and
other factors. Estimates on the status of completion and the expected completion
dates are based on the level of effort expended to date to total expected
(internal) staff effort. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such
12
<PAGE>
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct all
the relevant computer codes and similar uncertainties.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events, including, but not limited to,
the following: statements regarding sales and earnings, market trends, market
conditions, market positioning, product acceptance and demand, inventory
reduction efforts, the impact of the Year 2000 on computerized information
systems, cost reduction efforts and overall trends which involve substantial
risks and uncertainties. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including, but not
limited to, economic conditions, product demand, competitive pricing and
products, and other risks described in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
ITEM 3 Quantitative and Qualitative Disclosures of Market Risk
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. The Company manages its exposure
to changes in foreign currency exchange rates on certain firm purchase
commitments and anticipated, but not yet committed purchases, by entering
into foreign currency forward contracts. A hypothetical 10% weakening of the
U.S. dollar relative to all other currencies would not materially adversely
affect expected third quarter 1999 earnings or cash flows. This analysis is
dependent on actual purchases during the next quarter occurring within 90% of
budgeted forecasts. The effect of the hypothetical change in exchange rates
ignores the effect this movement may have on other variables including
competitive risk. If it were possible to quantify this competitive impact,
the results could well be different than the sensitivity effects shown above.
In addition, it is unlikely that all currencies would uniformly strengthen or
weaken relative to the U.S. dollar. In reality, some currencies may weaken
while others may strengthen.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report.
2 Amended and Restated Agreement and Plan of Merger
dated as of July 22, 1999 among K2 Inc., Ride, Inc.
and KT Acquisition, Inc. included as Appendix A to
Form S-4 Registration No. 333-84791, filed August 9,
1999 and incorporated herein by reference.
3(ii) By-Laws of K2 Inc., as amended, May 6, 1999.
4 Rights Agreement dated as of July 1, 1999 between K2
Inc. and Harris Trust Company of California, as
Rights Agent, which includes thereto the Form of
Rights Certificate to be distributed to holders of
Rights after the Distribution, filed as Item 2,
Exhibit 1 to Form 8-A filed August 9, 1999 and
incorporated herein by reference.
10 Asset Purchase Agreement dated August 4, 1999 by
and between Simplex Products Inc., as Buyer, and K2
Inc., as Seller.
27 Financial Data Schedule for the six months ended
June 30, 1999.
(b) Reports on Form 8-K filed since the date of the last
Form 10-Q
Report on Form 8-K dated July 30, 1999 containing the
Company's press release dated July 22, 1999 announcing
the execution of the Agreement and Plan of Merger between
the Company and Ride, Inc., dated July 22, 1999.
Report on Form 8-K dated August 6, 1999 containing the
Company's press release dated August 5, 1999 announcing
the execution of the definitive agreement to sell the
Simplex products division, dated August 4, 1999.
14
<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.
K2 INC.
(registrant)
Date:August 13, 1999 /s/ RICHARD M. RODSTEIN
--------------------------
Richard M. Rodstein
President and Chief Executive
Officer
Date:August 13, 1999 /s/ JOHN J. RANGEL
------------------
John J. Rangel
Senior Vice President - Finance
15
<PAGE>
EXHIBIT 3(II)
BY-LAWS
OF
K2 INC.
ARTICLE I
OFFICES
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices at other
places, within and without the State of Delaware.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual meetings of stockholders shall be held at such times and
such places, within or without the State or Delaware, as may be fixed from time
to time by the Board of Directors.
SECTION 2. Except as otherwise required by statute or the Corporation's
Certificate of Incorporation, special meetings of stockholders may be called by
the Board of Directors or the Chairman of the Board. Special meetings of
stockholders shall be held on such dates and at such times and such places,
within or without the State of Delaware, as shall be stated in the notices of
such meetings. Notice of any special meeting shall state the purpose or purposes
for which the meeting is to be held and no other business shall be transacted
except as stated in such notice.
SECTION 3. The holders of a majority of the issued and outstanding shares
of the capital stock of the Corporation entitled to vote thereat, present in
person or
16
<PAGE>
represented by proxy, shall constitute a quorum for the transaction of
business at all meetings of stockholders.
SECTION 4. Except as otherwise required by statute, the Corporation's
Certificate of Incorporation or these By-Laws, all matters coming before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the shares of capital stock of the Corporation present in person or
represented by proxy at such meeting and voting thereon, a quorum being present.
SECTION 5. The Board of Directors, or, if the Board shall not have made the
appointment, the chairman presiding at any meeting of stockholders, shall have
power to appoint two or more persons to act as inspectors, to receive, canvass
and report the votes cast by the stockholders at such meeting.
SECTION 6. The Chairman of the Board shall preside at all meetings of
stockholders; and in his absence, the Board of Directors may appoint a person to
act as chairman of the meeting.
SECTION 7. The Secretary or an Assistant Secretary shall act as secretary
at all meetings of stockholders; and in their absence, the chairman of the
meeting shall appoint a person to act as secretary of the meeting.
SECTION 8. At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section 8 and Section 9 of
Article II. For business to be properly brought before any meeting of the
stockholders by a stockholder, the stockholder must have given notice thereof in
writing to the Secretary of the Corporation not less than 90 days in advance of
such meeting or, if later, the tenth day
17
<PAGE>
following the first public announcement of the date of such meeting, and such
business must be a proper matter for stockholder action under the General
Corporation Law of the State of Delaware. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (1) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at
the meeting, (2) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (3) the class and number
of shares of the Corporation that are beneficially owned by the stockholder,
and (4) any material interest of the stockholder in such business. In
addition, the stockholder making such proposal shall promptly provide any
other information reasonably requested by the Corporation. The chairman of
any such meeting shall have the power and the duty to determine whether any
business proposed to be brought before the meeting has been made in
accordance with the procedure set forth in these By-Laws and shall direct
that any business not properly brought before the meeting shall not be
considered. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Section 8 and Section 9 of
Article II. For purposes of this Section 8 and Section 9 of Article II,
"public announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, Associated Press or a comparable national news
service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, or any successor provision.
18
<PAGE>
SECTION 9. Nominations for the election of directors may be made by the
Board or by any stockholder entitled to vote in the election of directors;
provided, however, that a stockholder may nominate a person for election as a
director at a meeting only if written notice of such stockholder's intent to
make such nomination has been given to the Secretary of the Corporation not
later than 90 days in advance of such meeting or, if later, the tenth day
following the first public announcement of the date of such meeting. Each such
notice shall set forth: (i) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (ii) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting and nominate the person or persons specified in the
notice; (iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder, (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board; and (v) the
consent of each nominee to serve as a director of the Corporation if so elected.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. Notwithstanding the
foregoing provisions of this Section 9 of Article II, in the event that the
number of directors to be elected to the Board is increased and there is no
public announcement naming either all of the nominees for director or specifying
the size of the increased Board made by the Corporation at least 100 days in
advance of such
19
<PAGE>
meeting, a stockholder's notice required by this Section 9 of Article II
shall be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
of the Corporation not later than the tenth day following the day on which
such public announcement is first made by the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 9 of Article II. The
chairman of any meeting of stockholders shall have the power and the duty to
determine whether a nomination has been made in accordance with the procedure
set forth in this Section 9 of Article II and shall direct that any
nomination not made in accordance with these procedures be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. The business and affairs of the Corporation shall be managed by
or under direction of the Board of Directors. The directors shall elect one of
their members to be Chairman of the Board, who shall perform such duties as are
provided in these By-Laws or are from time to time assigned by the Board. The
Chairman of the Board may, but need not, be an officer of the Corporation.
SECTION 2. Regular meetings of the Board of Directors shall be held on such
dates and at such times and such places, within or without the State of
Delaware, as shall be fixed from time to time by the Board.
SECTION 3. Special meetings of the Board of Directors may be called by the
Chairman of the Board and shall be called by the Chairman of the Board or the
Secretary upon a request in writing by any four directors. Notice shall be given
of the date, time and place of each special meeting (i) by mailing the same at
least three days
20
<PAGE>
before the meeting to each director via first-class mail, (ii) by telephone,
facsimile transmission or personal delivery of the same at least 24 hours
before the meeting to each director or (iii) by sending the same at least two
days before the meeting to each director via overnight courier for next-day
delivery. Except as otherwise specified in the notice thereof, or as required
by statute, any and all business may be transacted at any special meeting of
the Board of Directors.
SECTION 4. The Chairman of the Board shall preside at all meetings of the
Board of Directors; and in his absence, the Board of Directors may appoint any
other person to act as chairman of the meeting. Less than a quorum of the Board
may adjourn any meeting from time to time until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further notice.
SECTION 5. With the consent of the Chairman or a majority of the Board of
Directors, any director may participate in a meeting of the Board of Directors
by telephone, and a meeting of the Board of Directors may be conducted entirely
by telephone, provided that all of the directors can speak and hear one another.
ARTICLE IV
COMMITTEES
SECTION 1. The Board of Directors may, by resolution passed by a majority
of the whole Board, designate from among its own members such committees as the
Board may determine. Each such committee shall have such powers of the Board of
Directors, not prohibited by statute, as the Board shall from time to time
authorize.
SECTION 2. A majority of a committee shall constitute a quorum for the
transaction of business. Each committee shall keep regular minutes of its
meetings and shall report the same to the Board of Directors when requested. The
Board of Directors
21
<PAGE>
may discharge any committee or any member thereof either with
or without cause at any time.
ARTICLE V
OFFICERS
SECTION 1. The Board of Directors shall elect the following officers: Chief
Executive Officer, President, one or more Vice Presidents, Treasurer and
Secretary and such other officers as it may from time to time determine.
SECTION 2. The term of office of all officers shall be for one year and
until their respective successors are elected and qualified. The Board of
Directors may remove any officer either with or without cause at any time.
SECTION 3. The Chief Executive shall be the chief executive officer of the
Corporation and shall have such powers and duties as generally pertain to the
responsibilities of chief executive officer, including the management of the
business and affairs of the Corporation, subject only to the Board of Directors.
The President, (if he is not the Chief Executive Officer) subject and reporting
to the Chief Executive Officer, shall be the chief operating officer of the
Corporation, and shall have such powers and duties as generally pertain to the
responsibilities of chief operating officer as may be determined from time to
time by the Chief Executive Officer. The other officers of the Corporation,
subject and reporting to the Chief Executive Officer and/or the President, as
determined from time to time by the Chief Executive Officer, shall each have
such powers and duties as generally pertain to their respective offices. Any
officer of the Corporation shall in addition have such powers and duties as may
be conferred by the Board of Directors.
22
<PAGE>
SECTION 4. Unless otherwise ordered by the Board of Directors, the Chief
Executive Officer and any other officer whom he may designate shall have full
power and authority on behalf of the Corporation to attend and to vote at any
meetings of stockholders of any corporation in which this Corporation may hold
stock, and may exercise on behalf of this Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, and
shall have power and authority to execute and deliver proxies, waivers and
consents on behalf of the Corporation in connection with the exercise by the
Corporation of the rights and powers incident to the ownership of such stock.
The Board of Directors may from time to time confer like powers upon any other
person or persons.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates for stock of the Corporation shall be in such form
as the Board of Directors may from time to time prescribe.
SECTION 2. The Board of Directors shall have power to appoint one or more
transfer agents and/or registrars for the transfer and/or registration of
certificates for shares of stock of any class or series and may require that
stock certificates shall be countersigned and/or registered by one or more of
such transfer agents and/or registrars.
SECTION 3. Shares of capital stock of the Corporation shall be transferable
on the books of the Corporation only by the holder of record thereof in person
or by his duly authorized attorney, upon surrender and cancellation of
certificates for a like number of shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, and with such
proof of the authenticity of the
23
<PAGE>
signature and of authority to transfer, and of payment of transfer taxes, as
the Corporation or its agents may require.
SECTION 4. In case any certificate for the capital stock of the Corporation
shall be lost, stolen or destroyed, the Corporation may require such proof of
the fact and such indemnity to be given to it and/or to its transfer agent
and/or registrar, if any, as it shall deem necessary or advisable.
SECTION 5. The Corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder thereof in fact, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
ARTICLE VII
MISCELLANEOUS
SECTION 1. The seal of the Corporation shall be circular in form and shall
contain the name of the Corporation and the year and state of incorporation.
SECTION 2. The Board of Directors shall have the power to fix, and from
time to time to change, the fiscal year of the Corporation.
ARTICLE VIII
AMENDMENT
The Board of Directors shall have the power to adopt, alter and repeal
By-Laws of the Corporation at any regular or special meeting of the Board,
subject to the power of the stockholders to alter or repeal any By-Law adopted
or altered by the Board of Directors. By-Laws may be adopted, altered or
repealed by the stockholders by the vote of the holders of 75% or more of the
outstanding shares entitled to vote thereon
24
<PAGE>
provided that notice of the proposed adoption, alteration or repeal shall
have been given in the notice of such meeting of stockholders.
25
<PAGE>
EXHIBIT 10
ASSET PURCHASE AGREEMENT
DATED AUGUST 4, 1999
BY AND BETWEEN
SIMPLEX PRODUCTS INC.,
AS BUYER,
AND
K2 INC.,
AS SELLER
26
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Agreement to Sell and Agreement to Purchase............................................................1
1.1. Assets to be Conveyed........................................................................1
1.2. Excluded Assets..............................................................................3
1.3. Further Assurances...........................................................................4
2. Consideration to be Paid by Buyer......................................................................4
2.1. Purchase Price for Acquisition Assets........................................................4
2.2. Adjustment to Purchase Price.................................................................5
2.3. Assumed Liabilities..........................................................................8
2.4. Liabilities Not Assumed by Buyer.............................................................9
2.5. Allocation of Purchase Price................................................................11
3. Representations and Warranties of Seller..............................................................11
3.1. Organization and Good Standing..............................................................11
3.2. Authorization of Agreement..................................................................12
3.3. Ownership of Acquisition Assets.............................................................12
3.4. Financial Condition.........................................................................14
3.4.1. Financial Statements..................................................14
3.4.2. Accounting Standards..................................................14
3.4.3. No Undisclosed Liabilities............................................14
3.4.4. Absence of Certain Changes............................................14
3.5. Property of Seller..........................................................................16
3.5.1. Real Property.........................................................16
3.5.2. Tangible Personal Property............................................17
3.5.3. Intangible Personal Property..........................................17
3.6. Agreement Not in Breach of Other Instruments................................................18
3.7. Labor and Employment Matters; Pension and Employee Benefit Plans............................19
3.8. Litigation and Compliance with Laws.........................................................23
3.8.1. Litigation Pending or Threatened......................................23
3.8.2. Violation of Law......................................................23
3.8.3. Environmental Matters.................................................23
3.9. Contracts and Other Instruments.............................................................26
3.10. Compensation of Key Employees and Indebtedness.............................................28
3.11. Insurance..................................................................................28
3.12. Brokerage..................................................................................29
3.13. Accounts Receivable........................................................................29
3.14. Accounts Payable...........................................................................29
3.15. Inventory..................................................................................29
3.16. Solvency...................................................................................29
3.17. Tax Matters................................................................................29
3.18. Suppliers and Customers....................................................................30
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
3.19. Products...................................................................................31
3.20. Absence of Certain Commercial Practices....................................................31
3.21. Documents Referred to in Disclosure Schedule...............................................31
4. Representations and Warranties of Buyer...............................................................31
4.1. Organization; Good Standing; Authorization of Agreement.....................................31
4.2. Agreement Not in Breach of Other Instruments................................................32
4.3. Regulatory Approvals........................................................................32
4.4. Brokerage...................................................................................32
4.5. Financing of Buyer as of the Closing........................................................32
4.6. Reliance on Representations and Warranties..................................................32
5. Closing...............................................................................................32
6. Certain Understandings and Agreements of the Parties..................................................33
6.1. Access; Environmental Clean-up..............................................................33
6.1.1. Access for Buyer......................................................33
6.1.2. Access for Seller.....................................................33
6.1.3. Environmental Clean-up................................................33
6.2. Confidentiality; Public Announcements; Exclusivity..........................................33
6.2.1. Confidentiality.......................................................34
6.2.2. Public Announcements..................................................34
6.2.3. No Shopping...........................................................34
6.3. Conduct of Business of Division.............................................................34
6.4. Preservation of Organization................................................................34
6.5. Current Information.........................................................................35
6.6. Contracts...................................................................................35
6.7. Completion of Transaction; Hart-Scott-Rodino................................................35
6.8. Accounts Receivable.........................................................................36
6.9. Condition to Transfer of Certain Contracts..................................................36
6.10. Waiver of Compliance with Bulk Sales Laws..................................................36
6.11. Division Employees and Employee Benefit Plans..............................................36
6.11.1. Represented Employees................................................36
6.11.2. Unrepresented Employees..............................................37
6.11.3. Transferred Employees................................................37
6.11.4. Employment of Unrepresented Employees................................37
6.11.5. Employment of Represented Transferred Employees......................37
6.11.6. Certain Benefit Plan Issues..........................................39
6.11.7. Workers' Compensation Claims.........................................40
6.11.8. Employment Taxes.....................................................40
6.11.9. Offers of Employment.................................................41
6.12. Taxes......................................................................................41
6.13. Real Estate................................................................................41
6.14. Insurance..................................................................................42
6.15. EIFS Claims................................................................................42
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
6.16. Cooperation with Litigation................................................................42
7. Conditions to Obligations of Seller...................................................................42
7.1. Correctness of Representations and Warranties...............................................42
7.2. Performance of Covenants and Agreements.....................................................43
7.3. Opinion of Counsel for Buyer................................................................43
7.4. Additional Closing Documents................................................................43
7.5. No Legal Bar................................................................................43
7.6. HSR Expiration/Termination..................................................................43
7.7. Michigan Department of Environmental Quality, Waste Management Division Approval............43
8. Conditions to Obligations of Buyer....................................................................43
8.1. Correctness of Representations and Warranties...............................................44
8.2. Performance of Covenants and Agreements.....................................................44
8.3. Opinion of Counsel for Seller...............................................................44
8.4. Additional Closing Documents................................................................44
8.5. No Legal Bar................................................................................44
8.6. Third-Party Consents and Approvals..........................................................44
8.7. Transfer Documents..........................................................................44
8.8. HSR Expiration/Termination..................................................................44
8.9. FIRPTA Affidavit............................................................................45
8.10. Real Estate Conveyance Documents...........................................................45
8.11. Title Insurance............................................................................45
8.12. Zoning Compliance..........................................................................45
8.13. Financing..................................................................................45
9. Survival; Indemnification.............................................................................45
9.1. Survival....................................................................................45
9.2. Indemnification by Seller...................................................................45
9.3. Indemnification by Buyer....................................................................46
9.4. Indemnification Limitations.................................................................46
9.5. Notice of Claims............................................................................47
9.6. Third Party Claims..........................................................................47
9.7. Payments....................................................................................48
9.8. Remedies Exclusive..........................................................................48
9.9. Seller's Indemnification of Buyer for Environmental Liabilities.............................48
10. Termination of Agreement.............................................................................49
10.1. Events of Termination......................................................................49
10.2. Rights and Obligations on Termination......................................................49
11. Miscellaneous Provisions.............................................................................50
11.1. Construction...............................................................................50
11.2. Notices....................................................................................50
</TABLE>
iii
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<TABLE>
<CAPTION>
<S> <C>
11.3. Assignment.................................................................................50
11.4. Amendments and Waivers.....................................................................51
11.5. Remedies...................................................................................51
11.6. Attorneys' Fees............................................................................51
11.7. Binding Nature of Agreement................................................................51
11.8. Expenses...................................................................................51
11.10. Entire Agreement..........................................................................51
11.11. Severability..............................................................................51
11.12. Counterparts..............................................................................52
11.13. Construction..............................................................................52
12. Defined Terms........................................................................................52
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A Purchase Price Adjustment Calculation
Exhibit B Performance Payment
Exhibit C 1999 Budget
Exhibit D Latest Balance Sheet; Financial Statements
Exhibit E [Reserved]
Exhibit F Senior Debt Financing
Exhibit G Opinion of Buyer's Counsel
Exhibit H Opinion of Seller's Counsel
Exhibit I Bills of Sale
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of this 4th day of August, 1999 by and between Simplex Products Inc., a
Delaware corporation ("BUYER"), and K2 Inc., a Delaware corporation ("SELLER").
RECITALS
1. Seller's division, Simplex Products (the "DIVISION"), is engaged in the
business of manufacturing and selling a variety of industrial and building
products, including exterior sheathing and housewrap, recycled chipboard,
exterior insulative finishing systems ("EIFS"), industrial flexible packaging
materials, paperboard products and container components. The business of the
Division as conducted by Seller at or prior to the Closing Date (as hereinafter
defined), and as contemplated by Seller to be conducted as of the Closing Date,
is referred to as the "DIVISION BUSINESS".
2. Buyer desires to acquire, and Seller desires to sell, all of the assets
(tangible and intangible), properties and goodwill of Seller located at the
Division Facilities (as defined below) or otherwise used or held for use
primarily in the Division or arising from the conduct of or otherwise in
connection with the Division Business, on the terms and conditions hereinafter
set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE.
1.1. ASSETS TO BE CONVEYED. On the Closing Date (as hereinafter
defined) Seller shall convey, transfer, assign, sell and deliver to Buyer, and
Buyer shall acquire, accept and purchase, all right, title and interest of
Seller in and to all assets (tangible and intangible), properties and rights
located at the Division Facilities or otherwise used or held for use primarily
in the Division or arising from the Division Business (hereinafter collectively
referred to as the "ACQUISITION ASSETS") including, but not limited to, all such
right, title and interest in and to the following to the extent located at the
Division Facilities or otherwise used or held for use primarily in the Division
or arising from the Division Business:
(a) all prepaid items and deposits, including those set forth in
SECTION 1.1(a) of the Disclosure Schedule prepared by Seller and
attached hereto and incorporated herein by reference (the "DISCLOSURE
SCHEDULE") to the extent existing on the Closing Date;
(b) Accounts receivable, notes and notes receivable (the "ACCOUNTS
RECEIVABLE");
(c) Inventories of raw material, work-in-process and finished
goods, and all capital spares, stores and supplies (collectively, the
"INVENTORY"), whether located at the
premises of the Division or elsewhere and whether or not held by third
parties on consignment;
1
<PAGE>
(d) Office supplies, drums, containers, tote bins and other
packaging material, spare parts, safety equipment, maintenance supplies
and other similar items;
(e) Rights under real property leases (including, but not limited
to, leases relating to the Leased Real Estate (as hereinafter
defined)), equipment or other leases, licenses, contracts, agreements,
purchase or sales orders or commitments, written or oral (collectively,
the "CONTRACTS"), including, without limitation, those set forth in
SECTION 1.1.(e) of the Disclosure Schedule;
(f) Motor vehicles and other rolling stock, including, without
limitation, those set forth in SECTION 1.1(f) of the Disclosure
Schedule;
(g) Machinery, equipment, tooling, dies, tools, furniture,
fixtures, cranes and craneways (hereinafter referred to, collectively
with the motor vehicles and other rolling stock referred to in SECTION
1.1(f), as the "FIXED ASSETS"), whether or not fully depreciated on the
books and records of Seller, including, without limitation, those set
forth in SECTION 1.1(g) of the Disclosure Schedule;
(h) Domestic and foreign patents, patent applications, copyrights,
copyright applications, trademarks, trademark applications, service
marks, service mark applications, trade names (including, without
limitation, the names "THERMO-PLY," "BREATHEDRY," "FINESTONE,"
"BARRICADE," "R-WRAP" and all derivatives and variants thereof) and
trade name registrations and applications (in any such case, whether
registered or to be registered in the United States of America or
elsewhere) and processes, inventions, trade secrets, trade names,
computer programs, formulae, know how, technologies, methods,
formulations software (including, as applicable, documentation and
object and source code listings), licenses, trade secrets and business
secrets, package designs and other processes or proprietary information
used or under development for use, and all other intangible personal
property (all of the foregoing in this SECTION 1.1(h) being hereinafter
referred to collectively as "INTANGIBLE PERSONAL PROPERTY"), including,
without limitation, those set forth in SECTION 1.1(h) of the Disclosure
Schedule;
(i) The real property commonly known as the Adrian, Michigan
plant, the Constantine, Michigan plant and the Jacksonville, Florida
facility (the "OWNED REAL ESTATE") and more particularly described in
SECTION 1.1(i) of the Disclosure Schedule, including without limitation
all improvements and fixtures located thereon and all rights and
interests appurtenant thereto (such real property, improvements,
fixtures and appurtenant rights and interests being hereinafter
referred to collectively with the Leased Real Estate as the "REAL
PROPERTY");
(j) All transferable federal, state, local and foreign licenses,
permits, approvals, registrations, certificates of occupancy,
experience ratings and other governmental authorizations, rights or
entitlements, and all applications therefor, including, without
limitation, those set forth in SECTION 1.1(j) of the Disclosure
Schedule;
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(k) All customer lists, including those set forth on SCHEDULE
1.1(k) of the Disclosure Schedule, goodwill of the Division, sales
brochures, computer software, books, records and accounts,
correspondence, production records, employment, health and safety
records, manuals, property, plant and equipment prints, material
testing results, advertising matter, price lists, correspondence,
mailing lists, photographs, sales and purchasing materials and records,
manufacturing and quality control records and procedures, blueprints,
data and laboratory books, media materials and plates, accounting
records, and other information, in any form or medium, it being
understood that Seller will retain duplicate copies of such books,
records, accounts and other information as it may deem appropriate for
its tax and other ongoing recordkeeping requirements;
(l) All rights of Seller under express or implied warranties from
the suppliers of Seller with respect to the Acquisition Assets, and all
other guarantees, warranties, indemnities and similar rights in favor
of Seller (except Seller's rights hereunder and under the agreements,
instruments and certificates delivered in connection herewith) with
respect to the Acquisition Assets, the Division Business, the Assumed
Liabilities or the Transferred Employees (as hereinafter defined)
including, without limitation, those set forth in SECTION 1.1(l) of the
Disclosure Schedule;
(m) All rights and claims, including refunds, with respect to
Assumed Liabilities (as defined below), and all rights to causes of
action, lawsuits, judgments, claims, defenses and demands of any nature
available to or being pursued by Seller with respect to the Acquisition
Assets, the Assumed Liabilities, or the Assumed Contracts, whether
arising by way of counterclaim or otherwise, including, without
limitation, those set forth in SECTION 1.1(m) of the Disclosure
Schedule;
(n) Any additional rights, assets or properties, or interests
therein or thereunder, set forth in SECTION 1.1(n) of the Disclosure
Schedule; and
(o) All assets at Closing in or for any medical care reimbursement
program for any Transferred Employee (as hereinafter defined), subject
to any unpaid claims for reimbursement from such programs made prior to
Closing.
1.2. EXCLUDED ASSETS. Notwithstanding SECTION 1.1 hereof, Seller is not
selling, and Buyer is not purchasing, pursuant to this Agreement, any of the
following (the "EXCLUDED ASSETS"), all of which shall be retained by Seller:
(a) Cash, cash equivalents and any marketable securities of
Seller;
(b) Rights of Seller under this Agreement and the agreements,
instruments and certificates delivered in connection with this
Agreement;
(c) Seller's tax returns and other corporate documents, it being
understood that Seller will provide Buyer access to or duplicate copies
of such documents relating to the Division as reasonably requested by
Buyer;
(d) Seller's copy of the books, records and accounts of the
Division retained pursuant to SECTION 1.1(k);
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(e) Subject to Section 6.12 and other applicable provisions, and
other than to the extent included as assets in the Closing Date Net
Assets (as hereinafter defined) and included in the calculation of the
Cash Portion of the Purchase Price, all rights to claims, available to
or being pursued by Seller for refunds of or credits against any Taxes
attributable to the Division for taxable periods ending on or before
the Closing Date and for the portion ending on the Closing Date of any
taxable period that includes but does not end on the Closing Date (the
"PRE-CLOSING TAX PERIODS") (determined as if such taxable period ended
as of the close of business on the Closing Date);
(f) All rights to causes of action, lawsuits, judgments, claims,
defenses and demands of any nature available to or being pursued by
Seller with respect to the Excluded Liabilities (as hereinafter
defined), whether arising by counterclaim or otherwise, provided such
are not related to any Acquisition Assets, Assumed Liabilities (as
hereinafter defined) or Assumed Contracts;
(g) The name and mark "K2" and any name or mark derived from or
including the foregoing and any other name or mark owned by Seller and
not used or held for use primarily by the Division;
(h) All rights of Seller under any liability, workers
compensation, property or other insurance policies of Seller; and
(i) Computer programs, systems, equipment, intangible personal
property and any other assets, properties or rights of Seller used
generally in the conduct of Seller's business and not located at the
Real Property or otherwise used or held for use primarily in the
Division.
1.3. FURTHER ASSURANCES. On the Closing Date and from time to time
thereafter, Seller will do, execute, acknowledge, deliver and file, or cause to
be done, executed, acknowledged, delivered and filed, all such acts, deeds,
instruments of sale, transfer, conveyance, assignment and delivery, consents,
assurances, powers of attorney and other instruments as may be reasonably
requested by Buyer in order to vest in Buyer all right, title and interest in
and to the Acquisition Assets and otherwise in order to carry out the purpose
and intent of this Agreement.
2. CONSIDERATION TO BE PAID BY BUYER.
2.1. PURCHASE PRICE FOR ACQUISITION ASSETS. The aggregate purchase
price for the Acquisition Assets (the "PURCHASE PRICE") shall consist of: (a)
Buyer's payment to Seller in cash on the Closing Date of $31,845,000 (the "BASE
CASH PAYMENT AMOUNT"), which amount and payment shall be subject to adjustment
based on information available as of the Closing Date as provided in SECTION 2.2
(as so adjusted as of the Closing Date, the "CLOSING CASH PAYMENT"), which
amount and payment shall be subject to further adjustment after the Closing Date
as provided in SECTION 2.2 (as so adjusted after the Closing Date, the "CASH
PORTION OF THE PURCHASE PRICE"); (b) Buyer's obligation to pay to Seller up to
$3,000,000 of additional cash payments pursuant to the terms and provisions of
SECTION 2.2(i) (the "PERFORMANCE PAYMENT"), which payments and amounts shall be
determined as provided in SECTION 2.2(i); and (c) Buyer's assumption of the
Assumed Liabilities. The Closing Cash Payment shall be paid to Seller by
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wire transfer at the Closing (as hereinafter defined) to an account
designated by Seller at least three (3) business days prior to the Closing
Date.
2.2. ADJUSTMENT TO PURCHASE PRICE. The Closing Cash Payment, the Cash
Portion of the Purchase Price, the Performance Payment, and therefore the
Purchase Price, shall be subject to adjustment in accordance with the following
procedure. The $31,845,000 Base Cash Payment Amount in respect of the Cash
Portion of the Purchase Price assumes that the dollar value of the Net Assets
(as defined below) of the Division, as of the Closing ("CLOSING DATE NET
ASSETS"), will be equal to $28,541,000, which represents the dollar value of the
Net Assets determined as of December 31, 1998 as set forth on EXHIBIT A hereto
(the "ASSUMED CLOSING DATE NET ASSETS Amount"). The Closing Cash Payment and the
final Cash Portion of the Purchase Price will be adjusted to account for
variations from this assumption, and the Performance Payment will be determined,
as follows:
(a) "NET ASSETS" means the net assets of the Division determined
by taking the sum of all Acquisition Assets that would be required to
be reflected as assets on a balance sheet prepared in accordance with
GAAP, including those categories of assets of the Division listed on
EXHIBIT A, and subtracting therefrom all Assumed Liabilities that would
be required to be reflected as liabilities on a balance sheet prepared
in accordance with GAAP, including those categories of liabilities of
the Division listed on EXHIBIT A. For purposes of this Agreement, the
calculation and dollar value of the Net Assets as of each applicable
date shall be determined in accordance with GAAP in a manner consistent
with Seller's historical financial statements, subject to the
adjustments and methodology outlined and agreed upon on EXHIBIT A
attached hereto.
(b) In order to calculate the Closing Cash Payment, a preliminary
determination of Net Assets shall be made by Seller as of the end of
the most recent accounting month ending prior to the Closing Date,
certified as to its being prepared in accordance with the methodology
and adjustments set forth on EXHIBIT A by Seller's Chief Financial
Officer and delivered to Buyer at least three (3) business days prior
to the Closing Date. The amount so calculated (referred to herein as
the "TENTATIVE NET ASSETS AMOUNT") shall be used to determine the
Closing Cash Payment as follows: The Closing Cash Payment amount shall
equal the $31,845,000 Base Cash Payment Amount and shall be adjusted as
follows: (i) such payment amount shall be reduced to the extent that
the Tentative Net Assets Amount is less than the Assumed Closing Date
Net Assets Amount; and (ii) such payment amount shall be increased to
the extent that the Tentative Net Assets Amount is greater than the
Assumed Closing Date Net Assets Amount.
(c) Commencing on the Closing Date, Seller and Buyer shall jointly
conduct (and Seller's and Buyer's accountants and auditors may observe)
a physical asset inventory of the Acquisition Assets. Based upon such
physical inventory and as soon as practicable (but in no event later
than forty-five (45) days) after the Closing Date, Seller, in
cooperation with Buyer and allowing Buyer and its accountants and
auditors full participation therein, shall prepare in accordance with
GAAP in a manner consistent with Seller's historical financial
statements, subject to the methodology and adjustments set forth on
EXHIBIT A attached hereto, and on a basis consistent with the
calculations of the Assumed Closing Date Net Assets Amount, and shall
deliver to Buyer a statement setting
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forth Seller's calculation of the Net Assets as of the Closing Date
(the "CLOSING DATE NET ASSETS"). Seller's Chief Financial Officer shall
certify that the calculations of the Closing Date Net Assets on such
statement are correctly prepared in accordance with the provisions of
this Agreement.
(d) The final Cash Portion of the Purchase Price shall equal the
Closing Cash Payment amount adjusted as follows: (i) such amount shall
be reduced to the extent that the Closing Date Net Assets are less than
the Tentative Net Assets Amount; and (ii) such amount shall be
increased to the extent that the Closing Date Net Assets are greater
than the Tentative Net Assets Amount. Any amount by which the final
Cash Portion of the Purchase Price, as so calculated, exceeds the
Closing Cash Payment shall be paid by Buyer to Seller within five (5)
days after final determination. Any amount by which the final Cash
Portion of the Purchase Price, as so calculated, is less than the
Closing Cash Payment shall be refunded by Seller to Buyer within five
(5) days after such final determination. Any amounts payable hereunder
shall be payable by wire transfer in immediately available funds to an
account designated by the party entitled to such payment at least one
day before the wire transfer and shall be treated as adjustments to the
Purchase Price.
(e) Buyer shall have a reasonable time, not in excess of thirty
(30) days after the receipt thereof, to review Seller's calculation of
the Closing Date Net Assets and Seller shall cooperate in furnishing
all such working papers and accounting records as Buyer shall
reasonably request for such purpose. If Buyer does not timely deliver a
"Contest Notice" (as hereinafter defined) in accordance with SECTION
2.2(f), the Closing Date Net Assets, the Cash Portion of the Purchase
Price and the Purchase Price as so derived and determined will be final
and binding on the parties. If a Contest Notice is so delivered, the
Closing Date Net Assets, the Cash Portion of the Purchase Price and the
Purchase Price shall be determined as set forth below.
(f) In the event that Buyer contests any part of the Purchase
Price as adjusted, as set forth above, Buyer shall give Seller written
notice of its objections thereto (a "CONTEST NOTICE") within thirty
(30) days following Seller's delivery of the Closing Date Net Assets
and accompanying calculations and certificates. Any such Contest Notice
shall specify in reasonable detail the nature of any disagreement
asserted and the amount claimed by Buyer.
(g) During the period of thirty (30) days following the timely
delivery of any such Contest Notice, Buyer and Seller shall attempt to
resolve any differences which Buyer and Seller may have with respect to
any matter specified in the Contest Notice (which resolution, if any,
shall be final and binding on the parties). If, at the end of such
thirty (30) day period, Buyer and Seller shall fail to reach written
agreement with respect to all of such matters, then the matters
specified in any Contest Notice with respect to which such written
agreement has not been reached (the "DISPUTED MATTERS") shall be
submitted for determination by an independent "big five" certified
public accounting firm of national standing (the "ACCOUNTANTS")
mutually selected by Buyer's accountants and Seller's accountants. The
Accountants shall consider only the Disputed Matters. The Accountants
shall not be required to follow any particular rules of procedure, it
being the
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intention of the parties to create a flexible, practical and
expeditious method for resolving any disagreement hereunder. The
Accountants' decision with respect to all Disputed Matters shall be
final and binding upon the parties hereto.
(h) Each party shall bear its own costs and expenses for its own
independent auditors. The fees and expenses of the Accountants incurred
in connection with review and determination of any Disputed Matters
shall be borne by the party whose asserted calculation of the Purchase
Price adjustment amount affected by the Disputed Matters was most at
variance from the amount determined by the Accountants.
(i) The Performance Payment shall be determined as follows:
(1) Within ninety (90) days after each consecutive calendar
year ending December 31, 2000, 2001 and 2002 (the "EARNOUT
PERIOD"), Buyer shall pay to Seller an amount (each an "ANNUAL
EARNOUT PAYMENT") equal to (i) the payout percentage for such
calendar year set forth on EXHIBIT B multiplied by (ii) the
amount, if any, by which the "EBITDA of the Division" (as defined
below) for such preceding calendar year exceeds the annual
earn-out target EBITDA set forth on EXHIBIT B. Notwithstanding
anything contained herein to the contrary, Buyer's obligation
under this SECTION 2.2(i) to make Annual Earnout Payments to
Seller shall terminate at such time as Buyer shall have paid an
aggregate amount equal to $3,000,000 to Seller under this SECTION
2.2(i); PROVIDED, that such $3,000,000 amount shall be reduced as
of the Closing Date on a dollar-for-dollar basis to the extent
that the Division's actual "operating profit" (as such term is
used in the Division's 1999 Budget attached hereto as EXHIBIT C)
for the 1999 fiscal year through the end of the Division's
accounting month ending prior to the Closing Date is less than
that projected on the Division's 1999 Budget attached hereto as
EXHIBIT C for such period. For purposes of this Agreement, "EBITDA
OF THE DIVISION" shall mean, for the appropriate calendar year,
earnings of the Division before interest, tax, depreciation and
amortization and excluding expenses greater than $125,000 in the
aggregate imposed by Buyer on the Division (including, but not
limited to, management and other transaction fees), computed in
accordance with GAAP in a manner consistent with Seller's
historical financial statements. Buyer and Seller agree that, for
purposes of ensuring a fair calculation of EBITDA of the Division
following the Closing Date, (i) Buyer shall maintain separate
accounting and financial records of the Division, including
separate data regarding sales, costs of goods and other expenses,
and (ii) Buyer and Seller shall consult with one another and agree
upon any allocation of costs and expenses that are shared by the
Division and any other business of Buyer.
(2) Buyer shall deliver to Seller, within ninety (90) days
after the end of each calendar year, a statement of the EBITDA of
the Division for such calendar year prepared in accordance with
the accounting rules applicable to the calculation of the Annual
Earnout Payments provided for in SECTION 2.2(i).
(3) Seller and its authorized representatives shall have the
right, at reasonable times and on reasonable notice, to review the
books and records of Buyer relating to the Division and the Annual
Earnout Payment solely for the
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purpose of verifying the computation of the Annual Earnout
Payment. Buyer shall maintain, for the Earnout Period and for a
period of two years thereafter, all books and records necessary to
the preparation of its financial statements for the Earnout Period
and the computation of any Annual Earnout Payments.
2.3. ASSUMED LIABILITIES. As further consideration for consummation of the
transactions contemplated hereby, subject to SECTION 2.4 hereof, at the Closing,
Buyer shall assume and agree to thereafter pay when due and discharge and
indemnify Seller and hold Seller harmless with respect to the following
liabilities (the "ASSUMED LIABILITIES"):
(a) All obligations and liabilities of Seller under the Contracts that
are not in default as of the Closing and that are effectively assigned to
Buyer at the Closing pursuant to the provisions of this Agreement (the
"ASSUMED CONTRACTS");
(b) All accounts payable owed by Seller to the extent arising prior to
the Closing out of the conduct of the Division Business by Seller (the
"ACCOUNTS PAYABLE");
(c) All obligations and liabilities in respect of contractual
warranties for any and all products (other than EIFS) sold by the Division
at any time, including obligations and liabilities for refunds,
adjustments, allowances, repairs, exchanges, returns and contractual
warranty of merchantability and other contractual warranty claims;
(d) Except as set forth in Section 6.14, all obligations and
liabilities (other than contractual warranty claims) in respect of product
liability claims for any and all products (other than EIFS) sold by the
Division at any time, including obligations and liabilities for refunds,
adjustments, allowances, repairs, exchanges, returns and warranty of
merchantability and other claims; provided, that the date of such claim (as
determined in a manner consistent with the determination of the date of
claim under a "claims made" insurance policy) was on or after the Closing
Date;
(e) All obligations and liabilities in respect of claims of defective
EIFS sold by the Division at any time and with respect to which the
customer commences installation on or after the Closing Date, including
obligations and liabilities for refunds, adjustments, allowances, repairs,
exchanges, returns and warranty of merchantability and other claims
relating thereto;
(f) All obligations and liabilities arising under or in connection with
(1) accrued payroll and accrued vacation with respect to all Transferred
Employees, (2) accrued severance benefits and accrued benefits under the
Simplex Products Division UAW Local 963 Unit 1 Retirement Income Plan (the
"SIMPLEX PLAN") and the Paper Industry Union Management Pension Fund (the
"PAPER INDUSTRY PLAN"); (3) severance of any Transferred Employee who
terminates employment with Buyer after the Closing Date; and (4)
post-retirement medical benefits (on substantially the same terms offered
to other similarly situated employees of Buyer pursuant to Buyer's medical
benefit plans or pursuant to the terms of any applicable Collective
Bargaining Agreement) for any Transferred Employee who retires from the
Buyer after the Closing Date;
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(g) Subject to Section 9.9 and other applicable provisions hereof, all
Environmental Liabilities arising after the Closing Date, except as set
forth in SECTION 2.4(k); and
(h) All other liabilities, contingent or otherwise, owed by Seller, to
the extent arising prior to the Closing out of the conduct of the Division
Business by Seller AND to the extent that they are either (1) identified on
SECTION 2.3(h) of the Disclosure Schedule or (2) included as liabilities in
the statement of Closing Date Net Assets and included in the calculation of
the Cash Portion of the Purchase Price pursuant to SECTION 2.2.
2.4. LIABILITIES NOT ASSUMED BY BUYER. Except for those liabilities and
obligations of Seller specifically identified as Assumed Liabilities assumed as
of the Closing, Buyer does not assume and shall not be liable for, and shall not
be deemed by anything contained in this Agreement to have assumed, and Seller
hereby agrees, irrevocably and unconditionally, to fully pay and perform in a
prompt and timely manner and to indemnify Buyer and hold Buyer harmless with
respect to all liabilities and obligations of Seller, whether or not arising in
connection with the Division Business, and whether accrued or fixed, absolute or
contingent, known or unknown, determined or undetermined, and whenever arising
(the "EXCLUDED LIABILITIES"). Without limitation to the foregoing, and for
purposes only of illustration, it is expressly agreed that the Excluded
Liabilities include the following:
(a) Any liability of Seller to any person or entity the existence of
which constitutes a breach of any covenant, agreement, representation or
warranty of Seller contained in this Agreement;
(b) Except as provided in Section 6.12, any liability of Seller for any
federal, state, local, foreign or other Taxes (as hereinafter defined),
except to the extent liabilities for such Taxes are included in the
calculation of the Closing Date Net Assets and the Cash Portion of the
Purchase Price pursuant to SECTION 2.2;
(c) Except as set forth in SECTION 2.3(f) or 2.3(h) and except for
liabilities under Assumed Contracts, any liability of Seller for any event
occurring prior to the Closing Date or any obligation for benefits accrued
prior to the Closing Date under any "Employee Benefit Plans." "Employee
Benefit Plans" means any employee pension benefit plans (as defined in
Section (3)(2) of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA")), employee welfare benefit plans (as defined in Section
3(1) of ERISA), bonus, deferred compensation, incentive compensation, stock
ownership, phantom stock, disability, death, dependent care, employee
assistance, scholarship or other plan or program, arrangement or
understanding (whether or not covered by ERISA) maintained in whole or in
part, contributed to, or required to be contributed to by Seller for the
benefit of any present or former officer, employee, or director of Seller
or any entity which is under common control with Seller within the meaning
of section 414 of the Internal Revenue Code of 1986 (the "CODE"), any such
entity being hereafter referred to as a "COMMONLY CONTROLLED ENTITY";
(d) Any obligations and liabilities (other than contractual warranty
claims) in respect of claims of defective products sold by Division prior
to the Closing Date as to which the date of the claim against Seller or the
Division was prior to the Closing Date
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(as determined in a manner consistent with the determination of the date
of claim under a "claims made" insurance policy), including obligations and
liabilities for refunds, adjustments, allowances, repairs, exchanges,
returns and warranty of merchantability and other claims;
(e) Any obligations and liabilities in respect of claims of defective
EIFS with respect to which customers have commenced installation prior to
the Closing Date, including obligations and liabilities for refunds,
adjustments, allowances, repairs, exchanges, returns and warrants of
merchantability and other claims relating thereto (the "EIFS CLAIMS");
(f) Any of Seller's notes payable or indebtedness for borrowed money,
except to the extent any of the foregoing are Assumed Liabilities included
in the calculation of Closing Date Net Assets and the Cash Portion of the
Purchase Price pursuant to SECTION 2.2;
(g) Any liability or obligation in connection with any obligations
owing by the Division to Seller or any person, firm, corporation,
partnership, limited liability company, joint venture, association or
entity, whether governmental or private (each a "PERSON" and collectively,
"PERSONS") who, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with, Seller (all
such Persons collectively, "SELLER'S AFFILIATES"), except to the extent
such liabilities or obligations are Assumed Liabilities included in the
calculation of Closing Date Net Assets and the Cash Portion of the Purchase
Price pursuant to SECTION 2.2;
(h) Any liability or obligation arising in connection with any notes,
bonds, Accounts Receivable or other evidences of indebtedness of or rights
to receive payment from any Person in connection with the Division Business
that are retained by Seller or that have been transferred to a third Person
(other than Buyer) by Seller;
(i) Any liability or obligation arising in connection with any actions,
suits, investigations, reviews or other legal, administrative, arbitration,
investigatory or other proceedings pending or threatened against Seller or
any of Seller's Affiliates relating to claims made prior to the Closing
Date (as determined in a manner consistent with the determination of the
date of claim under a "claims made" insurance policy) except to the extent
any of the foregoing are Assumed Liabilities (i) listed on SECTION 2.3(h)
of the Disclosure Schedule or (ii) included in the calculation of Closing
Date Net Assets and the Cash Portion of the Purchase Price pursuant to
SECTION 2.2;
(j) Any liability or obligation arising in connection with any failure
by Seller or any of Seller's Affiliates to comply with all applicable
federal, state, local and foreign laws, ordinances, rules, regulations,
codes, orders and judgments ("LEGAL REQUIREMENTS") or Permits (as
hereinafter defined) in effect on or before the Closing Date applicable to
the Division Business or the Acquisition Assets, occurring on or before the
Closing Date;
(k) Any Environmental Liability arising from any act(s) occurring or
condition(s) existing prior to the Closing Date, but only to the extent
that such
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Environmental Liability was caused by the pre-Closing Date act(s) or
condition(s). This subsection shall include any Environmental Liability:
(i) incurred in connection with or arising out of or resulting from
Seller's use, handling, treatment, storage, or disposal of any Hazardous
Substance (as hereinafter defined) at any time prior to the Closing Date
(including any obligation or liability resulting from any exposure of any
Persons, or their property, to any Hazardous Substance) or (ii) incurred in
connection with or arising out of or resulting from Seller's actual or
alleged violation of any Environmental Law (as hereinafter defined) or
Environmental Permit (as hereinafter defined) at any time prior to the
Closing Date;
(l) Any liability or obligation relating to claims related to
occupational safety, workers' or workmen's compensation, grievance
proceedings, or performance under the Collective Bargaining Agreements (as
hereinafter defined) and arising out of events occurring on or before the
Closing Date, and any liability or obligation relating to the matters
discussed on SECTION 3.5.3(f) of the Disclosure Schedule; except to the
extent any of the foregoing are Assumed Liabilities (i) listed on SECTION
2.3(h) of the Disclosure Schedule or (ii) included in the calculation of
Closing Date Net Assets and the Cash Portion of the Purchase Price pursuant
to SECTION 2.2;
(m) All fees or expenses in connection with the transactions
contemplated by this Agreement, including but not limited to, all fees and
expenses of counsel to Seller, except as otherwise provided in SECTION
11.8;
(n) Any multiemployer plan withdrawal liability to which Seller may be
subject in connection with the Closing of the transactions contemplated by
this Agreement or any other liability to be borne by Seller as provided in
SECTION 6.11; and
(o) Any liability or obligation arising in connection with the Excluded
Assets or not associated with the Division Business or the Acquisition
Assets.
2.5. ALLOCATION OF PURCHASE PRICE. Subject to adjustment for the matters
taken into account in determining the final Purchase Price pursuant to SECTION
2.2, Seller and Buyer shall work jointly to establish an allocation of the
Purchase Price within sixty (60) days of the Closing. The Purchase Price shall
be allocated based upon the fair market values of the Purchased Assets and shall
conform to the requirements of Section 1060 of the Code (as hereinafter defined)
and temporary regulations thereunder. Seller and Buyer shall jointly complete
and separately file Form 8594 with their respective federal income tax returns
for the tax year in which the Closing Date occurs in accordance with such
allocation, and each of the parties shall refrain from taking a position on any
income, transfer or gains tax return, before any governmental agency charged
with the collection of any such tax or in any judicial proceeding that is in any
manner inconsistent with the terms of any such allocation without written
consent of the other in each instance.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Buyer that, in each case except as otherwise set forth on the Disclosure
Schedule:
3.1. ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power
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to carry on and conduct all of the business and activities of the Division
Business as it is now and has since its organization been conducted and to
own, lease or operate the Acquisition Assets and all other assets owned,
leased or operated by Seller in connection with the Division Business; and
Seller is duly licensed or qualified to do business and is in good standing
as a foreign corporation under the laws of each of the jurisdictions listed
in SECTION 3.1 of the Disclosure Schedule, which are all of the jurisdictions
in which the nature of the activities conducted by the Division, and/or the
character of the assets owned or leased by the Division, makes such
qualification or license necessary except for those jurisdictions where the
failure to be so qualified would not adversely affect the Division Business
or the Acquisition Assets in any material manner.
3.2. AUTHORIZATION OF AGREEMENT. Seller has all requisite power and
authority to enter into this Agreement and all other agreements and instruments
to be executed by Seller in connection herewith and to consummate the
transactions contemplated hereby and thereby. This Agreement and all other
agreements and instruments to be executed by Seller in connection herewith have
been (or upon execution will have been) duly executed and delivered by Seller,
have been effectively authorized by all necessary action, corporate or
otherwise, and constitute (or upon execution will constitute) legal, valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms.
3.3. OWNERSHIP OF ACQUISITION ASSETS.
(a) True and correct copies of each deed to the Owned Real Estate,
together with Seller's most recent title insurance policies, surveys and
title commitments and reports in respect thereof as Seller has, have been
delivered to Buyer. None of the Owned Real Estate is subject to any lease
granted to any third person.
(b) Seller has, and upon consummation of the transactions being
consummated hereunder at the Closing Buyer will have, good and valid title
to or a valid leasehold interest in all of the Acquisition Assets (other
than the Owned Real Estate and Leased Real Estate), free and clear, free
and clear of all claims, mortgages, pledges, liens, security interests,
encumbrances and restrictions of every kind and nature and other matters
affecting title (collectively, "LIENS") and other matters affecting title
other than Liens for Taxes or governmental assessments, charges or claims
the payment of which is not yet due, statutory Liens of landlords and
inchoate Liens of carriers, warehouse, mechanic, materialmen and other
similar persons and other Liens imposed by applicable law, rule or
regulation incurred in the ordinary course of business for sums not yet
delinquent, Liens relating to deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, and Liens on the Leased Real Property
which are a matter of public record and which (i) do not materially
interfere or impair the operations on the Real Property for the purposes
for which it is or may reasonably be expected to be used, (ii) do not
require the payment of any money by Buyer, (iii) do not create any
affirmative obligations of Buyer, and (iv) do not materially detract from
the value of such Real Property (collectively, "PERMITTED LIENS").
(c) SECTION 3.3(c) of the Disclosure Schedule sets forth a list of all
of the Leased Real Estate and the address by which each parcel of real
property is commonly
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known. With respect to the Leased Real Estate, (i) Seller is the owner
and holder of all the leasehold interests and estates purported to be
granted by such leases (together with all amendments, supplements and
any other writings which affect the terms thereof, the "REAL ESTATE
LEASES"), free and clear of all Liens, other than those set forth in
SECTION 3.3(c) of the Disclosure Schedule, (ii) each Real Estate Lease
is in full force and effect and constitutes a valid and binding
obligation of Seller, and, to the knowledge of Seller, of the parties
thereto, enforceable in accordance with its terms, and (iii) Seller has
made available to Buyer true and complete copies of all written Real
Estate Leases and there are no oral Real Estate Leases. There exists no
default or any event which upon notice or the passage of time, or both,
would give rise to any default, in the performance by Seller under any
Real Estate Lease. Except as set forth in SECTION 3.3(c) of the
Disclosure Schedule, Seller has not, and to the knowledge of Seller, no
other Person has, granted any written right to anyone other than Seller
to lease, sublease or otherwise occupy any of the Leased Real Estate
through the end of the applicable lease periods. Except as disclosed in
SECTION 3.3(c) of the Disclosure Schedule, no consent is required from
any lessor under any Real Estate Lease for the transactions contemplated
by this Agreement.
(d) SECTION 3.3(d) of the Disclosure Schedule sets forth a list of all
personal property leased by Seller as lessee for the Division Business
(other than any leases or licenses of Intangible Personal Property, which
are dealt with separately in SECTION 3.5.3 below) (the "LEASED PERSONAL
PROPERTY"). Correct, complete and accurate copies of all leases pursuant to
which Seller holds or uses any Leased Personal Property have been made
available to Buyer. With respect to the Leased Personal Property, (i)
Seller is the owner and holder of all the leasehold interests and estates
purported to be granted by such leases (together with all amendments,
supplements and any other writings which affect the terms thereof, the
"PERSONAL PROPERTY LEASES"), free and clear of all Liens, other than those
set forth in SECTION 3.3(d) of the Disclosure Schedule, (ii) each Personal
Property Lease is in full force and effect and constitutes a valid and
binding obligation of Seller, and, to the knowledge of Seller, of the other
parties thereto, enforceable in accordance with its terms, and (iii) Seller
has made available to Buyer true and complete copies of all written
Personal Property Leases. There exists no default or any event which, upon
notice or the passage of time or both, would give rise to any default, in
the performance by Seller or, to the knowledge of Seller, by any lessor
under any Personal Property Lease. Except as set forth in SECTION 3.3(d) of
the Disclosure Schedule, Seller has not, and to the knowledge of Seller, no
other Person has, granted any oral or written right to anyone to lease,
sublease or otherwise use any of the Leased Personal Property through the
end of the applicable lease periods. Except as disclosed on SECTION 3.3(d)
of the Disclosure Schedule, no consent is required from any lessor under
any Personal Property Lease for the transactions contemplated by this
Agreement.
(e) The Acquisition Assets include all assets, rights and interests
necessary for the uninterrupted conduct of the Division Business by Buyer
from and after the Closing in the same manner as conducted by Seller at and
prior to the Closing, except as disclosed in SECTION 3.3(e) of the
Disclosure Schedule.
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3.4. FINANCIAL CONDITION.
3.4.1. FINANCIAL STATEMENTS. Seller has furnished to Buyer unaudited
financial statements of the Division, consisting of balance sheets as of
December 31, 1997 and 1998 and consolidated statement of income and cash
flows for the years then ended, as well as the unaudited balance sheet of
the Division dated as of June 25, 1999 attached hereto as EXHIBIT D (the
"LATEST BALANCE SHEET"), and the related unaudited statements of income and
cash flows for the period from January 1, 1999 through and including June
25, 1999 (including the Latest Balance Sheet, the "FINANCIAL STATEMENTS")
attached hereto as EXHIBIT D.
3.4.2. ACCOUNTING STANDARDS. The Financial Statements: (i) have been
prepared in accordance with the books and records of Seller; (ii) except
for any adjustments specifically set forth in SECTION 3.4.2 of the
Disclosure Schedule, have been prepared in accordance with generally
accepted accounting principles in a manner consistent with past practice
("GAAP") and, in all cases where these is a permissible choice among
accounting principles and procedures in accordance with GAAP, prepared on a
basis consistent with Seller's Balance Sheet as of December 31, 1998, and
(iii) present fairly the financial position and results of operations of
the Division at the dates and for the periods indicated therein.
3.4.3. NO UNDISCLOSED LIABILITIES. As of the date hereof, there are no
liabilities or obligations of Seller of any kind that would be required to
be reflected on a balance sheet prepared in accordance with GAAP, except
(a) as accrued, disclosed, reflected or reserved against on the Latest
Balance Sheet, (b) for liabilities or obligations incurred in the ordinary
course of business since the date of the Latest Balance Sheet, and (c) as
discussed in SECTION 3.4.3 of the Disclosure Schedule.
3.4.4. ABSENCE OF CERTAIN CHANGES. Since June 25, 1999, there has not
been relating to the Division, the Division Business, the Acquisition
Assets, the Assumed Liabilities or the Assumed Contracts:
(a) any sale, assignment, pledge, distribution, transfer or other
disposition or subjection to any Lien of any of Seller's assets, except
sales of inventory in the ordinary and usual course of business;
(b) any increase or enforceable promise of an increase in the
salary or other compensation or benefits (including any bonus, pension,
profit-sharing or other benefit or compensation plan, policy or
arrangement or commitment) payable or to become payable to any officer,
director or employee, other than routine increases in the ordinary
course of business consistent with past practices and disclosed in
SECTION 3.4.4 of the Disclosure Schedule;
(c) any adoption of a new benefit plan or any amendment to an
existing benefit plan for the employees or officers of the Division;
(d) any transaction by Seller not in the ordinary and usual course
of business;
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(e) any event or circumstance that constitutes or would give rise
to a Material Adverse Effect;
(f) any damage, destruction or loss, whether or not covered by
insurance affecting any asset or property of Seller of any kind or
character which, in the aggregate with all others, exceeds $50,000;
(g) any material alteration in the manner in which Seller keeps
its books, accounts or records or in the accounting practices therein
reflected, including the recognition and computation of accrued
expenses and depreciation or amortization policies or rates;
(h) any incurrence, assumption, payment or prepayment of any
indebtedness for borrowed money (except with respect to noninterest
bearing advances from Seller to the Division) or any commitment to
borrow money or any guaranty, direct or indirect, of indebtedness of
others;
(i) any payment, discharge or satisfaction of any claim or
obligation of Seller, except in the ordinary course of business;
(j) any material write-down of the value of any asset of Seller or
any material write-off as uncollectible of any accounts or notes
receivable or any portion thereof, except as set forth on SCHEDULE
3.4.4(j) of the Disclosure Schedule;
(k) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to Seller not in the
ordinary and usual course of business;
(l) except as set forth in the Division's 1999 Budget (attached
hereto as EXHIBIT C) or as listed in SECTION 3.4.4(l) of the Disclosure
Schedule, any acquisition or lease of or commitment to acquire or lease
any realty, or any capital expenditure;
(m) any material change in the terms (including credit terms) of
any contract or agreement (other than an immaterial contract or
immaterial purchase order) with any customer of Seller who, during the
period from January 1, 1998 through December 31, 1998, was billed in
excess of $100,000 as a result of the sale of products or provision of
services by Seller (collectively, the "SIGNIFICANT CUSTOMERS") not in
the ordinary and usual course of business;
(n) any change in the operations, business or manner of conducting
the Division, other than changes in the ordinary and usual course of
business consistent with prior practice, none of which, individually or
in the aggregate, has had or is expected to have a Material Adverse
Effect; or
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(o) any agreement by or with Seller during the applicable period,
whether in writing or otherwise, to take any of the actions specified
in the foregoing items (a) through (m).
As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any change in or
effect on the Division, the Division Business, the Acquisition Assets or the
Assumed Liabilities that (i) is or will be materially adverse to the business,
operations, properties, condition (financial or otherwise), assets or
liabilities of the Division taken as a whole (excluding adverse changes that are
the result of economic factors affecting the economy as a whole or factors
generally affecting the industry in which Seller competes and the announcement
and pendency of the transactions contemplated hereby) or (ii) materially impairs
or prohibits the ability of Seller and Buyer to consummate the transactions
contemplated by this Agreement or the ability of Buyer to obtain the financing
contemplated by SECTION 8.12.
3.5. PROPERTY OF SELLER.
3.5.1 REAL PROPERTY.
(a) [Reserved]
(b) Except for the Owned Real Estate and the real property
commonly known as (i) the Jacksonville, Florida sales office, which
constitutes the leased premises under the Lease between Seller as
lessee and Beach Marine as lessor (the "JACKSONVILLE OFFICE LEASE"),
(ii) the Jacksonville, Florida warehouse, which constitutes the leased
premises under the Lease between Seller as lessee and Eastport Partner
as lessor (the "JACKSONVILLE WAREHOUSE LEASE"), (iii) the Adrian,
Michigan railsiding, which constitutes the leased premises under the
Lease between Seller as lessee and Norfolk & Western as lessor (the
"ADRIAN RAILSIDING LEASE"), (iv) the Adrian, Michigan Group
headquarters, which constitutes the leased premises under the Lease
between Seller as lessee and Mangold LLC as lessor (the "ADRIAN
HEADQUARTERS LEASE") and (v) the Seattle, Washington office, which
constitutes the leased premises under the Lease between Seller as
lessee and Gabriel Enterprises as lessor (the "SEATTLE LEASE") (the
real property leased under the Jacksonville Office Lease, the
Jacksonville Warehouse Lease, the Adrian Railsiding Lease, the Adrian
Headquarters Lease and the Seattle Lease, together, the "LEASED REAL
ESTATE"), each as more fully described in SECTION 3.5.1 of the
Disclosure Schedule, there is no parcel of real property, building or
other improvement owned or leased by Seller or any other Person for use
by, or used by, the Division.
(c) To Seller's knowledge, all of the buildings, fixtures and
other improvements located on the Real Property are, in all material
respects, in satisfactory operating condition and repair, and the
ownership, use, occupancy and operation thereof in connection with the
Division Business is not and will not by reason of the Closing be in
material violation of any applicable building code, zoning ordinance or
other law or regulation. No building or other improvement included in
the Real Property relies on any other property or facility owned by
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Seller or any other Person to fulfill any zoning, building code or
other governmental or municipal requirements.
(d) Seller holds valid and effective certificates of occupancy,
underwriters' certificates relating to electrical work, zoning,
building, housing, safety, fire and health approvals and all other
material permits and licenses required by applicable law relating to
the ownership, use, occupancy or operation of the Real Property.
(e) Seller has not experienced during the two (2) years preceding
the date hereof any material interruption in the delivery of adequate
quantities of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling or similar
purposes and fuel oil) or other public services (including, without
limitation, sanitary and industrial sewer service) required by Seller
in the operation of the Division Business during such period. The Real
Property and Acquisition Assets will, at Closing, together provide
Buyer with access to such public utilities and public improvements as
are necessary to operate the Division Business and the Acquisition
Assets after the Closing in a manner consistent with Seller's past
practices.
(f) There are no condemnation or eminent domain proceedings
pending or, to Seller's knowledge, threatened by any Person possessing
condemnation powers which relate to the Real Property, nor are there
any such proceedings pending or, to Seller's knowledge, threatened to
which Seller is not a party but to which its properties are subject or
by which its properties may reasonably be expected to be adversely
affected.
3.5.2. TANGIBLE PERSONAL PROPERTY. SECTION 1.1(f) or SECTION 1.1(g) of
the Disclosure Schedule lists each item of tangible personal property
(other than Inventory) owned by Seller which is to be transferred to Buyer
pursuant hereto having on the date hereof a depreciated book value in
excess of $25,000; and an identification of the owner of, and any agreement
relating to the use of, each item of tangible personal property the rights
to which are to be transferred to Buyer pursuant hereto under leases or
other similar agreements included in the Contracts. Each item of such
tangible personal property is located on the Real Property and is in
satisfactory operating condition and repair, subject to normal wear and
tear. Since negotiations between the Seller and Buyer commenced with
respect to the transactions described in this Agreement, Seller has
continued to maintain the machinery or equipment included in the
Acquisition Assets in a manner consistent with past practices. EXCEPT AS
PROVIDED IN THIS AGREEMENT, NO REPRESENTATIONS OR WARRANTIES ARE MADE BY
SELLER WITH RESPECT TO MACHINERY AND EQUIPMENT INCLUDED IN THE PURCHASED
ASSETS, AND, IN PARTICULAR, NO IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE OR OF MERCHANTABILITY IS MADE WITH RESPECT TO SUCH MACHINERY AND
EQUIPMENT.
3.5.3. INTANGIBLE PERSONAL PROPERTY. SECTION 1.1(h) of the Disclosure
Schedule lists (i) an identification of each item of Intangible Personal
Property, domestic and foreign, owned by Seller or used by Seller in the
conduct of the Division Business and (ii)
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all licenses or similar agreements or arrangements to which Seller is a
party either as licensee or licensor for each such item of Intangible
Personal Property. Correct, complete and accurate copies of all licenses
pursuant to which Seller holds or uses any Intellectual Property have
been furnished to Buyer.
(a) Since January 1, 1994, there have not been any actions or
other judicial or adversary proceedings involving Seller concerning any
of the Intangible Personal Property included in the Acquisition Assets,
nor, to the knowledge of Seller, is any such action or proceeding
threatened;
(b) Seller has the right and authority to use all items of
Intangible Personal Property included in the Acquisition Assets in
connection with the conduct of the Division Business in the manner
presently conducted and to convey such right and authority to Buyer,
and such use does not, to the knowledge of Seller, conflict with,
infringe upon or violate any patent, copyright, trademark, service
mark, trade secret, trade name or other right of any other person, firm
or corporation;
(c) To the knowledge of Seller, no Person is infringing upon or
violating any of Seller's rights in any Intangible Personal Property;
(d) There are no outstanding, nor, to the knowledge of Seller, are
there any threatened, disputes or disagreements with respect to any
licenses or similar agreements or arrangements included in the
Intangible Personal Property included in the Acquisition Assets;
(e) The conduct of the Division Business does not, to the
knowledge of Seller, conflict with any patent, copyright, trademark,
service mark, trade secret, trade name or other similar rights of
others; and
(f) Except as set forth in SECTION 3.5.3(f) of the Disclosure
Schedule, in the case of commercially available "shrink wrap" software
programs (such as Microsoft, Windows 95, Microsoft Word, etc.), neither
Seller nor any of Seller's employees is using any unauthorized copies
of any such software programs at any of Seller's facilities.
3.6. AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution, delivery
and performance by Seller of this Agreement and all other agreements and
instruments to be executed by Seller in connection herewith, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) conflict with or result in a breach of Seller's certificate of
incorporation or bylaws, (ii) conflict with or result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
provisions of any material loan agreement, credit agreement, note, bond, real
estate lease, mortgage, deed of trust, indenture, license, personal property
lease, franchise, agreement or other material instrument to which Seller is a
party, or by which the Acquisition Assets may be bound or affected, except for
such conflict or default as to which waivers or consents are required to be, and
shall be, obtained before the Closing as set forth in SECTION 6.9 of the
Disclosure Schedule, (iii) violate in any material manner any law, statute, rule
or regulation or order, writ, injunction or decree applicable
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to Seller or any Acquisition Assets or (iv) result in the creation or
imposition of any Lien upon any Acquisition Assets except for Permitted Liens.
3.7. LABOR AND EMPLOYMENT MATTERS; PENSION AND EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in SECTION 3.7(a) of the Disclosure Schedule,
there is no (i) collective bargaining agreement subject to the National
Labor Relations Act ("COLLECTIVE BARGAINING AGREEMENT") or other labor
agreement to which Seller is a party or by which it is bound; (ii)
employment or consulting contract or policy to which Seller is a party or
by which Seller is bound; or (iii) Employee Benefit Plan in which Division
Employees (as hereinafter defined) currently participate. Seller has made
available to Buyer copies of all current documents and instruments
governing such agreements or Employee Benefit Plans.
(b) No party to any such agreement, plan or contract is in default with
respect to any material term or condition thereof, nor has any event
occurred which, through the passage of time or the giving of notice, or
both, would constitute a material default thereunder or would cause the
acceleration of any material obligation of any party thereto.
(c) Seller has complied in all material respects with all applicable
laws, rules and regulations relating to the employment of labor, including
those related to wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by appropriate governmental
authorities and has withheld and paid to the appropriate governmental
authorities or is holding for payment not yet due to such authorities, all
amounts required to be withheld from such employees of Seller and is not
liable for any arrearages of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing. Except as set forth on SECTION
3.8.1 of the Disclosure Schedule, there is no: (i) unfair labor practice
complaint against Seller pending before the National Labor Relations Board
or any state or local agency; (ii) pending labor strike, scheduled
representation election or other material labor trouble affecting the
Division; (iii) labor grievance pending against Seller; (iv) pending
representation question respecting the Division Employees ; (v) pending
arbitration proceedings arising out of or under any Collective Bargaining
Agreement to which Seller is a party; or (vi) pending or, to the knowledge
of Seller, threatened claim against Seller regarding the discharge or
dismissal of any employee. Except as set forth on SECTION 3.7(c) of the
Disclosure Schedule, all obligations of Seller that could reasonably be
anticipated (whether arising by operation of law, by contract, by past
custom or otherwise), for salaries, vacation and holiday pay, sick pay,
bonuses and other forms of compensation payable to the officers, directors
or other employees of the Division in respect of the services rendered by
any of them have been paid or adequate accruals therefor have been made in
the ordinary course of business in the books and records of Seller.
(d) Except as set forth in SECTION 3.8.1 of the Disclosure Schedule, no
complaints, lawsuits or other proceedings are pending or, to the knowledge
of Seller, threatened, in any forum by or on behalf of any present or
former employee of Seller, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract for
employment, breach of any law governing employment or the
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termination thereof or other discriminatory, wrongful or tortious conduct
in connection with any employee relationship.
(e) SECTION 3.7(e) of the Disclosure Schedule sets forth, by situs and
by category, lists of all of the Division's employees (the "DIVISION
EMPLOYEES") as of the most recent accounting month end; and, except as set
forth in SECTION 3.7(e) of the Disclosure Schedule, Seller has not during
the past six (6) months closed any Division Facilities (as hereinafter
defined) or parts of Division Facilities or terminated any Division
Employees.
(f) With respect to each of the Employee Benefit Plans currently
maintained or contributed to for the benefit of any Division Employee which
is intended to be qualified under Section 401(a) of the Code, such Employee
Benefit Plan has received a favorable determination letter from the
Internal Revenue Service that it is so qualified as to form, and nothing
has occurred in connection with the operation of such Employee Benefit Plan
prior to, on, or after the date of such letter that could reasonably be
expected to adversely affect the qualified status of such Employee Benefit
Plan. SECTION 3.7(a) of the Disclosure Schedule lists all such Employee
Benefit Plans.
(g) Seller agrees to provide Buyer as soon as possible after the
Closing Date a listing of the following information for all Transferred
Employees (as hereinafter defined):
(i) Seller's date of hire and aggregate service dates;
(ii) dates of birth as listed in the Employee Benefit Plan
records; and
(iii) years of service with Seller, as of the Closing Date, for
purposes of eligibility, vesting and accrual of benefits under each
Employee Benefit Plan in which a Transferred Employee is a participant;
(h) Except as set forth in SECTION 3.7(h) of the Disclosure Schedule,
none of the Employee Benefit Plans is a multiemployer plan as defined in
Code section 414(f) or ERISA SECTIONS 3(37) or 4001(a)(31). With respect to
each Employee Benefit Plan that is a multiemployer plan: (i) Disclosure
Schedule Section 3.7(j) indicates the number of Division Employees with
respect to whom Seller or any Commonly Controlled Entity makes
contributions to such plan, the amount of such contributions and the most
recent information available to Seller or any Commonly Controlled Entity
with respect to the withdrawal liability of Seller or such Commonly
Controlled Entity under that plan; (ii) such plan is not, as of the date
hereof, insolvent or in reorganization, nor does it have an accumulated
funding deficiency, and Seller does not know of any reason why such plan
would become insolvent or go into reorganization or have an accumulated
funding deficiency in the foreseeable future; (iii) Seller or any Commonly
Controlled Entity has made all contributions to the plan due or accrued as
of the date hereof and will have made all such contributions as of the
Closing Date; and (iv) SECTION 3.7(j) of the Disclosure Schedule sets forth
the amount of the withdrawal liability with respect to the plan, assuming
Seller terminates participation with respect to all Division Employees on
the Closing Date.
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(i) Except as set forth in SECTION 3.7(i) of the Disclosure Schedule,
none of the Employee Benefit Plans is subject to minimum funding standards
of the Code or ERISA. With respect to the Simplex Plan, Seller has made
available to Buyer a true, complete and correct copy of (i) the plan
document and all amendments thereto (ii) the six annual reports on Form
5500 most recently filed with the IRS and the related summary annual report
distributed to participants; (iii) all resolutions of the Board of
Directors of Seller adopting, amending or terminating the Simplex Plan;
(iv) the most recent actuarial report for the Simplex Plan; (v) all summary
plan descriptions and each summary of material modifications for the
Simplex Plan; (vi) each trust agreement relating to the Simplex Plan; (vii)
all IRS determination letters or rulings issued with respect to the Simplex
Plan and all other material correspondence for the last six consecutive
years prior to the Closing Date with the IRS or the United States
Department of Labor relating to plan qualification, filing of required
forms, or pending, contemplated or announced plan audits; (viii)
descriptions of all claims, lawsuits or similar actions filed and pending
(other than for benefits in the normal course) with respect to the Simplex
Plan; (ix) a listing of all employees or former employees with vested or
unvested accrued benefits under the Simplex Plan and a calculation of such
benefits as of the Closing Date; (x) a listing of all prior mergers,
consolidations or transfers of assets or liabilities described in Section
414(l) of the Code or the regulations pertaining to the Simplex Plan; and
(xi) copies of all minutes of all committee meetings pertaining to the
administration of the Simplex Plan. Seller agrees to provide Buyer from
time to time after the Closing Date such other information as Buyer may
reasonably require in order to maintain and administer the Simplex Plan.
All of Seller's representations as to the Employee Benefit Plans include
the Simplex Plan, where applicable, and in addition thereto, Seller makes
the following representations with respect to the Simplex Plan. Except as
set forth in SECTION 3.7(i) of the Disclosure Schedule:
(A) Seller has paid all premiums (including any applicable
interest, charges and penalties for late payment) due the Pension
Benefit Guaranty Corporation (the "PBGC") with respect to the Simplex
Plan;
(B) the Simplex Plan has not been terminated or partially
terminated under circumstances that would result in liability to the
PBGC;
(C) the Simplex Plan (1) is substantially in compliance with all
reporting and disclosure requirements of Part 1 of Subtitle B of Title
I of ERISA or other applicable law; (2) has had the appropriate
required Form 5500 (or equivalent annual report) timely filed with the
appropriate governmental authority for each year of its existence; (3)
has at all times complied with any applicable bonding requirements; (4)
has no issue pending or resolved which may subject such plan, Seller or
Buyer to the payment of any penalty, interest, tax or other obligation;
and (5) has been maintained in all respects in compliance with the
requirements of any applicable Collective Bargaining Agreement, ERISA
and the Code and other applicable law (including all rules and
regulations issued thereunder);
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(D) the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement will not give rise to or
trigger any change of control, accelerated vesting, severance or other
similar provisions in the Simplex Plan;
(E) as of the date hereof, the Simplex Plan has no "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived. The Simplex Plan does
not have a "liquidity shortfall" as defined in Section 412(m)(5) of the
Code. No notice has been required under Section 4011 of ERISA with
respect to the Simplex Plan. No event described in Section 401(a)(29)
of the Code has occurred or can reasonably be expected to occur with
respect to the Simplex Plan. No "reportable event" (as that term is
defined in Section 4043 of ERISA and for which the thirty (30) day
notice requirement has not been waived) has occurred or will occur with
respect to the Simplex Plan, except as contemplated by this Agreement.
To the extent a "reportable event" occurs in connection with this
transaction, Seller shall satisfy the thirty (30) day notice
requirement under ERISA Section 4043(a) if applicable;
(F) except as set forth in the applicable Collective Bargaining
Agreement, the Simplex Plan may be amended without liability (other
than with respect to pension benefits in the ordinary course) to Buyer
on or at any time after the consummation of the transactions
contemplated by this Agreement without contravening the terms of such
plan, or any law or agreement;
(G) none of Seller, the officers of Seller, the Simplex Plan, nor
any fiduciary thereof has engaged in a "prohibited transaction" (as
such term is defined in Section 406, 407 or 408 of ERISA or Section
4975 of the Code) or any other breach of fiduciary responsibility;
(H) all contributions required by law, the terms of the plan, or
by a Collective Bargaining Agreement or other agreement to be made
under the Simplex Plan with respect to all periods through the Closing
Date, including a pro rata share of contributions due for the current
plan year, will have been made by such date or provided for by adequate
reserves properly reflected on the books of Seller in accordance with
GAAP. No changes in contributions or benefit levels have been
implemented or negotiated (but not yet implemented), with respect to
the Simplex Plan since the date on which the information provided in
the Disclosure Schedule has been provided, and no such changes are
contemplated;
(I) Seller shall take all necessary action to ensure that, prior
to Closing, the Simplex Plan is maintained in accordance with the
requirements of the applicable Collective Bargaining Agreement, ERISA,
the Code and any other applicable law, rule or regulation; and
(J) the Simplex Plan uses a funding method permissible under ERISA
and the actuarial assumptions used in connection therewith are
reasonable individually and in the aggregate. As of March 31, 1999, the
fair market value of the assets of such Plan will exceed or equal the
"projected benefit obligation" (as
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defined in Statement of Financial Accounting Standard No. 87 and using
the actuarial assumptions heretofore supplied by Buyer).
(j) With respect to the Paper Industry Plan, Seller has made or by
the Closing Date will have made all contributions required to be made
by Seller as of the Closing Date.
(k) No Represented Transferred Employee (as hereinafter defined)
is eligible to participate in the Employee Stock Ownership Plan of
Anthony Industries, Inc.
3.8. LITIGATION AND COMPLIANCE WITH LAWS.
3.8.1. LITIGATION PENDING OR THREATENED. Except as set forth in SECTION
3.8.1 of the Disclosure Schedule, there is no action, suit, arbitration,
proceeding, grievance or investigation, pending or, to the knowledge of
Seller, threatened, before any court, tribunal, panel, master or
governmental agency, authority or body in which Seller is a party or to
which the Division or any Acquisition Asset is subject, nor is Seller, or
any officer or employee of Seller enjoined from any action or subject to
any continuing restriction which may adversely affect the Division.
3.8.2. VIOLATION OF LAW. Seller is not in material violation of any
provision of any law, decree, order or regulation (including, without
limitation, those relating to antitrust or prohibiting other
anti-competitive business practices, but excluding Environmental Laws (as
defined herein)), applicable to the Division or any Acquisition Asset.
Seller has all material federal, state, local, foreign and other licenses,
permits and other governmental authorizations required in the conduct of
the Division Business and the operation of its properties. Such licenses,
permits and other governmental authorizations, including those obtained
under applicable Environmental Laws (as hereinafter defined) are listed in
SECTION 3.8.2 of the Disclosure Schedule and are and as of the Closing Date
will be in full force and effect. Except as required under the HSR Act as
contemplated in SECTION 6.7, no notice to, filing with, or approval or
consent of, any governmental agency or body issuing any of the permits,
licenses or other governmental authorizations, or otherwise having
jurisdiction over Seller or the Division or the operations or properties of
the Division, is required in order to permit the execution, delivery or
performance of this Agreement, the consummation of the transactions
contemplated hereby or the sale, transfer and delivery of the Acquisition
Assets or the continuation of the Division Business by Buyer after the
Closing. Seller is not a party to any consent decree issued by any
governmental agency, authority or body relating to the Division.
3.8.3. ENVIRONMENTAL MATTERS. Except as set forth in SECTION 3.8.3 of
the Disclosure Schedule or as disclosed in (i) the December 23, 1998
Bowser-Morner Phase I Environmental Site Assessment for the Constantine,
Michigan property; (ii) the January 14, 1999 Bowser-Morner Phase I
Environmental Site Assessment for the Adrian, Michigan property; or (iii)
the February 11, 1999 Atlanta Testing & Engineering Phase I Environmental
Site Assessment for the Jacksonville, Florida property:
(a) Seller is in compliance with all Environmental Laws.
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(b) Seller holds, and is in compliance with, all permits,
licenses, franchises, approvals and authorizations by governmental or
regulatory authorities or bodies (collectively, "Permits") required
under Environmental Laws for Seller to conduct the business of the
Division conducted by it, and all such Permits are in full force and
effect. Seller is not subject to any consent order, consent judgment,
consent decree, court or administrative order or judgment relating to
any Environmental Laws or Hazardous Substances.
(c) There have been no events, conditions, actions, or omissions
arising out of, relating to or in connection with the Real Property or
the Division Business that have given or would give rise to any
Environmental Liability (as defined below), and (ii) Seller has not
received any written or oral notice of the institution or pendency of
any lawsuit, action, proceeding, investigation or claim by any Person
alleging any Environmental Liability arising out of, relating to or in
connection with the Real Property or the Division Business, and Seller
does not know of any basis for any such proceeding.
(d) Seller has not filed with any governmental agency, authority,
or body any notice under or relating to Environmental Laws or permits
indicating or reporting any past or present spillage, disposal or
release into the Environment of any Hazardous Substance.
(e) Seller has not, and to the knowledge of Seller, no third party
has, released or disposed of any material quantity of Hazardous
Substance on, in, under, above or about any of the Owned Real Estate,
the Leased Real Estate or any other facilities or properties owned,
used, operated or leased at any time by Seller in connection with the
Division Business (the "DIVISION FACILITIES").
(f) Seller has provided Buyer with a true and complete copy of all
environmental reports known to Seller covering the Real Property, the
Division Business or the Division Facilities.
(g) There has been no generation, storage, disposal, treatment or
transportation of any Hazardous Substance at the Real Property or the
Division Facilities or from the Real Property or Division Facilities to
any offsite facility or arising out of the Division Business or the
Acquisition Assets (i) except for the generation, use, storage,
disposal, treatment and transportation at the Real Property or Division
Facilities or from the Real Property or Division Facilities to offsite
facilities in the ordinary course of business in compliance with
applicable Environmental Laws, or (ii) there has been no Release (as
hereinafter defined) at the Real Property or Division Facilities for
which Remedial Action is required under Environmental Laws.
(h) SECTION 3.8.3 (h) of the Disclosure Schedule sets forth a
complete list (including locations) of all above-ground or underground
storage tanks that, to the best of Seller's knowledge without
investigation, are now present at, or have since January 1, 1994 been
removed from, the Real Property. All such tanks which have been removed
from the Real Property since January 1, 1994 (or to
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Seller's knowledge without investigation, before such date) have been
removed in accordance with all applicable Environmental Laws. For
purposes of this section, the term "tank" includes only fixtures
holding liquid Hazardous Substances.
(i) As used herein:
"ENVIRONMENTAL LAWS" means all domestic or foreign, federal, state
and local statutes, laws (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act;
the Resource Conservation and Recovery Act; the Federal Water Pollution
Control Act; the Toxic Substances Control Act; the Clean Air Act; the
Safe Drinking Water Act; the Atomic Energy Act of 1954; the Low-Level
Radioactive Waste Policy Amendments Act of 1985; and the Hazardous
Materials Transportation Act), ordinances, regulations, codes and
rules, in each case as amended, and including any judicial or
administrative orders, writs, injunctions, judgments and decrees,
relating to the generation, production, installation, use, handling,
storage, treatment, transportation, release, threatened release,
presence or disposal of Hazardous Substances, noise control, or the
protection of human health, safety, natural resources, animal health or
welfare, or the Environment.
"ENVIRONMENT" shall include the waters of the United States, the
waters of any state, the waters of the contiguous zone and the ocean
waters, and any other surface water, groundwater, drinking water, water
supply, property, premises, land surface, subsurface, subsurface
strata, soil or air or atmosphere within the United States or under the
jurisdiction of the United States, any federal, state or local
government agency or agencies, or within the jurisdiction of
Environmental Laws.;
"ENVIRONMENTAL LIABILITY" means, but is not limited to any
liability (including strict liabilities such as CERCLA-type claims) or
obligation arising under Environmental Laws or in connection with
Hazardous Substances in connection with the Acquisition Assets, Real
Property or leased property (current and former), or the operation of
the Division Business, including claims, demands, assessments,
judgments, orders, causes of action (including toxic tort suits and
common law or statutory claims), notices of actual or alleged
violations or liability (including such notices regarding the disposal
or release of Hazardous Substances on the premises or elsewhere),
proceedings. and any associated costs, assessments, losses, damages
(except consequential damages), obligations, liabilities, awards,
fines, sanctions, penalties or an amount paid in settlement (including
reasonable costs, fees and expenses of attorneys, accountants,
consultants and other agents of such person);
"HAZARDOUS SUBSTANCE" means (a) any chemicals, materials, waste or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under Environmental Laws or considered toxic,
explosive, corrosive, reactive, flammable, infectious,
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radioactive, carcinogenic or mutagenic; (b) any petroleum or petroleum
products, petroleum hydrocarbons, gasoline, diesel fuel, natural gas or
natural gas products, radioactive materials, asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contains dielectric fluid
containing levels of polychlorinated biphenyls (PCBs), and radon gas; and (c)
any other chemical, material, waste or substance which is in any way
regulated by any federal, state or local government authority, agency or
instrumentality, including mixtures thereof with other materials, and
including any regulated building materials such as asbestos and lead.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, deposit, disposal, dumping, discharge, dispersal,
leaching, escaping, emanation or migration of any Hazardous Substance
in, into or onto the Environment of any kind whatsoever, including the
movement of any Hazardous Substance through or in the Environment,
exposure of any type in any workplace, any release as defined under
CERCLA or any other Environmental Law.
"REMEDIAL ACTION" means any response action, removal action,
remedial action, corrective action, monitoring program, sampling
program, investigation or other cleanup activity required by any
Environmental Law to fully delineate, clean up, remove, remediate,
treat or abate any Hazardous Substance.
3.9. CONTRACTS AND OTHER INSTRUMENTS.
3.9.1. Except as set forth in SECTION 3.9.1 of the Disclosure Schedule,
no consent of any party to any Contract is required in order to permit the
execution, delivery or performance of this Agreement, the consummation of
the transactions contemplated hereby, or the sale, transfer or delivery of
the Acquisition Assets or the assumption of the Assumed Liabilities to be
assumed by Buyer, nor will the execution, delivery or performance of this
Agreement, the consummation of the transactions contemplated hereby or the
sale, transfer and delivery of the Acquisition Assets or the assumption of
the Assumed Liabilities to be assumed by Buyer, (i) result in a breach of
any of the terms and provisions of, or constitute a default under, or
conflict with, or result in a modification of, any Contract of Seller
except for such breach, default or conflict that would not have a Material
Adverse Effect or (ii) trigger an obligation on the part of Seller, its
successor or Buyer of all or substantially all of Seller's assets to make
any payment or performance not otherwise required under such Contract.
3.9.2. SECTION 1.1(e) of the Disclosure Schedule contains a true and
complete list of all written contracts, agreements and other instruments
relating to the Division to which Seller is a party as of the Closing Date
and which have not been fully performed by Seller:
(a) relating to capital leases;
(b) with a stated term exceeding three (3) months or more from the date
hereof and not cancelable by either party thereto without penalty on thirty
(30) days or less notice;
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(c) that is a purchase order in excess of $100,000 or that is not a
purchase order and creates a commitment in excess of $100,000 (including
any such contracts with a Significant Customer);
(d) relating to the employment or compensation of any director,
officer, employee, consultant or other agent of Seller, other than
non-written at-will employment agreements;
(e) relating to the sale or other disposition of any assets, properties
or rights (other than sale of inventory in the ordinary course of business
and disposition of obsolete equipment in the ordinary course of business
and the transactions contemplated by this Agreement);
(f) relating to the lease or similar arrangement of any machinery,
equipment, motor vehicles, furniture, fixtures or similar property;
(g) that restricts the operation of Seller or the Division Business, or
restricts the development, manufacture, marketing or distribution of any
product of the Division anywhere in the world;
(h) that is a Collective Bargaining Agreement or other contract with
any labor union or similar organization;
(i) that is an Employee Benefit Plan;
(j) relating to the purchase of raw materials required to be purchased
by Seller, other than contracts or agreements that relate to the purchase
of raw materials with a stated purchase price of less than $100,000,
individually, and, together with all other such contracts or agreements,
less than $100,000, in the aggregate and other than purchase orders (which
are the subject of paragraph (c) above); or
(k) that is not made in the ordinary course of business or that is
material to Seller, taken as a whole.
The contracts, agreements and other instruments required to be listed
pursuant to clauses (a) through (k) of this SECTION 3.9.2, are referred to
herein, collectively, as the "SPECIFIED CONTRACTS." In addition, SECTION
1.1(e) of the Disclosure Schedule contains a description of each category
or type of written or oral contract, agreement and other instrument to
which Seller is a party that is to be assumed and acquired from Seller by
Buyer at the Closing, but as to which category or type it is hereby agreed
shall not be specifically listed as a Specified Contract (the "GENERICALLY
IDENTIFIED Contracts"). Seller is not in default under any Assumed Contract
where such default could, individually or in the aggregate with defaults
under other Assumed Contracts, have an adverse effect on the Division
Business or Acquisition Assets that is material in any manner. All Assumed
Contracts are valid, binding and in full force and effect and, to Seller's
knowledge, are enforceable by Seller in accordance with their respective
terms, and since June 25, 1999, Seller has performed all material
obligations to be performed by Seller to date under the Assumed Contracts
to the extent required to be consistent with
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the ordinary course of business. Seller has furnished to, or made
available for inspection and copy by, Buyer a true and correct copy (or
summaries, if oral) of all Specified Contracts and has provided Buyer
with full access to all Generically Identified Contracts, in each case,
together with all amendments, waivers or other changes thereto.
3.9.3. SECTION 3.9.3 of the Disclosure Schedule lists each outstanding
bid or proposal for a contract under which the value of services to be
performed or goods to be provided by Seller or the cost of goods to be sold
by Seller is expected to exceed $100,000 and a description and projected
dollar value of each such bid or proposal.
3.10. COMPENSATION OF KEY EMPLOYEES AND INDEBTEDNESS.
3.10.1. SECTION 3.10.1 of the Disclosure Schedule sets forth a true and
complete list of the names of and offices held by each Division Employee
whose aggregate compensation rate is greater than $75,000 per annum ("KEY
MANAGERS"). The current compensation of each of the Key Managers (including
salary, bonus, other incentive compensation and other perquisites and
benefits) has been disclosed in writing to Buyer.
3.10.2. Except as set forth in SECTION 3.10.2 of the Disclosure
Schedule, Seller has no financial obligation and is not otherwise indebted
to any Division Employee (including Key Managers), or to any relative of
any such person, or to any entity controlled directly or indirectly by, or
otherwise affiliated with, any such person, in any amount whatsoever other
than for compensation for services rendered since the start of the current
pay period of Seller and for business expenses.
3.11. INSURANCE. SECTION 3.11 of the Disclosure Schedule sets forth a true
and correct list of all insurance policies of any nature whatsoever maintained
by Seller relating to the Division at any time during the three (3) years prior
to the date of this Agreement and the annual or other pro rata premiums payable
thereunder, and copies of such policies have been made available to Buyer. All
such insurance policies are in the name of Seller, and all premiums due with
respect to such policies are currently paid. Except as set forth in SECTION 3.11
of the Disclosure Schedule, there are no outstanding requirements or
recommendations by any insurance company that issued any policy of insurance
applicable, in whole or in part, to the properties or operations of the Division
or by any Board of Fire Underwriters or other similar body exercising similar
functions or by any governmental authority exercising similar functions which
requires or recommends any changes in the conduct of the Division Business, or
any repairs or other work to be done on or with respect to any of the properties
or assets of, Seller. Seller has not received any notice or other communication
from any such insurance company within the two (2) years preceding the date
hereof canceling or materially amending or materially increasing the annual or
other premiums payable under any of said insurance policies, and to the
knowledge of Seller, no such cancellation, amendment or increase of premiums is
threatened. Seller has not been denied or had revoked or rescinded any similar
policy of insurance. Except as set forth on SECTION 3.11 of the Disclosure
Schedule, no claim under any such policy is pending other than claims under
employee benefit insurance policies. To the knowledge of Seller, the activities
and operations of Seller have been conducted in a manner so as to conform in all
material respects to all applicable provisions of such insurance policies.
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3.12. BROKERAGE. Seller has not dealt with, and is not obligated to make
any payment to, any finder, broker, investment banker or financial advisor other
than Salomon Smith Barney in connection with any of the transactions
contemplated by this Agreement or the negotiations looking toward the
consummation of such transactions.
3.13. ACCOUNTS RECEIVABLE. SECTION 3.13 of the Disclosure Schedule contains
a true and complete aged list as of May 23, 1999 of all accounts, notes and
other receivables and rights to receive payment from any Person that relate to,
or arise out of, the Division Business. All of such Accounts Receivable have
arisen in connection with bona fide business transactions in the ordinary course
of business of Seller, consistent with past practice. All reserves reflected in
the Financial Statements against doubtful accounts, valid counterclaims or
setoffs by, rebates, discounts and allowances to, and returns from, customers
were established in accordance with GAAP, and in all cases where there is a
permissible choice among accounting principles and procedures in accordance with
GAAP, established on a basis consistent with Seller's Balance Sheet at December
31, 1998.
3.14. ACCOUNTS PAYABLE. SECTION 3.14 of the Disclosure Schedule contains a
true and complete aged list as of May 23, 1999 of (a) all accounts payable of
the Division Business, other than accounts and notes payable constituting
Excluded Liabilities, (b) accrued liabilities, and (c) all Accounts Payable that
are required to be paid at the Closing and the aggregate amount thereof. Except
as set forth in SECTION 3.14 of the Disclosure Schedule, all such accounts
payable have been incurred in bona fide transactions in the ordinary course of
business, and there is no agreement between Seller and any creditor regarding
the extension of the terms of any payment of such Accounts Payable. No accounts
payable have been rolled into promissory notes.
3.15. INVENTORY. All Inventory reflected in the Financial Statements and
all Inventory acquired or produced since December 31, 1998, has been acquired or
produced in the ordinary course of business and has been physically cared for in
accordance with the regular business practices of Seller. SECTION 3.15 of the
Disclosure Schedule contains a true and complete listing of all Inventory of the
Division as of May 23, 1999, and indicates each state in which Seller maintains
any Inventory item (including, without limitation, finished goods,
work-in-progress and raw materials).
3.16. SOLVENCY. Seller (a) is not, and after consummation of the
transactions contemplated hereby will not be, "insolvent" (as such term is
defined in ss. 101(32)(A) of the Federal Bankruptcy Code, (b) is able to pay and
is paying its debts as they mature, and (c) does not, and after consummation of
the transactions contemplated hereby will not, have unreasonably small capital
for the business in which it is engaged or for any business or transaction in
which it is about to engage.
3.17. TAX MATTERS.
3.17.1. The representations and warranties set forth in this SECTION
3.17.1 refer solely to Taxes or Tax returns related to or with respect to
the Acquisition Assets and the Division Business. Seller has filed on a
timely basis all federal, state, local and foreign Tax returns and reports
required to have been filed by it and has paid, or made adequate provision
for the payment of, all Taxes owed by it pursuant to such returns and
reports. Seller has collected and remitted to the proper taxing authority
all amounts which it was
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or is obligated to withhold from amounts owing to any employee, creditor
or third party. All Tax returns and reports filed with respect to the
Acquisition Assets and the Division Business were true, correct and
complete to the best of Seller's knowledge and belief. None of such
returns or reports is currently being audited by any applicable taxing
authority or is the subject of any administrative or judicial
proceeding. Seller has received no notification of any pending or
upcoming audit by any taxing authority related to the Division Business
or the Acquisition Assets. Seller has not agreed to extend the statutory
period of limitations applicable to the assessment of any Taxes with
respect to any Tax returns related to the Acquisition Assets or the
Division Business. None of the Acquisition Assets is property which is
required to be treated as being owned by any other person pursuant to
the so-called "safe harbor lease" provisions of former SECTION 168(f)(8)
of the Code. None of the Acquisition Assets directly or indirectly
secures any debt the interest on which is Tax exempt under section
103(a) of the Code and none of the Acquisition Assets is "tax-exempt use
property" within the meaning of section 168(h) of the Code. Seller shall
retain copies of all Tax returns or reports related to the Division
Business for all periods currently in Seller's possession. For purposes
of this Section 3.17.1, Taxes or Tax returns "with respect to" or
"related to" the Acquisition Assets and the Division Business shall not
include any federal, state, local, or foreign Tax imposed on the income
or receipts of Seller generally, except to the extent that Seller's
failure to pay any such Tax or to file any such return would give rise
to a lien against any of the Acquisition Assets or a claim against Buyer
as transferee of the Division Business. As used in this Agreement
"TAXES" means all taxes and similar governmental charges, imposts,
levies, fees and assessments, however denominated, including any
interest, penalties or additions to tax that may become payable in
respect thereof, imposed by any federal, state, local, or foreign
government or any agency or political subdivision of any such
government, which taxes shall include all income taxes (including United
States federal income taxes and state and local income taxes), payroll
and employee withholding taxes, unemployment insurance, social security,
sales and use taxes, excise taxes, estimated taxes, franchise taxes,
gross receipt taxes, occupation taxes, real and personal property taxes,
stamp taxes, transfer taxes, withholding taxes, workers' compensation,
and other obligations of the same or of a similar nature, whether
arising before, on or after the Closing Date.
3.17.2. The statements to be made in the affidavits to be delivered at
Closing pursuant to SECTION 8.9 are and at Closing shall be true and
correct.
3.18. SUPPLIERS AND CUSTOMERS. SECTION 3.18 of the Disclosure Schedule sets
forth: (a) each supplier which accounted for, in the aggregate, transactions for
the year ended December 31, 1998, or for the period January 1, 1999 through the
Closing, in either case amounting to $50,000 or more of products or $50,000 or
more of services supplied to Seller (based on the aggregate dollar amount paid
by Seller) in connection with the Division Business; (b) all suppliers of
materials or services to Seller in connection with the Division Business upon
which Seller is significantly dependent or without readily available and equally
advantageous alternate sources of supply; and (c) each customer of Seller which,
in the year ended December 31, 1998, or in the period January 1, 1999 through
the Closing purchased from Seller, in the aggregate in either case, $50,000 or
more of products or services sold by Seller through the Division Business. Since
January 1, 1999, to Seller's knowledge, there has not been any material
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adverse change in the business relationship of Seller with any of the
suppliers referred to in clauses (a) and (b) or any of the customers referred
to in clause (c) of the preceding sentence.
3.19. PRODUCTS. No product manufactured, sold, leased, or delivered by
Seller in connection with the Division Business is subject to any guaranty,
warranty, or other indemnity by Seller or the Division beyond the applicable
standard terms and conditions of sale or lease. SECTION 3.19 of the Disclosure
Schedule includes copies of all such standard terms and conditions of sale or
lease (containing applicable guaranty, warranty, and indemnity provisions) in
connection with the Division Business. Except as disclosed in SECTION 3.8.1 of
the Disclosure Schedule, there are no claims pending or, to Seller's knowledge,
threatened, against Seller with respect to the manufacture or sale or products
of the Division Business manufactured or sold by Seller, nor does Seller have
any knowledge of a basis for such a claim.
3.20. ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Except as set forth on
SECTION 3.20 of the Disclosure Schedule, neither Seller nor any officer,
director, employee or agent of Seller (nor any person acting on behalf of any of
the foregoing) has given or agreed to give any gift or similar benefit of more
than nominal value to any customer, supplier, governmental employee or official
or any other person who is or may be in a position to help, hinder or assist
Seller or the person giving such gift or benefit in connection with any actual
or proposed transaction relating to the Division Business, which gifts or
similar benefits would individually or in the aggregate subject Seller or any
officer, director, employee or agent of Seller to any fine, penalty, cost or
expense or to any criminal sanctions. No such gift or benefit is required in
connection with the operations of the Division Business to avoid any fine,
penalty, cost, expense or adverse effect on the financial condition of Seller.
3.21. DOCUMENTS REFERRED TO IN DISCLOSURE SCHEDULE. Seller has delivered to
Buyer, or given Buyer access to, copies of each of the documents listed or
referred to in the Disclosure Schedule, which are true, correct and complete in
all material respects.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller that:
4.1. ORGANIZATION; GOOD STANDING; AUTHORIZATION OF AGREEMENT. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to conduct all
of the business and activities conducted by it and to own, lease or operate all
of the assets owned, leased or operated by it; and Buyer is duly licensed or
qualified to do business and in good standing as a foreign corporation under the
laws of every jurisdiction in the United States in which the nature of the
activities conducted by Buyer, and/or the character of the assets owned or
leased by Buyer, makes such qualification or license necessary. Buyer has all
requisite power and authority to enter into this Agreement and all other
agreements and instruments to be executed by Buyer in connection therewith and
to consummate the transactions contemplated hereby and thereby. This Agreement
and all other agreements and instruments to be executed by Buyer in connection
herewith have been (or upon execution will have been) duly executed and
delivered by Buyer, have been effectively authorized by all necessary action,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms.
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4.2. AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement and all other agreements and instruments to be
executed by Buyer in connection herewith by Buyer and the consummation of the
transactions contemplated hereby and thereby will not result in a breach of any
of the terms or provisions of, or constitute a default under, or conflict with:
any agreement, indenture or other instrument to which Buyer is a party or by
which it is bound; Buyer's Certificate of Incorporation or Bylaws; or any
judgment, decree, order or award of any court, governmental body or arbitrator,
or any law, rule or regulation applicable to Buyer.
4.3. REGULATORY APPROVALS. Except as required under the HSR Act as
contemplated in SECTION 6.7, all consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by Buyer and which are necessary for the consummation by Buyer of the
transactions contemplated by this Agreement to be consummated by Buyer have been
obtained and satisfied.
4.4. BROKERAGE. Buyer has not dealt with, and is not obligated to make any
payment to, any finder, broker or investment banker or financial advisor other
than Callier Interests in connection with any of the transactions contemplated
by this Agreement or the negotiations looking toward the consummation of such
transactions.
4.5. FINANCING OF BUYER AS OF THE CLOSING. Based upon current market
conditions, Buyer believes in good faith that it will be able to obtain
commitments from investors with respect to equity investments in Buyer in an
amount up to $6,000,000 to fund a portion of the Purchase Price and the capital
requirements of Buyer after the Closing. Buyer has received the preliminary
indications of interest attached as EXHIBIT F with respect to senior
indebtedness to be incurred by Buyer to fund $22,000,000 of the Purchase Price,
which amount is, together with equity and subordinated debt, expected to be
sufficient to fund the Purchase Price and the capital requirements of Buyer
after the Closing. Buyer hereby represents to Seller that the terms and
conditions applicable to the senior debt financing set forth in EXHIBIT F are
acceptable to Buyer.
4.6. RELIANCE ON REPRESENTATIONS AND WARRANTIES. Buyer acknowledges that it
enters into this Agreement and agrees to consummate the transactions
contemplated hereby in sole reliance on the express representations and
warranties contained in this Agreement and not upon any other information
furnished to Buyer by Seller. BUYER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY SET
FORTH HEREIN, SELLER MAKES NO REPRESENTATION OR WARRANTY CONCERNING THE
ACQUISITION ASSETS, INCLUDING AS TO THE QUALITY, CONDITION, MERCHANTABILITY,
SALABILITY, OBSOLESCENCE, WORKING ORDER OR FITNESS FOR A PARTICULAR PURPOSE
THEREOF AND EXCEPT AS EXPRESSLY SET FORTH HEREIN, BUYER IS PURCHASING THE
ACQUISITION ASSETS "AS IS AND WHERE IS."
5. CLOSING. The closing of the transactions herein contemplated (the "CLOSING")
shall, unless another date, time or place is agreed to in writing by the parties
hereto, take place at the offices of the Division located at 1801 West U.S. 223,
Adrian, Michigan, beginning at 9:00 a.m., local time, on the third business day
after all conditions set forth in SECTION 7 and SECTION 8 have been satisfied or
waived or on such other date as the parties shall hereafter mutually designate
(the "CLOSING DATE"). The Closing Date shall be deemed to occur and the Closing
shall be deemed to have been consummated as of the close of business on the
Closing Date.
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6. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
6.1. ACCESS; ENVIRONMENTAL CLEAN-UP.
6.1.1. ACCESS FOR BUYER. Between the date hereof and the Closing
Date, (a) Buyer's authorized representatives shall have reasonable
access during normal business hours to all properties, operations,
books, records, contracts, and documents of Seller relating to the
Division, (b) Seller will furnish and request its accountants and
outside legal counsel to furnish to Buyer all information with respect
to its affairs and the business of the Division that Buyer may
reasonably request, (c) Buyer shall have the right to discuss the
affairs and the business of the Division with the employees of Seller
and (d) authorized representatives of Buyer shall have reasonable
access during normal business hours to all Real Property in order to
conduct environmental surveys and tests; provided: (i) that all surveys
and tests shall be conducted in such a manner as to minimize, to the
extent reasonably practicable, the disruption to the business of the
Division; (ii) that at least two (2) days prior to conducting
environmental surveys or tests on any parcel of Real Property, Buyer
shall provide Seller with written notice of its intention to enter a
specific parcel of Real Property and a description of and schedule for
the proposed activities it plans to undertake; (iii) that Buyer shall
cause the work to be done by qualified employees, consultants and
contractors who are reasonably acceptable to Seller; and (iv) that
Buyer shall, immediately after completion of the investigating
activities, restore the Real Property to substantially the same
condition it was in prior to Buyer's entry.
6.1.2. ACCESS FOR SELLER. After the Closing Date, (a) authorized
representatives of Seller shall have reasonable access during normal
business hours to all books, records, contracts and documents of Buyer
pertaining to periods prior to the Closing and relating to the
Division, and may make copies thereof, to the extent that Seller
reasonably determines necessary in connection with the preparation of
Seller's tax returns, or in connection with any tax, insurance,
litigation or other proceeding or activity and (b) in connection
therewith, Seller shall have reasonable access to discuss the relevant
affairs and business of the Division with the employees of Buyer.
6.1.3. ENVIRONMENTAL CLEAN-UP. Between the date hereof and the
Closing Date, Seller shall cause to be removed, handled and disposed in
accordance with all Environmental Laws: (1) all drums and stained soil
identified as a result of the Bowser-Morner January 14, 1999 Adrian,
Michigan Phase I Environmental Site Assessment ("ADRIAN ESA"), (2) all
debris stored near the northeast corner of the building identified as a
result of the Adrian ESA, (3) all piles of paper, belts, empty
containers, oil cans, dried pulp, pallets and other debris discarded
along the east side of the building identified as a result of the
Bowser-Morner December 23, 1998 Constantine, Michigan Phase I
Environmental Site Assessment ("CONSTANTINE ESA"), and (4) all
discarded equipment, scrap metal, paper and unlabelled drums, pails and
totes identified as a result of the Constantine ESA. Buyer understands
that the "industrial landfill" to the north of the building, referenced
on page 9 of the Constantine ESA, will be fully remediated by Seller
but not until after the Closing Date.
6.2. CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS; EXCLUSIVITY.
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6.2.1. CONFIDENTIALITY. The Confidentiality Agreement between
Callier Interests and Salomon Smith Barney dated November 19, 1998 (the
"CONFIDENTIALITY AGREEMENT") shall continue in full force and effect
and to apply to all information concerning the Division obtained by
Buyer pursuant hereto; PROVIDED, that the terms of this Agreement shall
control over all inconsistent terms of the Confidentiality Agreement
and such inconsistent terms shall not apply to the parties hereto until
the Closing Date or Termination of the Agreement. This is a "definitive
written agreement" for purposes of the Confidentiality Agreement.
Seller agrees to keep confidential all "Evaluation Material" (as
defined in the Confidentiality Agreement) on the same terms and
conditions as are applicable to Buyer hereunder and thereunder for a
period of three (3) years after the Closing Date.
6.2.2. PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the transactions
contemplated hereby will be issued, if at all, at such time and in such
manner as the parties jointly determine. Seller will consult with Buyer
concerning the means by which Seller's employees, customers and
suppliers and others having dealings with the Division will be informed
of the transactions contemplated by this Agreement, and Buyer shall
have the right to be present for any such communication.
6.2.3. NO SHOPPING. From the date hereof until the earlier of the
Closing Date and the date this Agreement is terminated in accordance
with SECTION 10, Seller shall not, and shall not permit any director,
officer, employee, representative or agent of Seller to, directly or
indirectly, solicit or initiate, enter into or conduct, discussions
concerning, or exchange information (including by way of furnishing
information concerning any Seller Party (as hereinafter defined) or the
Division Business) or enter into any negotiations concerning, or
respond to any inquiries or solicit, receive, entertain or agree to any
proposals for any transaction that would in practical terms effect a
transfer of all, substantially all or a significant portion of the
assets of the Division, to any Person other than Buyer. In addition,
during such time period, Seller shall not authorize, direct or permit
any director, officer, employee, representative or agent of any Seller
Party to do any of the foregoing and Seller shall notify Buyer of the
identity of any Person who approaches Seller, or to the knowledge of
Seller, any other Seller Party, with respect to any of the foregoing.
6.3. CONDUCT OF BUSINESS OF DIVISION. Seller covenants and agrees that the
business of the Division shall be conducted from the date hereof through the
Closing Date in accordance with prior practice and in the ordinary course of the
business of the Division, and, without limiting the generality of the foregoing,
Seller shall not (except with the prior written consent of Buyer) do or cause or
permit to occur any act, event or other occurrence which is represented or
warranted not to have occurred since June 25, 1999 in SECTION 3.4.4 hereof.
Prior to Closing, Seller shall update all Schedules hereto to reflect changes
occurring subsequent to signing this Agreement and prior to the Closing Date
except as otherwise required, and deliver copies of such updates to Buyer.
6.4. PRESERVATION OF ORGANIZATION. Seller shall use its best efforts to
preserve the business of the Division and the organization of Seller, to keep
available to Buyer the services of
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Seller's present employees, and to preserve for Buyer Seller's favorable
business relationships with its suppliers, its customers and others with whom
business relationships exist.
6.5. CURRENT INFORMATION. Seller will advise Buyer in writing immediately,
but in any event prior to the Closing, of:
(a) the occurrence of any event which renders any of the
representations or warranties set forth herein inaccurate in any material
respect or the awareness of Seller that any representation or warranty set
forth herein was not accurate in all material respects when made; and
(b) the failure of Seller to comply with or accomplish any of the
covenants or agreements set forth herein in any material respect. Seller
will also provide Buyer, promptly on becoming available, copies of all
operating and financial reports prepared by, or in the normal conduct of
business of, the Division.
From the date hereof through the Closing Date, Seller will deliver to Buyer
within 15 days after the end of each accounting month: (i) financial statements
of the Division as of the end of such accounting month and for such accounting
month and for the year to date through the end of such accounting month prepared
on a basis consistent with the Financial Statements ("PRE-CLOSING INTERIM
FINANCIAL STATEMENTS"); and (ii) reports as of the end of each accounting month
in the same form and detail as the reports included in SECTIONS 3.4.2, 3.13,
3.14 and 3.15 of the Disclosure Schedule.
6.6. CONTRACTS. Between the date hereof and the Closing Date, Seller will
not, without the prior written consent of Buyer, (a) amend in any material
respect or terminate any Assumed Contract, or (b) enter into or become a party
to or submit any bid or proposal for any contract, agreement, instrument,
arrangement, purchase order or commitment with any customer of the Division
under which the reasonably anticipated costs, expenses, receipts and margins of
the Division will vary adversely from historical practices.
6.7. COMPLETION OF TRANSACTION; HART-SCOTT-RODINO. Buyer and Seller shall
use all necessary and commercially reasonable efforts to effectuate the
transactions contemplated hereby and to satisfy the conditions to their
respective obligations under SECTION 7 and SECTION 8 hereof. Buyer and Seller
acknowledge that the transactions contemplated by this Agreement may require
filings with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Department of Justice (the "ANTITRUST DIVISION") under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules
and regulations promulgated under such Act (the "HSR ACT"). Buyer and Seller
shall each promptly file with the FTC and the Antitrust Division any
notifications and reports that may be required to be filed pursuant to the HSR
Act and shall undertake in good faith to file promptly any supplemental
information which may be requested in connection therewith, which notifications
and reports will comply in all material respects with the requirements of the
HSR Act. Buyer and Seller shall each furnish to the other such information as
either may reasonably request to make such filings. Seller shall promptly
reimburse Buyer for 50% of any HSR filing fees to be paid by Buyer. In the event
that after the Closing Date Buyer shall require any information relating to the
Division Business in connection with any filing required under the HSR Act,
Seller agrees to make available any such information to the extent such
information is available at any such time.
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6.8. ACCOUNTS RECEIVABLE. If Seller at any time receives any payments in
respect of Accounts Receivable or other rights or assets included in the
Acquisition Assets, Seller shall hold and receive such payments in trust for
Buyer and shall promptly forward such amounts to Buyer. In connection with the
foregoing, from and after the Closing Date, Buyer shall have the right and
authority to endorse, without recourse, the name of Seller or any related name
on any check or similar negotiable instrument received by Buyer constituting
payment of or in respect of any Acquisition Asset, and all such instruments
shall be delivered by Seller to Buyer, and all such instruments and the proceeds
thereof shall be the property and assets of Buyer.
6.9. CONDITION TO TRANSFER OF CERTAIN CONTRACTS.
(a) Seller shall, at its sole expense, use its best efforts to procure
all consents, approvals or waivers which must be obtained by Seller and
which are necessary for completion of the transactions described herein,
including all required consents from third parties under the Contracts or
otherwise and all required consents of any governmental agency or body
issuing any permits, licenses or other governmental authorizations
affecting Seller or its businesses or properties so that the Division may
continue to be operated by Buyer without interruption or any adverse effect
following the Closing. As provided in SECTION 8.6 hereof, it is a condition
precedent to the obligations of Buyer to close the transactions
contemplated hereby that all required consents be obtained for each of the
Contracts listed in SECTION 6.9 of the Disclosure Schedule (collectively,
the "CONTRACTS REQUIRING CONSENTS").
(b) Notwithstanding anything herein to the contrary, the parties hereto
acknowledge and agree that at the Closing Seller will not assign to Buyer
any such Contract Requiring Consent unless each such consent has been
obtained prior to the Closing Date. With respect to each such unassigned
Contract Requiring Consent, after the Closing Date Seller shall, at its
sole expense, continue to deal with the other contracting party(ies) to
such Contract as the prime contracting party and shall, at its sole
expense, use its best efforts to obtain the consent of all required parties
to the assignment of such Contract, but Buyer shall be entitled to the
benefits of such Contract accruing after the Closing Date to the extent
that Seller may provide Buyer with such benefits without violating the
terms of such Contract. Buyer agrees to perform or cause to be performed,
at its sole expense, all of the obligations of Seller to be performed under
any such Contract Requiring Consent the benefits of which Buyer is
receiving after the Closing Date.
6.10. WAIVER OF COMPLIANCE WITH BULK SALES LAWS. Buyer and Seller hereby
waive compliance with the requirements of the Michigan Bulk Transfer Law and
Florida Bulk Transfer Law and any other applicable bulk sales laws of any other
jurisdiction.
6.11. DIVISION EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
6.11.1. REPRESENTED EMPLOYEES. The term "REPRESENTED EMPLOYEES" shall
mean all of the Division Employees who are employed in positions for which
a collective bargaining representative has been certified by the National
Labor Relations Board (including those on lay-off, disability or leave of
absence, whether paid or unpaid), and
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the term "REPRESENTED TRANSFERRED EMPLOYEES" shall mean all of the
Represented Employees employed by Buyer pursuant to SECTION 6.11.5.
6.11.2. UNREPRESENTED EMPLOYEES. The term "UNREPRESENTED EMPLOYEES"
shall mean all of the Division Employees of Seller who are not Represented
Employees and who are listed at SECTION 6.11.2 of the Disclosure Schedule;
and the term "UNREPRESENTED TRANSFERRED EMPLOYEES" shall mean all
Unrepresented Employees who are employed by Buyer as of the Closing.
6.11.3. TRANSFERRED EMPLOYEES. For purposes of this Agreement, the term
"TRANSFERRED EMPLOYEES" means Represented Transferred Employees and
Unrepresented Transferred Employees.
6.11.4. EMPLOYMENT OF UNREPRESENTED EMPLOYEES. Effective upon the
Closing, Buyer shall offer employment to all of the Unrepresented
Employees, and shall offer them the same salary as Seller paid and benefits
as Buyer may determine to be appropriate and competitive. Buyer agrees to
recognize the Unrepresented Transferred Employees' service with Seller for
purposes of eligibility to participate and vesting under all of Buyer's
employee benefit plans, personnel policies and fringe benefit plans,
programs and arrangements established for or offered to Unrepresented
Transferred Employees, but not with respect to the accrual of any pension
benefits, service award plans or other plans specified by Buyer with
respect to which Buyer shall not be required to recognize service with
Seller for any purpose.
6.11.5. EMPLOYMENT OF REPRESENTED TRANSFERRED EMPLOYEES.
(a) Effective upon the Closing, Buyer shall recognize the
bargaining representatives of all of the Division's Represented
Employees, offer employment to all of the Division's Represented
Employees as of the Closing, and employ each Represented Employee who
accepts employment in accordance with the terms set forth in the
Collective Bargaining Agreement applicable to such Represented
Employee. At the Closing, Buyer shall also assume Seller's obligations
under the Collective Bargaining Agreements with respect to Transferred
Employees. Seller will have no liability to Represented Transferred
Employees for benefits under the Employee Benefit Plans, except that
Seller shall retain liability for any retiree medical or life insurance
benefits with respect to Represented Employees who retired prior to
Closing. Seller will retain and discharge any withdrawal liability that
may be incurred due to the termination of employment of any Represented
Transferred Employee or any partial or complete withdrawal from any
multiemployer plan arising out of, related to or in connection with the
Closing of the transactions contemplated hereby. Seller shall remain
liable for and will make all contributions required to be made to any
of its Employee Benefit Plans prior to Closing. Buyer agrees
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with (and for the sole benefit of) Seller that Buyer will provide to
Represented Transferred Employees the pension, profit sharing and
other employee benefits to be provided under the Collective
Bargaining Agreements after the Closing. Buyer agrees with (and for
the sole benefit of) Seller that Buyer will continue Seller's terms
and conditions of employment for all Represented Transferred
Employees for a period of six (6) months after the Closing Date or
until such earlier date as is agreed to in accordance with the
applicable Collective Bargaining Agreement. Buyer agrees with (and
for the sole benefit of) Seller that Buyer will provide to
Represented Transferred Employees as soon as practicable after the
Closing, but with retroactive effect to the date immediately
following the Closing, substantially the same employee benefit plans
as those of Seller. Buyer agrees with (and for the sole benefit of)
Seller that Buyer will recognize Represented Transferred Employees'
seniority and service with Seller for purposes of eligibility to
participate in and vesting under all of Buyer's employee benefit
plans (whether or not funded and whether or not subject to ERISA),
established for or offered to Represented Transferred Employees and
will recognize seniority and service with Seller for purposes of
accrual of benefits for Represented Transferred Employees eligible
to participate in the Simplex Plan. Buyer shall have no liability in
respect of any claim or determination that any constructive
termination or shutdown has occurred, or that any other benefits of
any Represented Employees have been accelerated or increased in any
manner, PROVIDED that (i) Buyer offers employment to all Represented
Employees as of the Closing, (ii) Buyer so assumes Seller's
obligations under the Collective Bargaining Agreements, (iii) Buyer
assumes and maintains the Simplex Plan as required in SECTION
6.11.5(b), (iv) the employee benefit plans made available by Buyer
after the Closing to the Represented Transferred Employees are
substantially the same as the Employee Benefit Plans theretofore
made available to Represented Employees by Seller, and (v) Buyer
does not close any Division Facility Buyer purchases and continues
to operate the Division Facilities for a period of six months.
(b) As soon as practicable after the Closing, but with retroactive
effect to the date immediately following the Closing, Buyer shall
assume the Simplex Plan established by Seller pursuant to the
Collective Bargaining Agreement covering the Represented Transferred
Employees sited at the Adrian, Michigan, facility. Seller will transfer
all records, benefit calculations and other documents and will execute
any documents necessary to effect the transfer of such sponsorship as
may reasonably be required from time to time by Buyer.
(c) Seller will reimburse Buyer for all Employee Benefit Plan
costs or other costs of benefits and employment costs incurred by Buyer
or any of its employee benefit plans with respect to Represented
Transferred Employees who are on lay-off, disability or leave of
absence (whether paid or unpaid) immediately before the Closing while
such employees remain on lay-off, disability or leave of absence
(whether paid or unpaid) following the Closing until such Represented
Transferred Employees are able to and do return to work for Buyer, in
the manner and for such other periods as described below. The following
benefits and employment costs paid by Buyer or any of its employee
benefit plans to any such Represented Transferred Employee, his or her
dependents, surviving spouse or beneficiaries, are subject to
reimbursement by Seller under this SECTION 6.11.5(c):
all benefits or amounts paid under any Employee Benefit Plan or
any other employee benefit plan or payroll practice of Buyer or
other employment costs of Buyer, including without limitation,
benefits paid under Buyer's medical, retiree medical, medical
reimbursement account, supplemental unemployment benefit, life
insurance, employee assistance, Part B
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Medicare reimbursement, and sickness and accident/disability plans
or programs.
All reimbursements by Seller under this SECTION 6.11.5(c) shall be
paid to Buyer within thirty (30) days after receipt of a bill from
Buyer describing each element of reimbursement claimed and shall
be subject to audit and verification by Seller and its accountants
and/or consultants.
6.11.6. CERTAIN BENEFIT PLAN ISSUES.
(a) As soon as practicable after the Closing, but with retroactive
effect as of the Closing, Seller shall amend each of its affected
employee pension benefit plans (as such term is defined in section 3(2)
of ERISA) other than the Simplex Plan or any multiemployer plan so as
to fully vest all Transferred Employees in their benefits accrued as of
Closing under such plans.
(b) Seller shall retain and shall assume, bear and discharge all
liabilities for claims incurred prior to the Closing under its welfare
benefit plans (as that term is defined in Section 3(1) of ERISA)
covering Transferred Employees (and their dependents and beneficiaries)
(the "SELLER WELFARE PLANS"), and Seller shall continue to retain and
assume, bear and discharge all liabilities incurred after the Closing
(i) under its retiree medical and life insurance plans covering
eligible Division Employees (and their dependents and beneficiaries)
who have retired prior to the Closing Date; and (ii) under Seller's
group health plan as provided in SECTION 6.11.6(c).
Buyer shall bear and discharge all liabilities for claims incurred
on and after the Closing under its welfare benefit plans (as that term
is defined in Section 3(1) of ERISA) covering Transferred Employees
(and their dependents and beneficiaries) ("BUYER WELFARE PLANS") except
that Buyer shall have no liability for retiree medical or life
insurance benefits with respect to Transferred Employees who have
retired or terminated employment prior to the Closing Date.
For purposes of this SECTION 6.11.6, a claim will be deemed
"incurred" on the date that the event that gives rise to the claim
occurs (for purposes of life insurance, severance and
sickness/accident/disability programs), on the date that treatment or
services are provided (for purposes of health care programs), or on the
date that reimbursement is requested (for purposes of any dependent
care assistance or medical care reimbursement programs).
Seller shall provide all information reasonably requested by Buyer
concerning the claim histories of Transferred Employees under the
Seller Welfare Plans for purposes of Buyer considering such prior claim
histories in the administration of the deductible and required maximum
benefit provisions under the Buyer Welfare Plans.
(c) Seller and not Buyer shall be liable for the payment of any
health expenses incurred for continuation coverage under section 4980B
of the Code or Part 6 of Title I of ERISA with respect to "qualifying
events" (within the meaning of section 4980B(f)(3) of the Code section
603 of ERISA) occurring on or before the Closing with respect to
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Transferred Employees (or their dependents). After the Closing, Seller
shall cause any "qualified beneficiary" (within the meaning of section
4980B(g)(1) of the Code or section 607 of ERISA) with respect to such
qualifying events to be covered under Seller's group health plan for
the period of continuation coverage. After the Closing, Buyer shall be
responsible and liable for payments of any health care expenses for
continuation coverage (i) that are incurred by Transferred Employees
(and their dependents) who terminate employment with or retire from
Buyer after the Closing and (ii) that are covered and payable under any
group health plan of Buyer in which Transferred Employees participate.
6.11.7. WORKERS' COMPENSATION CLAIMS. Seller shall be responsible
for and pay any and all workers' compensation and other similar
statutory claims asserted by or with respect to any Transferred
Employees in respect of any injury or other compensable event or
occupational illness or disease which occurred or is attributable to
any event, state of facts or condition which existed or occurred in
whole prior to the Closing. Buyer shall be responsible for and pay any
and all workers' compensation and other similar statutory claims
asserted by or with respect to any Transferred Employees in respect of
any injury or any other compensable event or occupational illness or
disease which occurred or is attributable to any event, state of facts
or condition which existed or occurred in whole after the Closing. If
any injury or other compensable event or occupational illness or
disease of a Transferred Employee who was employed by Seller prior to
the Closing and by Buyer after the Closing is attributable in part to
causes occurring prior to the Closing and in part to causes subsequent
to the Closing and is the basis of a workers' compensation or other
similar statutory claim, the liability for any such claims shall be
shared by Seller and Buyer in the proportion of their respective
workers' compensation insurance coverages.
6.11.8. EMPLOYMENT TAXES.
(a) Each of Seller and Buyer will (i) treat Buyer as a "successor
employer" and Seller as a "predecessor," within the meaning of Sections
3121(a)(1) and 3306(b)(1) of the Code, with respect to Transferred
Employees who are employed by Buyer for purposes of Taxes imposed under
the United States Federal Unemployment Tax Act ("FUTA") or the United
States Federal Insurance Contributions Act ("FICA") and (ii) cooperate
with each other to avoid, to the extent possible, the filing of more
than one IRS Form W-2 with respect to each such Transferred Employee
for the calendar year within which the Closing Date occurs.
(b) At the request of Buyer with respect to any particular
applicable Tax law relating to employment, unemployment insurance,
social security, disability, workers' compensation, payroll, health
care or other similar Tax other than Taxes imposed under FICA and FUTA,
each of Seller and Buyer will (i) treat Buyer as a successor employer
and Seller as a predecessor employer, within the meaning of the
relevant provisions of such Tax law, with respect to Transferred
Employees who are employed by Buyer, to the extent permitted by
applicable state and local laws and (ii) cooperate with each other to
avoid, to the extent possible, the filing of more than one individual
information reporting
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form pursuant to each such Tax law with respect to each such
Transferred Employee for the calendar year within which the Closing
Date occurs.
6.11.9. OFFERS OF EMPLOYMENT. Nothing herein shall be deemed to
preclude Buyer from offering employment to any Division Employee prior
to Closing. Seller shall terminate from employment with Seller as of
the Closing any Division Employee who accepts Buyer's offer of
employment, and such Division Employee shall become a Transferred
Employee of Buyer as of the Closing.
6.12. TAXES. Seller shall pay any and all transfer, recording, sales or use
or similar Taxes relating to the transactions contemplated hereby upon the
consummation of such transactions. Subject to the foregoing, each of Seller and
Buyer shall bear and be responsible for all Taxes relating to its respective
revenues, sales, income or receipts. All Taxes and assessments relating to real
estate or other property subject to ad valorem or similar taxation will be
prorated as of the Closing Date, Seller being charged and credited for all of
the same up to and including the Closing Date and Buyer being charged and
credited for all of the same after the Closing Date. If the actual amounts to be
prorated are not known as of the Closing Date, the prorations shall be made as
of the Closing Date on the basis of Taxes assessed for the most recent prior
period, and thereafter, when actual figures for the period including the Closing
Date are received, a cash settlement will be promptly made between Seller and
Buyer. The terms of this section shall survive the Closing.
6.13. REAL ESTATE.
(a) Seller will at its sole cost obtain and furnish to Buyer, as
promptly as is reasonably practicable and in any event by September 10,
1999, commitments (the "COMMITMENTS") for the issuance of ALTA owner
policies of title insurance with extended coverage and endorsements for
subdivision and covenant compliance and, in the case of the Adrian,
Michigan plant and the Constantine, Michigan plant, ALTA 3.0 zoning
endorsements (the "OWNER POLICIES") covering the Owned Real Estate subject
only to Liens on the Owned Real Estate which are a matter of public record
and which (i) do not materially interfere or impair the operations on the
Owned Real Estate for the purposes for which it is or may reasonably be
expected to be used, (ii) do not require the payment of any money by Buyer
that has not previously been the obligation of Seller in the ordinary
course of conduct of the business of Seller at such Owned Real Estate,
(iii) do not create any affirmative obligation of Buyer that has not
previously been the obligation of Seller in the ordinary course of conduct
of the business of Seller at such Owned Real Estate, and (iv) do not
materially detract from the value of such Owned Real Estate and otherwise
in form and substance reasonably satisfactory to Buyer and its financing
sources.
(b) Seller will, at its sole cost furnish to Buyer, as promptly as is
reasonably practicable and in any event by September 10, 1999, evidence of
compliance with zoning laws and regulations as to the Jacksonville, Florida
plant in form and substance reasonably satisfactory to Buyer and its
financing sources.
(c) Seller shall cause the Owner Policies to be issued by Liberty Title
Company (the "TITLE Company") to Buyer on the Closing Date in accordance
with the
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Commitments, and Seller shall deliver to the Title Company any documents
reasonably required by the Title Company with regard to the Real
Property in each case as necessary in the reasonable discretion of the
Title Company for the issuance of the Owner Policies. Each Owner Policy
for each parcel of Owned Real Estate and all real property improvements
thereon will be issued in an amount reasonably determined by Buyer not
to exceed 150 percent of the original book value (before depreciation
and amortization) of such Owner Real Estate and improvements as
reflected in the Financial Statements; and any title insurance coverage
in excess of such amounts will be the responsibility of Buyer.
6.14. INSURANCE. On and after the Closing Date, Buyer shall at all times
maintain a minimum of $20 million of insurance coverage with an insurance
company having an A. M. Best Rating of at least "A" for general liability and
product liability claims, which insurance shall provide that Seller is an
additional named insured with respect to the full amount of such coverage. Buyer
shall provide Seller with a certificate evidencing such insurance on the Closing
Date and on each anniversary of the Closing Date thereafter. Buyer and Seller
shall cooperate with one another and provide each other with reasonable
assistance in addressing any product liability claims relating to products sold
by the Division prior to the Closing Date. With respect to product liability
claims (other than contractual warranty claims) arising after the Closing Date
relating to products sold by the Division prior to the Closing Date ("PRE/POST
CLOSING CLAIMS"), notwithstanding the provisions of SECTION 2.3(d), if and to
the extent that Buyer reaches its insurance coverage limit with respect to
product liability claims under the insurance contemplated by this SECTION 6.14
with the result that Buyer is unable to obtain an insurance recovery from its
insurance carrier with respect to any such Pre/Post Closing Claims, then Seller
shall indemnify and hold harmless Buyer for the uninsured portion of any such
Pre/Post Closing Claims.
6.15. EIFS CLAIMS. Any obligation and liability in respect of a claim of
defective EIFS with respect to which a customer commenced installation prior to
the Closing Date, including repairs, exchanges, returns or other services
relating to such claim, shall be performed or contracted on Seller's behalf by
Buyer and billed to Seller, which will promptly reimburse all of Buyer's actual
direct costs.
6.16. COOPERATION WITH LITIGATION. After the Closing Date, Buyer shall
cooperate with Seller and give Seller reasonable access during normal business
hours to all properties, operations, books, records, contracts, and documents of
Buyer relating to proceedings set forth on SCHEDULE 6.16 of the Disclosure
Schedule and shall furnish and request its accountants and outside legal counsel
to furnish to Seller all information with respect to such proceedings as Seller
may reasonably request. Seller shall also have the right to discuss such
proceedings with the employees of Buyer after the Closing Date.
7. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to make the
deliveries contemplated at the Closing shall, in addition to the conditions set
forth elsewhere herein, be subject to satisfactory completion on or prior to the
Closing Date of each of the following conditions, any of which may be waived by
Seller:
7.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of Buyer contained in this Agreement shall have
been true, correct and complete in all
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material respects on the date hereof and shall be true, correct and complete
in all material respects on the Closing Date with the same effect as if made
on the Closing Date, and Buyer shall have executed and delivered to Seller at
Closing a certificate to such effect.
7.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. All of the covenants and
agreements of Buyer contained in this Agreement and required to be performed by
Buyer on or before the Closing Date shall have been performed, and Buyer shall
have executed and delivered to Seller at Closing a certificate to such effect.
7.3. OPINION OF COUNSEL FOR BUYER. Seller shall have received an opinion of
counsel for Buyer, Mayor, Day, Caldwell & Keeton, L.L.P., substantially in the
form of Exhibit G hereto and otherwise in form and substance reasonably
satisfactory to and addressed to Seller and dated the Closing Date. In rendering
such opinion, counsel may rely upon certificates of public officials and upon
certificates of officers of Buyer as to factual matters and on opinions of other
counsel of good standing whom such counsel believes to be reliable as to matters
with respect to which laws other than the General Corporation Law of Delaware
and the laws of Texas are applicable.
7.4. ADDITIONAL CLOSING DOCUMENTS. Buyer shall have delivered to Seller at
or prior to the Closing such documents (including a certificate of officers of
Buyer) as Seller may reasonably request in order to enable Seller to determine
whether the conditions to Seller's obligations under this Agreement have been
met and otherwise to carry out the provisions of this Agreement, including, but
not limited to, any appropriate resale or other applicable certificate with
respect to claims for exemption from sales Taxes.
7.5. NO LEGAL BAR. None of the parties hereto shall be prohibited by any
order, writ, injunction or decree of any governmental body of competent
jurisdiction from consummating the transactions contemplated by this Agreement,
and no action or proceeding shall then be pending which questions the validity
of this Agreement, any of the transactions contemplated hereby or any action
which has been taken by any of the parties or any corporate entity, in
connection herewith, or in connection with any of the transactions contemplated
hereby.
7.6. HSR EXPIRATION/TERMINATION. The waiting period (and any extension
thereof) under the HSR Act shall have expired or been terminated and no action,
suit or proceeding shall have been initiated by the Antitrust Division or the
FTC challenging the transactions provided in this Agreement under the Clayton
Act or the Sherman Act.
7.7. MICHIGAN DEPARTMENT OF ENVIRONMENTAL QUALITY, WASTE MANAGEMENT
DIVISION APPROVAL. The Michigan Department of Environmental Quality, Waste
Management Division (the "DEPARTMENT") shall have approved the transactions
contemplated hereby pursuant to the Department's rights under that certain
Contract between the Department and the Division dated December 26, 1995.
8. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to make the
deliveries contemplated at the Closing shall, in addition to conditions set
forth elsewhere herein, be subject to the satisfactory completion on or prior to
the Closing Date of each of the following conditions, any of which may be waived
by Buyer:
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8.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller contained in this Agreement shall have been true, correct
and complete on the date hereof and shall be true, correct and complete on the
Closing Date with the same effect as if made on the Closing Date, except, in
each case, where the failure of the representations and warranties to be true
and correct would not reasonably be expected to have a Material Adverse Effect,
and Seller shall have executed and delivered to Buyer at Closing a certificate
to that effect.
8.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. All of the covenants and
agreements of Seller contained in this Agreement and required to be performed on
or before the Closing Date shall have been performed, and Seller shall have
delivered to Buyer at Closing a certificate to that effect.
8.3. OPINION OF COUNSEL FOR SELLER. Buyer shall have received an opinion of
counsel for Seller, Gibson, Dunn & Crutcher LLP, substantially in the form of
EXHIBIT H hereto and otherwise in form and substance reasonably satisfactory to
and addressed to Buyer and dated the Closing Date. In rendering such opinion,
counsel may rely upon certificates of public officials and upon certificates of
officers of Seller as to factual matters and on opinions of other counsel of
good standing whom such counsel believes to be reliable as to matters with
respect to which the laws of jurisdictions other than Delaware or California are
applicable.
8.4. ADDITIONAL CLOSING DOCUMENTS. Seller shall have delivered to Buyer at
least three (3) business days prior to the Closing Date the calculations and
certifications required under SECTION 2.2 and such additional documents as Buyer
may reasonably request in order to enable Buyer to determine whether the
conditions to its obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.
8.5. NO LEGAL BAR. None of the parties hereto shall be prohibited by any
order, writ, injunction or decree of any governmental body of competent
jurisdiction from consummating the transactions contemplated by this Agreement
and no action or proceeding shall then be pending which questions the validity
of this Agreement, any of the transactions contemplated hereby or any action
which has been taken by any of the parties in connection herewith or in
connection with any of the transactions contemplated hereby.
8.6. THIRD-PARTY CONSENTS AND APPROVALS. Seller shall have obtained all
consents and approvals of third parties required under the Contracts Requiring
Consents and all material consents and approvals from governmental agencies
required in connection with the transactions contemplated hereby, which consents
and approvals shall be in forms reasonably satisfactory to Buyer.
8.7. TRANSFER DOCUMENTS. Seller shall have executed and delivered to Buyer
such bills of sale in the form attached hereto as EXHIBIT I, and other
instruments of sale, transfer, conveyance, assignment and delivery covering the
Acquisition Assets or any part thereof as Buyer may reasonably request.
8.8. HSR EXPIRATION/TERMINATION. The waiting period (and any extension
thereof) under the HSR Act, if applicable, shall have expired or been terminated
and no action, suit or
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proceeding shall have been initiated by the Antitrust Division or the FTC
challenging the transactions provided in this Agreement under the Clayton Act
or the Sherman Act.
8.9. FIRPTA AFFIDAVIT. Buyer shall have received from Seller and each other
person required under the Code to deliver the same in connection with the
transactions contemplated by this Agreement an affidavit under and in accordance
with Section 897 and Section 1445 of the Code.
8.10. REAL ESTATE CONVEYANCE DOCUMENTS. Buyer shall have received from
Seller duly executed and acknowledged general warranty deeds in the forms
customary in the applicable jurisdictions and in substance reasonably
satisfactory to Buyer and its financing sources and Seller.
8.11. TITLE INSURANCE. The Title Company shall have issued to the Buyer in
accordance with Section 6.13, (a) the Commitments, and (b) the Owner's Policies,
the premiums in respect of which shall be borne by Seller.
8.12. ZONING COMPLIANCE. Seller shall have provided to Buyer the required
evidence of zoning compliance as to the Jacksonville, Florida plant.
8.13. FINANCING. Buyer shall have received senior debt financing
substantially in accordance with EXHIBIT F or otherwise on terms acceptable to
Buyer, and Buyer shall have received equity and other debt financing to fund the
remainder of the Purchase Price and the capital requirements of the Buyer after
the Closing in amounts and on terms acceptable to Buyer in its sole discretion.
9. SURVIVAL; INDEMNIFICATION.
9.1. SURVIVAL. The representations and warranties contained in this
Agreement and in any document delivered in connection herewith shall survive the
Closing Date and shall terminate at the close of business one (1) year following
the Closing Date; provided, that the representations and warranties contained in
SECTIONS 3.1, 3.2, 3.3 and 3.17 and in the Deeds shall survive until the
applicable statute of limitations runs and that the representations and
warranties contained in SECTION 3.8.3 survive as specified in SECTION 9.9 ; and,
provided further, that the representations and warranties contained in SECTIONS
3.13, 3.14 and 3.15 shall not survive the Closing Date because the subject
matter thereof is subject to the provisions of Section 2.2. No claim may be
asserted by Buyer for any breach of representation or warranty herein after the
survival period therefor.
9.2. INDEMNIFICATION BY SELLER. Seller shall indemnify and hold harmless
Buyer and Buyer's directors, officers, employees, agents, attorneys,
representatives, successors, affiliates and assigns (the "BUYER PARTIES") from
and against, and reimburse the Buyer Parties on demand with respect to, any and
all loss, damage (including any decrease in the value of property or securities
acquired hereunder), liability (including strict liability), claims, cost and
expense, including reasonable attorneys', accountants', consultants' and
engineers' fees (collectively, "DAMAGES"), incurred by a Buyer Party by reason
of or arising out of or in connection with: (a) any misrepresentation or breach
of any representation or warranty contained in SECTION 3 (other than SECTIONS
3.13, 3.14 and 3.15 and other than SECTION 3.8.3 which shall be subject to
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indemnity pursuant to SECTION 9.9), or in any certificate expressly delivered to
Buyer pursuant to this Agreement (PROVIDED, that Seller shall not indemnify and
hold harmless the Buyer Parties from and against any Damages incurred by a Buyer
Party to the extent that the Damages attributable to any such breach of a
representation or warranty are reflected as liabilities included in the
calculation of the Closing Date Net Assets and result in a decrease in the
Purchase Price; and provided further, that solely for the purposes of
calculating the amounts of Damages and the existence of breaches of
representations and warranties in SECTION 3 hereof and the rights of Buyer to
indemnification hereunder, the representations and warranties of Seller set
forth in SECTION 3 (other than SECTION 3.4.4(e)) shall be deemed to omit the
words "material" and "materially" (and, in the case of SECTION 3.7(i)(C), the
word "substantially") and to omit the concept of "Material Adverse Effect"); (b)
the failure of Seller to perform any agreement or covenant required by this
Agreement to be performed by it whether before, on or after the Closing Date;
(c) any Excluded Liabilities or any failure of Seller to pay, perform or
discharge any of the Excluded Liabilities in accordance with the terms thereof;
(d) any Excluded Assets; or (e) any imposition of any liability or obligation of
Seller upon Buyer as a successor to Seller with respect to the Acquisition
Assets, the Division, the Division Business or the Transferred Employees where
such liability or obligation has not been expressly assumed by Buyer as an
Assumed Liability and Buyer has not otherwise expressly agreed by contract to
bear, discharge, pay, perform or otherwise satisfy such liability or obligation
of Seller. Notwithstanding the foregoing, Seller's indemnification of Buyer for
Environmental Liabilities is governed solely by the provisions of SECTION 9.9.
9.3. INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold harmless
Seller and Seller's directors, officers, employees, agents, attorneys,
representatives, successors, affiliates and assigns (the "SELLER Parties") from
and against, and to reimburse the Seller Parties on demand with respect to, any
and all Damages incurred by a Seller Party by reason of or arising out of or in
connection with (a) any misrepresentation or breach of any representation or
warranty contained in SECTION 4, or in any certificate expressly delivered by
Buyer to Seller under this Agreement; (b) the failure of Buyer to perform any
agreement or covenant required by this Agreement to be performed by it whether
before, on or after the Closing Date; or (c) any Assumed Liabilities or the
failure of Buyer to pay, perform or discharge any of the Assumed Liabilities in
accordance with the terms thereof.
9.4. INDEMNIFICATION LIMITATIONS.
(a) No claim for indemnification by a Buyer Party pursuant to SECTION
9.2(a) or a Seller Party pursuant to SECTION 9.3 (a), shall be asserted
unless the aggregate amount of all Damages incurred by the Buyer Parties
under such indemnification provisions exceeds $400,000, or by the Seller
Parties under such indemnification provisions exceeds $400,000; and no
individual claim by a Buyer Party pursuant to SECTION 9.2 or by a Seller
Party pursuant to SECTION 9.3 shall be asserted unless the aggregate amount
of all Damages incurred with respect to such claim exceeds $10,000.
Seller's liability in respect of all claims for breach of representations
and warranties hereunder shall not exceed $15,000,000 in the aggregate. The
foregoing provisions are not applicable to the indemnity for Environmental
Liabilities under SECTION 9.9.
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(b) To the extent included in the calculation of the Closing Date Net
Assets and resulting in a decrease in the Cash Portion of the Purchase
Price, Seller shall not be liable with respect to any claim incurred by
reason of or arising as of or in connection with the Adjustment to the
Purchase Price.
9.5. NOTICE OF CLAIMS. Whenever any claim shall arise for indemnification
hereunder, the party entitled to indemnification (the "INDEMNIFIED PERSON")
shall promptly notify the other party (the "INDEMNIFYING PERSON") of the claim,
such notice to be in writing and to describe (a) the Damages allegedly incurred,
(b) the amount thereof, if known, (c) any complaints, subpoena or other
documents served against the indemnified person in connection with such Damages,
and (d) the method of computation of such Damages (but the failure so to notify
an indemnifying person shall not relieve it from any liability which it may have
under this SECTION 9 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it might otherwise
have). An indemnified person shall not settle or compromise any claim by a third
party for which such indemnified person is entitled to indemnification hereunder
without the prior written consent (not to be unreasonably withheld) of the
indemnifying person, unless suit in respect of such claim shall have been
instituted against the indemnified person, the indemnifying person shall not
have taken control of such suit pursuant to SECTION 9.6 after notification
thereof and the indemnifying person shall have received written notice of the
proposed settlement and the terms thereof.
9.6. THIRD PARTY CLAIMS. In the case of any third party claim, action or
suit as to which indemnification is sought, the indemnifying person shall have
the right at any time to notify the indemnified person that it elects to conduct
and control such action or suit. If the indemnifying person does not give the
foregoing notice and/or until the indemnifying party gives such notice, the
indemnified person shall have the right to defend and contest such action or
suit in the exercise of its exclusive discretion and settle or compromise such
suit, subject to the provisions of the last sentence of SECTION 9.5. The
indemnifying person shall, upon request from any indemnified person, promptly
pay to such indemnified person in accordance with the other terms of this
SECTION 9 the amount of any Damages. If the indemnifying person gives the
foregoing notice, the indemnifying person shall have the right to undertake,
conduct and control, through counsel of its own choosing and at the sole expense
of the indemnifying person, the conduct and settlement of such action or suit
(other than a settlement which requires or prohibits any action on the part of,
or involves any admission by, the indemnified person, in which event the consent
of such indemnified person shall be required, but shall not be unreasonably
withheld), and the indemnified person shall cooperate with the indemnifying
person in connection with any such action or suit; provided, that (a) the
indemnifying person shall permit the indemnified person to participate in such
conduct or settlement through counsel chosen by the indemnified person, but the
fees and expenses of such counsel shall be borne, after the indemnifying person
has given notice that it elects to conduct and control such action or suit, by
the indemnified person and (b) the indemnifying person shall agree promptly to
reimburse to the extent required under this SECTION 9 the indemnified person for
the full amount of any Damages resulting from such action or suit, except fees
and expenses of counsel for the indemnified person incurred after the assumption
of the conduct and control of such action or suit by the indemnifying person. So
long as the indemnifying person is contesting any such action or suit in good
faith, the indemnified person shall not pay or settle any such action or suit.
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9.7. PAYMENTS. All payments made under this SECTION 9 shall be made by wire
transfer in immediately available funds in U.S. dollars.
9.8. REMEDIES EXCLUSIVE. If the Closing occurs, the remedies provided in
this SECTION 9 shall be the exclusive remedy for monetary damages (whether at
law or in equity) with respect to this Agreement and the transactions
contemplated herein.
9.9. SELLER'S INDEMNIFICATION OF BUYER FOR ENVIRONMENTAL LIABILITIES.
(a) Subject to the terms and conditions of SECTIONS 9.7 and 9.8, with
respect to any claim asserted in writing by Buyer as provided in this
Agreement prior to the seventh (7th) anniversary of the Closing Date,
Seller shall indemnify and defend Buyer in respect of, and hold Buyer
harmless against, any Environmental Liabilities or Damages incurred or
suffered by Buyer (including with respect to Identified Environmental
Liabilities (as defined below)) arising out of, relating to, or as a result
of:
(i) any failure by Seller to comply with any applicable
Environmental Law prior to the Closing Date in connection with the past
and present business or operations of Seller;
(ii) any Release of a Hazardous Substance in connection with the
past or present business or operations or Owned Real Estate or Leased
Real Estate of Seller prior to the Closing Date;
(iii) circumstances or conditions that existed on the Real
Property, or in connection with the Acquisition Assets, Division
Business or Division Facilities as of the Closing Date;
(iv) any misrepresentation or breach of warranty of Seller
contained in SECTION 3.8.3 of this Agreement;
provided further, however, that, Seller's obligations under this SECTION
9.9 shall be conditioned upon the applicable real property having been
after the Closing Date substantially continuously either (x) operated for
commercial or industrial purposes (including related office, warehouse,
sale and service activities), or (y) left vacant but effectively secured
and maintained (including, without limitation, protected at all times by
such fencing, monitoring and other reasonable security measures necessary
to prevent trespassing or visible deterioration of the property or
improvements) during the applicable period of indemnification. The
indemnity obligations of this Section 9.9 shall be deemed to run with the
land and shall be assignable upon 30 days written notice to Seller, to any
future purchaser or occupant of the Real Property, Acquisition Assets,
Division Business or Division Facilities.
(b) (i) Without limiting the indemnity provided in this Section 9, from
and after the Closing, Seller, at its sole expense, and with Buyer's
participation and input, shall be responsible for, and shall determine,
control, and undertake the defense, settlement, management or performance,
as appropriate, of each and all of the Identified Environmental Liabilities
and of each and every matter for which Buyer seeks defense
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and/or indemnification under Section 9.9(a); provided that Seller shall
take all reasonable efforts not to disrupt the business of Buyer in
fulfilling its obligations under this Section 9.9(b) and shall conduct
its activities during normal business hours, unless Buyer agrees
otherwise in writing. Buyer shall be provided reasonable notice and
opportunity to comment (at its own cost and expense) upon Seller's plans
for addressing such matters, including upon Seller's selection of
contractors. Seller shall ensure that it selects and utilizes
contractors that are reputable, fully trained and qualified for the work
to be performed and carry insurance (for which it will make Buyer an
additional insured) of the type and amount agreed to by Buyer, such
agreement not to be unreasonably withheld.
(ii) If Buyer contends that Seller is not fulfilling its indemnity
obligations to address and resolve Identified Environmental Liabilities or
its indemnity obligations under Section 9.9(a), Buyer shall notify Seller,
in writing, of the claimed deficiency. Seller shall have thirty (30) days
from receipt of that written notice within which to cure any such
deficiency. If, at the expiration of that thirty (30) day period, Seller
has not cured the identified deficiency, Buyer shall, at Seller's expense,
assume responsibility for, and shall determine, control, and undertake the
defense, settlement, management or performance, as appropriate, of that
indemnified matter.
(c) "IDENTIFIED ENVIRONMENTAL LIABILITIES" means those matters
identified in SECTION 9.9 of the Disclosure Schedule.
10. TERMINATION OF AGREEMENT.
10.1. EVENTS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated by it abandoned at any time prior to the Closing:
(a) by mutual agreement of Seller and Buyer; or
(b) by Buyer, if the conditions set forth in SECTION 8 shall not
have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) or if the Closing has
not occurred by or on September 24, 1999, provided that Buyer is not
responsible for the delay; or
(c) by Seller, if the conditions set forth in SECTION 7 shall not
have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) or if the Closing has
not occurred by or on September 24, 1999, provided that Seller is not
responsible for the delay.
10.2. RIGHTS AND OBLIGATIONS ON TERMINATION. If this Agreement is
terminated and abandoned as provided in this SECTION 10, each party will
redeliver all documents, work papers and other materials of any other party
relating to the transactions contemplated by this Agreement, whether so
obtained before or after the execution of this Agreement, to the party
furnishing the same, and all information received by any party to this
Agreement with respect to the business of any other party shall not at any
time be used for the advantage of, or disclosed to third parties by, such
party to the detriment of the party furnishing such information; provided,
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however, that the foregoing restriction shall not apply to any document,
work paper, material or information which is a matter of public knowledge
or is otherwise in the public domain.
11. MISCELLANEOUS PROVISIONS.
11.1. CONSTRUCTION. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas, without
giving effect to the conflicts of laws provisions thereof.
11.2. NOTICES. All notices, requests, demands and other communications
called for or contemplated hereunder shall be in writing and shall be
deemed to have been duly given when delivered to the party to whom
addressed or when sent by telecopy, telegram, telex or wire (if promptly
confirmed by registered or certified mail, return receipt requested,
prepaid and addressed) to the parties, their successors in interest, or
their assignees at the following addresses, or at such other addresses as
the parties may designate by written notice in the manner aforesaid:
If to Buyer: Simplex Products Inc.
c/o Callier Interests
950 Echo Lane, Suite 335
Houston, Texas 77024
Fax: (713) 973-8237
Attention: James T. Callier
With a copy to: Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Fax: (713) 225-7047
Attention: Geoffrey K. Walker
If to Seller: K2 Inc.
4900 South Eastern Avenue, Suite 200
Los Angeles, California 90040
Fax: (323) 724-0470
Attention: Richard M. Rodstein
With a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue, Suite 4800
Los Angeles, California 90071
Fax: (213) 229-7520
Attention: Andrew E. Bogen
11.3. ASSIGNMENT. Except as provided in SECTION 9.9, neither this
Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof nor any of the documents executed in connection
herewith may be assigned by any party without the consent of the other
parties. Nothing contained herein, express or implied, is intended to
confer upon any person or entity other than the parties hereto and their
successors in interest any rights or remedies under or by reason of this
Agreement unless so stated herein to the contrary.
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11.4. AMENDMENTS AND WAIVERS. This Agreement and all Exhibits and
Schedules hereto may be modified only by a written instrument duly executed
by each party. No condition to any party's obligations and no breach of any
covenant, agreement, warranty or representation shall be deemed waived
unless expressly waived in writing by the party whose obligations are
subject to such condition or who might assert such breach. No waiver of any
right hereunder shall operate as a waiver of any other right or of the same
or a similar right on another occasion.
11.5. REMEDIES. No remedy conferred by any of the specific provisions
of this Agreement is intended to be exclusive of any other remedy. Each and
every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder now or hereafter existing at law or in equity or by
statute or otherwise, and the election by a party of one or more remedies
shall not constitute a waiver of the party's right to pursue any other
available remedies.
11.6. ATTORNEYS' FEES. In the event that any action or proceeding,
including arbitration, is commenced by any party hereto for the purpose of
enforcing any provision of this Agreement, the parties to such action,
proceeding or arbitration may receive as part of any award, judgment,
decision or other resolution of such action, proceeding or arbitration
their costs and reasonable attorneys' fees as determined by the person or
body making such award, judgment, decision or resolution. Should any claim
hereunder be settled short of the commencement of any such action or
proceeding, including arbitration, the parties in such settlement shall be
entitled to include as part of the damages alleged to have been incurred
reasonable costs of attorneys or other professionals in investigating or
counseling on such claim.
11.7. BINDING NATURE OF AGREEMENT. The Agreement includes each of the
Schedules and Exhibits which are referred to herein or attached hereto, all
of which are incorporated by reference herein. All the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective executors, heirs, legal
representatives, successors and assigns.
11.8. EXPENSES. Except as otherwise specified herein: (a) the costs and
expenses of Seller, including the legal fees and disbursements of Gibson,
Dunn & Crutcher LLP and the fees and expenses of Salomon Smith Barney,
shall be paid and borne by Seller; and (b) the costs and expenses of Buyer,
including the legal fees and disbursements of Mayor, Day, Caldwell &
Keeton, L.L.P. and the fees and expenses of Callier Interests, shall be
paid and borne by Buyer. Each of Seller and Buyer shall pay and bear
one-half of the costs of any filings required to be made under the HSR Act.
Seller shall pay and bear the costs and expenses of the Commitments and
Owner Policies as specified in SECTION 6.13 hereof. Taxes shall be paid and
borne by the parties as provided in SECTION 6.12 hereof.
11.9. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof.
11.10. SEVERABILITY. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of
this Agreement invalid, illegal or unenforceable in any other jurisdiction.
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11.11. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute but one
and the same instrument.
11.12. CONSTRUCTION. In constructing this Agreement and all other
agreements and instruments to be executed and delivered in connection
herewith, the following principles shall be followed: (a) no consideration
shall be given to the captions of the sections, subsections or clauses,
which are inserted for convenience and not as an aid in construction; (b)
no consideration shall be given to the fact or presumptions that either
party had a greater or lesser hand in drafting; (c) examples shall not be
construed to limit, expressly or by implication, the matter they
illustrate; (d) the word "includes" and its syntactic variants mean
"includes, but is not limited to" and corresponding syntactic variant
expressions; (e) the plural shall be deemed to include the singular, and
vice versa; (f) each gender shall be deemed to include the other genders;
(g) each exhibit and schedule to this Agreement or any such other agreement
or instrument is a part of this Agreement or such other agreement or
instrument; (h) each agreement or instrument specifically related to any
Real Property shall be governed by and construed and enforced in accordance
with the law of the jurisdiction in which such Real Property is located;
and (i) "calendar year" shall mean a fiscal accounting year, whether that
is an accounting year ending after 52 or 53 weeks or an accounting year
ending on December 31.
12. DEFINED TERMS.
The definitions of certain defined terms used in this Agreement are
located on the pages indicated in the following table.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
SELLER: K2 INC.,
a Delaware corporation
By: /s/ RICHARD M. RODSTEIN
----------------------------------------
Name: RICHARD M. RODSTEIN
-------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------
BUYER: SIMPLEX PRODUCTS INC.,
a Delaware corporation
By: /s/ J. READ BOLES
----------------------------------------
Name: J. READ BOLES
-------------------------------------
Title: VICE PRESIDENT
-------------------------------------
53
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,957
<SECURITIES> 0
<RECEIVABLES> 118,610
<ALLOWANCES> (5,061)
<INVENTORY> 153,798
<CURRENT-ASSETS> 288,789
<PP&E> 152,696
<DEPRECIATION> (85,128)
<TOTAL-ASSETS> 408,134
<CURRENT-LIABILITIES> 89,268
<BONDS> 0
0
0
<COMMON> 17,191
<OTHER-SE> 190,937
<TOTAL-LIABILITY-AND-EQUITY> 408,134
<SALES> 321,352
<TOTAL-REVENUES> 321,352
<CGS> 228,871
<TOTAL-COSTS> 228,871
<OTHER-EXPENSES> 69,923
<LOSS-PROVISION> 1,272
<INTEREST-EXPENSE> 6,328
<INCOME-PRETAX> 15,072
<INCOME-TAX> 4,823
<INCOME-CONTINUING> 10,249
<DISCONTINUED> 1,007
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,256
<EPS-BASIC> .68
<EPS-DILUTED> .68
</TABLE>
