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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 31, 1998
THE MONARCH MACHINE TOOL COMPANY
(Exact name of Registrant as specified in its charter)
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Ohio 1-1997 34-4307810
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(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
2600 Kettering Tower, Dayton, OH 45423
(Address of principal executive offices) (Zip code)
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937-910-9300
(Registrant's telephone number including area code)
Not applicable
(Former name and former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 30, 1998, The Monarch Machine Tool Company (the "Company") and
Derlan Industries, Inc. ("Seller"), which is a wholly-owned subsidiary of Derlan
Industries Limited of Toronto, Canada, entered into a Stock Purchase Agreement
(the "Agreement"). A copy of the Agreement is Exhibit 2.1 to this Report.
Pursuant to the Agreement, on December 31, 1998, the Company purchased all of
the outstanding capital stock of GFG Corporation, a Wisconsin corporation
("GFG"), from Seller. The purchase price for the stock was (i) $11,997,358 paid
in cash to Seller on December 31, 1998 and (ii) a contingent payment of up to
$1,780,000 which would become due and payable on February 14, 2000 if GFG's
operating profit in 1999 exceeds certain levels. In addition, the Company paid
Seller $1,500,000 on December 31, 1998 in consideration of Seller and its
affiliates agreeing not to compete with the business of GFG for five years. The
purchase price of the stock is also subject to a possible price adjustment based
on an audit of the balance sheet of GFG at the close of business on December 31,
1998.
GFG, with annual sales of approximately $20 million, designs and assembles roll
coating, electrostatic oil application and strip processing equipment used by
the metal coil processing industry. The Company intends to continue to operate
this business.
In connection with the purchase, the Company entered into the First Amendment
("First Amendment"), dated December 29, 1998, to the Second Amended and Restated
Credit Agreement, dated as of May 29, 1998, with NBD Bank N.A. and Star Bank,
N.A. (together the "Credit Agreement As Amended"). The Credit Agreement As
Amended increased the amount that the Company may borrow on a revolving credit
basis from $15 million to $25 million. The Company borrowed an additional
$13,500,000 under the Credit Agreement As Amended for the purpose of paying the
purchase price of the stock of GFG and the noncompetition payment to Seller. At
the close of business on December 31, 1998, the Company had total borrowings of
$16,500,000 under the Credit Agreement As Amended. The First Amendment is filed
as Exhibit 4.1 to this Report and reference is made to such amendment for
additional information.
There is no material relationship between the Seller and the Company or any
affiliate, director, or officer of the Company or any associate of any director
or officer of the Company.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial statements of businesses acquired. The Company
intends to file as an amendment to this Report as soon as practicable, but no
later than March 16, 1999, the following audited consolidated financial
statements of GFG Corporation and related notes thereto:
(1) Consolidated Balance Sheets of GFG Corporation at
December 31, 1998 and 1997;
(2) Consolidated Statements of Earnings of GFG Corporation for
the years ended December 31, 1998 and 1997; and
(3) Consolidated Statements of Cash Flows of GFG Corporation
for the years ended December 31, 1998 and 1997.
(B) Pro forma financial information (unaudited).
(1) Pro Forma Condensed Consolidated Balance Sheet at December
31, 1998;
(2) Pro Forma Condensed Statement of Consolidated Operations
for the year ended December 31, 1998; and
(3) Notes to the Pro Forma Condensed Consolidated Financial
Information.
(C) See Index to Exhibits.
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.
THE MONARCH MACHINE TOOL COMPANY
Date: January 14, 1999
----------------
By: /s/ Karl A. Frydryk
-----------------------------------------
Karl A. Frydryk
Vice President and Chief Financial Officer
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INDEX TO EXHIBITS
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(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION:
2.1 Stock Purchase Agreement between Derlan Industries, Inc., as Seller,
and The Monarch Machine Tool Company, as Purchaser, dated December 30,
1998.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING DEBENTURES:
4.1 First Amendment, dated December 29, 1998, to the Second Amended and
Restated Credit Agreement, dated as of May 29, 1998 among The Monarch
Machine Tool Company and NBD Bank N.A. and Star Bank N.A.
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Exhibit 2.1 EXECUTION COPY
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(DERLAN7)
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STOCK PURCHASE AGREEMENT
between
DERLAN INDUSTRIES INC.
and
THE MONARCH MACHINE TOOL COMPANY
Dated as of December 30, 1998
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
DEFINITIONS...........................................................................1
ARTICLE II
SALE AND PURCHASE OF SHARES...........................................................7
2.1 Sale and Purchase of Shares..................................................7
2.2 Purchase Price...............................................................7
2.3 Initial Payment Price Adjustment.............................................8
2.4 Net Worth Adjustment.........................................................9
2.5 Contingent Payment...........................................................9
ARTICLE III
CLOSING AND DELIVERIES...............................................................10
3.1 Closing.....................................................................10
3.2 Seller's Deliveries.........................................................10
3.3 Buyer's Deliveries..........................................................12
3.4 Closing in Escrow...........................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER.............................................13
4.1 Organization and Standing...................................................13
4.2 Authorization, Validity and Effect..........................................13
4.3 Capitalization..............................................................14
4.4 Subsidiaries and Investments................................................14
4.5 No Conflict; Required Filings and Consents..................................14
4.6 Financial Statements........................................................15
4.7 Taxes.......................................................................15
4.8 Properties..................................................................15
4.9 Real Property...............................................................15
4.10 Leases......................................................................16
4.11 Personal Property...........................................................16
4.12 Compliance with Laws........................................................16
4.13 Employee Benefit Plans......................................................16
4.14 Contracts...................................................................17
4.15 Legal Proceedings...........................................................18
4.16 Brokers.....................................................................18
4.17 Proprietary Information.....................................................18
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4.18 Insurance...................................................................18
4.19 Personnel...................................................................19
4.20 Environmental Matters.......................................................19
4.21 Conduct of Business in Ordinary Course......................................20
4.22 Customers and Suppliers.....................................................21
4.23 Product Warranties and Recall...............................................21
4.24 Year 2000 Capability........................................................21
4.25 Accuracy of Representations.................................................22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER..............................................22
5.1 Investment Intent...........................................................22
5.2 Organization and Standing...................................................22
5.3 Authorization, Validity and Effect..........................................22
5.4 No Conflict; Required Filings and Consents..................................22
5.5 Legal Proceedings...........................................................23
5.6 Buyer's Financing...........................................................23
5.7 No Other Representations....................................................23
5.8 Brokers.....................................................................23
ARTICLE VI
COVENANTS AND AGREEMENTS.............................................................23
6.1 Employee Matters............................................................23
6.2 Conduct of the Company and Seller...........................................25
6.3 Reasonable Access; Confidentiality..........................................26
6.4 HSR Filing; Other Action....................................................26
6.5 Publicity...................................................................27
6.6 Taxes; Tax Returns; and Tax Indemnities.....................................27
6.7 Records and Litigation Assistance...........................................30
6.8 Exclusive Dealing...........................................................31
6.9 Confidentiality After Closing...............................................31
6.10 Updating Schedules..........................................................31
6.11 Maintenance of Insurance....................................................31
6.12 Payment of Certain Awards and Obligations...................................31
6.13 Release of Company from Long Term Obligations; Guarantees...................31
ARTICLE VII
CONDITIONS TO CLOSING................................................................32
7.1 Conditions to Obligations of the Parties....................................32
7.2 Conditions to Obligations of the Seller.....................................32
7.3 Conditions to Obligation of Buyer...........................................33
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ARTICLE VIII
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TERMINATION OF AGREEMENT.............................................................33
8.1 Termination.................................................................33
8.2 Effect of Termination.......................................................34
ARTICLE IX
SURVIVAL AND INDEMNIFICATION.........................................................34
9.1 Survival of Representations and Warranties and Covenants....................34
9.2 Indemnification by Buyer....................................................34
9.3 Indemnification by Seller...................................................35
9.4 Limitations.................................................................36
9.5 Procedure...................................................................36
9.6 Exclusive Remedies..........................................................36
ARTICLE X
MISCELLANEOUS AND GENERAL............................................................37
10.1 Expenses....................................................................37
10.2 Successors and Assigns......................................................37
10.3 No Third Party Beneficiaries................................................37
10.4 Notices.....................................................................37
10.5 Complete Agreement..........................................................38
10.6 Captions; References........................................................38
10.7 Amendment...................................................................38
10.8 Waiver......................................................................38
10.9 Governing Law...............................................................38
10.10 Severability................................................................39
10.11 Enforcement of Agreement....................................................39
10.12 Counterparts................................................................39
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EXHIBITS
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A - Noncompetition Agreement
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SCHEDULES
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1.1 - October 31 Net Worth Statement
1.2 - People Included in To Knowledge of Seller or of Buyer
2.5 - Calculation of Operating Profit
4.3 - Capitalization
4.4 - Subsidiaries
4.5(a) - No Conflict-Required Filings and Consents (Seller)
4.5(b) - Governmental Authority Required Filings or Consents (Seller)
4.6 - Financial Statements
4.7 - Governmental Authority Taxes and Assessments
4.9 - Real Property
4.10 - Personal Property Leases
4.11 - Personal Property
4.12 - Compliance with Laws
4.13 - Employee Benefit Plans
4.14 - Material Contracts
4.15 - Legal Proceedings (Seller)
4.17 - Proprietary Information
4.18 - Insurance
4.19 - Personnel
4.20 - Environmental Matters
4.21 - Conduct in Ordinary Course of Business - Exceptions
4.22 - Customers and Suppliers
4.23 - Warranties
4.24 - Year 2000 Compatibility
5.4 - No Conflict-Required Filings and Consents (Buyer)
5.4(b) - Governmental Authority-Required Filings and Consents (Buyer)
6.6 - Tax Basis of Assets
6.13 - Letters of Guaranty
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STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement (this "Agreement"), dated as of December
30, 1998, between Derlan Industries Inc., a Delaware corporation ("Seller"), and
The Monarch Machine Tool Company, an Ohio corporation ("Buyer").
RECITALS:
---------
A. Seller is the record owner of all of the issued and
outstanding shares of common stock, par value $1.00 per share (the
"Shares") of GFG Corporation, a Wisconsin corporation (the "Company" or
"AGFG"), and
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Shares, upon the terms set forth in this
Agreement.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
subject to the terms and conditions set forth herein, Seller and Buyer hereby
agree as follows:
ARTICLE I
DEFINITIONS
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For purposes of this Agreement:
"338(h)(10) ELECTION" shall have the meaning set forth in
Section 6.6(b).
"ACCOUNTANTS" shall have the meaning set forth in Section
2.3(c).
"ACTIONS" shall mean any action, suit or legal, administrative
or arbitral proceeding or investigation before any Governmental Authority.
"AFFILIATE" shall mean with respect to any Person, any Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
"BALANCE SHEET ADJUSTMENTS" shall have the meaning set forth
under the definition of Closing Date Net Worth Statement, below.
"BUSINESS" shall mean the design, engineering, manufacture,
marketing, distribution, sale, and servicing of (i) coil coating and laminating
equipment, (ii) electrostatic spraying and rotary atomizing equipment and (iii)
coil and strip processing equipment and the sale of parts, components and
accessories for such equipment.
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"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks in Ohio are authorized or obligated by Law or executive
order to close.
"BUYER" shall have the meaning set forth in the preamble to
this Agreement.
"BUYER'S DELIVERIES" shall have the meaning set forth in
Section 3.3.
"CALCULATION YEAR" shall have the meaning set forth in Section
2.5.
"CLOSING" shall have the meaning set forth in Section 3.1.
"CLOSING CONDITION MATERIAL ADVERSE EFFECT" means, with
respect to the Company, such state of facts, event, change or effect as has had,
or would reasonably be expected to have, a material adverse effect (i) on the
business, results of operations, or financial condition of the Company taken as
a whole or (ii) on the ability of Seller to consummate the transactions
contemplated by this Agreement.
"CLOSING DATE" shall have the meaning set forth in Section
3.1.
"CLOSING DATE BALANCE SHEET" shall have the meaning set forth
in Section 2.3(a).
"CLOSING DATE NET WORTH STATEMENT" means the statement to be
delivered by Seller to Buyer pursuant to Section 2.3, which statement is to be
prepared in accordance with the following:
(i) the Closing Date Balance Sheet shall be set forth;
(ii) the Balance Sheet Adjustments shall be applied to the Closing
Date Balance Sheet, accompanied by a brief explanatory
footnote as to each adjustment;
(iii) the Closing Date Balance Sheet after giving effect to the
Balance Sheet Adjustments is the adjusted balance sheet; and
(iv) the Net Worth of the Company and its Subsidiaries immediately
prior to the Effective Time will be the sum of the accounts
included in such adjusted balance sheet.
Buyer and Seller agree that the October 31 Net Worth Statement attached hereto
as SCHEDULE 1.1 (a) has been prepared in accordance with the immediately
preceding provisions, except that it has been prepared based on the unaudited
consolidated balance sheet of the Company and its Subsidiaries at October 31,
1998; (b) the adjustments reflected on such statement and described in the notes
to such statement are the same balance sheet adjustments (the "Balance Sheet
Adjustments") to be used in preparing the Closing Date Net Worth Statement
except that the amount of the adjustments may differ in amount to reflect events
occurring subsequent to October
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31, 1998; and (c) that the sum of the accounts included in the adjusted balance
sheet shown on SCHEDULE 1.1 (namely $5,239,493) is the Net Worth at October 31,
1998.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPANY FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.6.
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth
in Section 6.3(b).
"CONSENT" shall mean any consent, approval, authorization,
qualification, waiver, registration or notification required to be obtained
from, filed with or delivered to a Governmental Authority or any other Person in
connection with the consummation of the transactions provided for herein.
"CONTINGENT PAYMENT" shall have the meaning set forth at
Section 2.5.
"CONTRACTS" means and includes any of the following which the
Company or a Subsidiary is a party to, is bound by, or by which any property or
assets of either of them may be bound: (i) all real property leases; (ii) all
leases of tangible personal property having rentals in excess of $25,000 due
over the remaining term of the lease; (iii) all active franchise, dealer, or
other distribution agreements pursuant to which the Company or a Subsidiary
sells or otherwise distributes its products or services or pursuant to which any
person sells or otherwise distributes products or services of the Company or a
Subsidiary that cannot be terminated by the Company on notice of 45 days or less
without penalty or charge; (iv) any agreement involving the licensing of
Proprietary Information that requires payments by the Company in any
twelve-month period in excess of $10,000; (v) any confidentiality agreement that
remains effective that was entered into by the Company or a Subsidiary in
connection with an acquisition or potential acquisition of a business by the
Company or a Subsidiary; (vi) any agreement, arrangement, or commitment which
materially restricts the conduct of any line of business by the Company or a
Subsidiary; (vii) any agreement, for which the Company or a Subsidiary will have
a liability after the Closing Date, to or benefitting any director or officer of
the Company or a Subsidiary or with or benefitting any Affiliate of Seller and
which provides for aggregate payments by the Company or a Subsidiary in any
calendar year in excess of $25,000, exclusive of salary and payments under
Employee Plans applicable to more than two persons; (viii) any agreement,
indenture or other instrument relating to the borrowing of money by the Company
or a Subsidiary that will not be discharged at or prior to the Closing Date;
(ix) any agreement pursuant to which the Company or a Subsidiary is obligated to
lend money or make advances to any person (other than routine advances to any
employee, deposits or advances in respect of products purchased in the ordinary
course of business, and advances made to an employee in connection with the
relocation of such employee by the Company or a Subsidiary); (x) any agreement,
arrangement or commitment to guarantee the obligations of or to indemnify or
exonerate from liability any director or officer of the Company or a Subsidiary
(other than pursuant to applicable law or the charter or by-laws of the Company
or a Subsidiary); (xi) any Tax allocation or Tax sharing agreement that will not
be terminated at or prior to the Closing Date; (xii) any agreement or
arrangement relating to the voting or disposition of any securities of the
Company or a Subsidiary (other than pursuant to applicable law or the charter or
by-laws of the Company or a Subsidiary); (xiii) any other contract, commitment,
agreement, guarantee agreement
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or understanding, whether written or oral, which involves more than $100,000 and
is not terminable without penalty upon not more than 45 days' notice; and (xiv)
any partnership, joint venture, or other agreement pursuant to which any of the
Company holds an equity interest in any person or entity.
"EFFECTIVE TIME" means 11:59 p.m. on December 31, 1998 if the
Closing Date occurs prior to January 1, 1999, or on the Closing Date if the
Closing Date occurs after December 31, 1998.
"ENVIRONMENTAL LAWS" means any and all Laws relating to
discharge or releases of Hazardous Materials into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, use, treatment, storage, disposal, or
handling of Hazardous Materials or the clean-up or other remediation thereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" shall have the meaning set forth in Section
3.4.
"EXHIBIT" means any of the exhibits attached to and made a
part of this Agreement.
"FINAL NET WORTH" means the Net Worth of the Company and its
Subsidiaries shown on the Closing Date Net Worth Statement (but if there is a
disagreement as to such Net Worth, then Final Net Worth means the Final Net
Worth as determined after the dispute resolution provisions of Section 2.3 after
been completed).
"GAAP" shall mean Canadian generally accepted accounting
principles applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" shall mean any government or
political subdivision, whether federal, state, local or foreign, or any agency
or instrumentality of any such government or political subdivision, or any
federal, state, local or foreign court or arbitrator.
"HAZARDOUS MATERIALS" means any substance regulated as toxic,
radioactive or otherwise hazardous under any Laws and petroleum and any
constituent thereof.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"INDEBTEDNESS" means any (i) indebtedness for borrowed money
of the Company or any of its Subsidiaries, including any and all accrued but
unpaid interest thereon as well as any and all costs, fees and charges required
in connection with the payment or prepayment thereof, and (ii) liability for the
payment of money relating to a lease that is required to be classified as a
capitalized lease obligation in accordance with GAAP.
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"INTERCOMPANY ACCOUNTS" means any amount owed between the
Company or a Subsidiary, on the one hand, and Seller or any of Seller's
Affiliates, on the other hand, including those amounts recorded as receivables
for, or payables with respect to, products or services purchased in the ordinary
course of business, health and medical, workers' compensation and other
employee-related insurance plans.
"INTERIM BALANCE SHEET" means the unaudited consolidated
balance sheet of the Company dated as of October 31, 1998 included at SCHEDULE
4.6.
"INVESTMENTS" shall mean any equity interest, directly or
indirectly, in any other Person in excess of 5% of the total equity ownership of
such Person.
"KNOWN TO BUYER" or "TO BUYER'S KNOWLEDGE" means any
information actually known to any person listed in SCHEDULE 1.2.
"KNOWN TO SELLER" or "TO SELLER'S KNOWLEDGE" means any
information actually known to any officer or director of the Company or Seller
or to any of the persons listed in SCHEDULE 1.3.
"LAWS" shall mean any law, statute, code, ordinance,
regulation or rule of any Governmental Authority.
"LEASED REAL PROPERTY" means the land, buildings or other real
property listed on SCHEDULE 4.9 as currently being leased by the Company or a
Subsidiary.
"LIENS" shall mean any mortgage, lien, Option, pledge, adverse
claim, interest, charge or other similar encumbrance.
"MATERIAL" when used herein to limit a representation or
warranty of a party shall be interpreted as follows:
(i) whenever any representation or warranty of Seller contains
an exception or limitation relating to "materiality," "material
adverse" events or omissions, "material adverse effects" or similar
concepts (other than "Closing Condition Material Adverse Effect")
(collectively, "Materiality Tests"), such Materiality Tests shall be
deemed to have been met (i.e., such events or omissions shall be deemed
to be "material," "materially adverse," have a "material adverse
effect" or otherwise meet a similar test), and such representation or
warranty shall be deemed to have been breached, if such breach results
in an adverse impact with respect to the Company's assets of $40,000 or
an adverse impact with respect to the Company's consolidated earnings
of $40,000; and
(ii) whenever any representation or warranty of Buyer contains
a Materiality Test, such representation or warranty shall be deemed to
have been breached, if such breach results in an adverse impact with
respect to Seller's assets of $40,000 or an adverse impact with respect
to Seller's earnings of $40,000.
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"MATERIAL EQUIPMENT" shall have the meaning as set forth in
Section 4.11.
"NONCOMPETITION AGREEMENT" means the noncompetition agreement
attached hereto as EXHIBIT A which is to be entered into among Buyer, Seller and
Derlan Industries Limited.
"NONCOMPETITION PAYMENT" means the $1,500,000 payable to
Derlan Industries, Inc. under the Noncompetition Agreement.
"OBJECTION NOTICE" has the meaning set forth in Section
2.3(b).
"OBJECTION PERIOD" has the meaning set forth in Section
2.3(b).
"OPERATING PROFIT" shall have the meaning set forth at Section
2.5(c).
"OPTION" means any option, warrant, call, convertible or
exchangeable security, subscription, preemptive right, voting trust or
agreement, any agreement restricting sale or transfer, or other agreement or
right of a similar nature.
"ORDERS" shall mean any order, judgment, ruling, injunction,
assessment, award, decree or writ of any Governmental Authority.
"OUTSIDE DATE" means the later of January 8, 1999 and five
business days after the termination or expiration of the waiting period under
the HSR Act.
"PERMITS" shall mean any license, permit, authorization,
certificate of authority, grant, approval, franchise, waiver, Consent,
qualification or similar document or authority which has been, or is required to
be, issued or granted by any Governmental Authority.
"PERMITTED LIENS" means (i) Liens for Taxes not yet due and
payable, (ii) mechanic's and materialman's Liens and other Liens arising as a
matter of Law, (iii) purchase money security interests and (iv) Liens and
imperfections of title that do not individually or in the aggregate materially
detract from the value, or impair the use, of the assets as presently used.
"PERSON" shall mean any individual, sole proprietorship,
partnership, corporation, limited liability company, joint venture,
unincorporated society or association, trust or other entity or Governmental
Authority.
"PLANS" shall have the meaning set forth in Section 4.13.
"PROPRIETARY INFORMATION" means all rights of the Company or a
Subsidiary under any patent, trademark, service mark, trade name or copyright
(or registrations or applications therefor) and all other intellectual property
rights, inventions, know-how, confidential business information, trade secrets
or proprietary information, drawings, processes and formulae used in the
Business.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.2.
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"REAL PROPERTY" means all of the Company's and the
Subsidiaries' real property and interests in real property, leaseholds and
subleaseholds, purchase options, easements, licenses, rights to access, rights
of way, all buildings and other improvements thereon, and other real property
interests used in the business or operations of the Company and the
Subsidiaries, together with any additions thereto between the date of this
Agreement and the Closing Date.
"RECORDS" means, in the case of the Company or a Subsidiary,
all books and records of the Company or a Subsidiary, including, without
limitation, its tax returns, minute books, stock records, general ledger, all
property and equipment records, production records, engineering records,
purchasing and sales records, personnel and payroll records, accounting records,
magnetic copies of computer files and documentation, customer and vendor lists,
and other records and files of the Company or a Subsidiary kept in the ordinary
course of its business and in the possession of the Company, a Subsidiary,
Seller, any Affiliate of Seller, or any agent or representative of any of them.
"SCHEDULE" means any of the Schedules listed in the Table of
Contents to this Agreement.
"SELLER" shall have the meaning set forth in the preamble to
this Agreement.
"SHARES" shall have the meaning set forth in the recitals of
this Agreement.
"SUBSIDIARY OR SUBSIDIARIES" shall mean any Person of which at
least a majority of the outstanding shares or other equity interests having
ordinary voting power in the election of directors or comparable managers of
such Person are at the time owned, directly or indirectly, by the Company, by
one or more of its Subsidiaries, or by the Company and one or more of its
Subsidiaries. For purposes of Sections 4.7 and 6.6, Subsidiaries shall include
entities that were Subsidiaries during any period for which the statute of
limitations on assessment is open.
"TAXES" shall have the meaning set forth in Section 6.6.
ARTICLE II
SALE AND PURCHASE OF SHARES
---------------------------
2.1 SALE AND PURCHASE OF SHARES. At the Closing, (a) Seller shall sell,
assign and transfer all of the Shares to Buyer free and clear of all Liens and
(b) Buyer shall purchase and acquire the Shares and pay and deliver to Seller
the Purchase Price (as defined in Section 2.2).
2.2 PURCHASE PRICE. The purchase price of the Shares shall be an amount
equal to the sum of (i) $11,997,358 (the "INITIAL PAYMENT"), which shall be
subject to adjustment as provided in Section 2.3, and (ii) the Contingent
Payment, if any (the "PURCHASE PRICE").
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2.3 INITIAL PAYMENT PRICE ADJUSTMENT.
(a) As promptly as practicable and in any event within 60 days
after the Effective Time, Seller will prepare and deliver to Buyer (i) a
consolidated balance sheet of the Company immediately prior to the Effective
Time prepared in accordance with GAAP (the "CLOSING DATE BALANCE SHEET"), (ii)
the Closing Date Net Worth Statement, and (iii) a report (the "REPORT") of
PricewaterhouseCoopers to the effect that they have audited the Closing Date
Balance Sheet in accordance with generally-accepted auditing standards (the
"AUDIT") and that the Closing Date Balance Sheet presents fairly, in accordance
with GAAP and in all material respects, the financial condition of the Company
on a consolidated basis immediately prior to the Effective Time before giving
effect to the Closing Balance Sheet Adjustments. The cost of the Report and the
Audit shall be paid by Buyer. Seller will afford representatives of Buyer the
opportunity to participate in and review Seller's preparation of the Closing
Date Balance Sheet and the Closing Date Net Worth Statement, including without
limitation the opportunity to observe any physical inventory count and other
accounting procedures. If Buyer and Seller agree upon the calculation of the
Final Net Worth within 30 days after the delivery to Buyer of the Closing Date
Balance Sheet and Closing Date Net Worth Statement, Sections 2.3(b) and 2.3(c)
will not apply; however, if Buyer and Seller do not so agree, then Sections
2.3(b) and 2.3(c) will apply.
(b) If Buyer disagrees with Seller's calculation of the Final
Net Worth, Buyer may, within 30 days (the "OBJECTION PERIOD") after the delivery
to Buyer of the Closing Date Balance Sheet and Closing Date Net Worth Statement,
deliver a notice (the "OBJECTION NOTICE") to Seller disputing such calculation
and setting forth Buyer's calculation thereof. Any Objection Notice shall
specify in reasonable detail those items or amounts as to which Buyer disagrees.
If Buyer does not deliver the Objection Notice within the Objection Period,
Buyer shall be deemed to agree in all respects with Seller's calculation of the
Final Net Worth.
(c) If an Objection Notice shall be properly and timely
delivered, Buyer and Seller shall cause KPMG Peat Marwick, Milwaukee, Wisconsin
Office (or, if they are unable or unwilling to serve, a firm of independent
accountants of nationally recognized standing reasonably satisfactory to Buyer
and Seller (which shall not have any material relationship with Buyer, Seller or
the Company)) (the "ACCOUNTANTS") to promptly review this Agreement, the Closing
Date Balance Sheet, the Closing Date Net Worth Statement and the disputed items
or amounts for the purpose of calculating the Final Net Worth. In making such
calculation, the Accountants shall independently determine Final Net Worth in
accordance with this Agreement and shall deliver to Buyer and Seller, as
promptly as practicable, a written report setting forth their calculation of
Final Net Worth. If such calculation is between Seller's and Buyer's calculation
of Final Net Worth, then the Accountants' determination shall be used for
purposes of this Article II. If such calculation is not between Seller's and
Buyer's calculation of Final Net Worth, then the Final Net Worth that is closest
to the Final Net Worth calculated by the Accountants shall be used for purposes
of this Article II. The cost of the Accountants' review and report shall be
divided equally between Seller and Buyer.
(d) Each of Buyer and Seller will cooperate and assist in the
preparation of the Closing Date Balance Sheet and the Closing Date Net Worth
Statement and in the conduct of the
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reviews referred to in this Section 2.3, including, without limitation, Buyer
making available to the extent necessary or helpful books, records, work papers
and personnel of the Company.
2.4 NET WORTH ADJUSTMENT. If the Final Net Worth, as finally
determined pursuant to Section 2.3, is calculated to be in excess of $5,239,493,
Buyer shall have no obligation to pay to Seller the amount of such excess. If
the Final Net Worth is calculated to be less than $5,239,493, Seller shall pay
to Buyer within five days of such final calculation the amount of such
deficiency. The amount of any payment to be made pursuant to this Section 2.4
will bear interest from the Effective Time to the date of payment at a rate of
eight percent (8%) per annum. Such interest shall be calculated daily on the
basis of a 365-day year and the actual number of days elapsed.
2.5 CONTINGENT PAYMENT.
(a) If the Operating Profit for the Company and its Subsidiaries for
the period beginning on the day after the Effective Time and ending on the first
annual anniversary date of the Effective Time (the "CALCULATION YEAR" exceeds
$1,725,000, then a payment shall be made to Seller (the "CONTINGENT PAYMENT").
If the Operating Profit of the Company for the Calculation Year is $1,725,000 or
less, then no Contingent Payment shall be made to Seller.
(b) If a Contingent Payment is payable, the amount of the Contingent
Payment shall be the amount determined in accordance with whichever one of the
following subparagraphs is applicable based on the Operating Profit of the
Company and its Subsidiaries for the Calculation Year:
(i) If the Operating Profit for the Company and its Subsidiaries
for the Calculation Year is more than $1,725,000 and less than
or equal to $2,300,000, then the amount of the Contingent
Payment shall be the product of 2.6087 times the dollar amount
by which Operating Profit exceeded $1,725,000 (for example, if
the Operating Profit were $2,000,000, then the amount of the
Contingent Payment would be $717,393); or
(ii) If the Operating Profit for the Company and its Subsidiaries
for the Calculation Year is more than $2,300,000 and less than
or equal to $2,861,000, then the amount of the Contingent
Payment shall be the sum of (x) $1,500,000 and (y) the product
of 0.50 times the dollar amount by which Operating Profit
exceeded $2,300,000 (for example, if the Operating Profit were
$2,850,000, then the amount of the Contingent Payment would be
$1,775,000); or
(iii) If the Operating Profit for the Company and its Subsidiaries
for the Calculation Year is more than $2,861,000, then the
amount of the Contingent Payment is $1,780,500.
(c) "OPERATING PROFIT" for the Calculation Year shall be calculated as
provided in SCHEDULE 2.5.
(d) Within 45 days after the end of the Calculation Year, Buyer shall
furnish to Seller a schedule showing Buyer's calculation of the Operating Profit
for the Calculation Year (the "OPERATING PROFIT CALCULATION SCHEDULE"). Buyer
shall allow Seller and its representatives
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<PAGE> 15
timely and full access to all books, records, and work papers of the Company and
its Subsidiaries that Seller may reasonably request to review the Operating
Profit Calculation Schedule. If Seller objects to Buyer's calculation of
Operating Profit for the Calculation Year as shown on the Operating Profit
Calculation Schedule, then within 30 days after Seller's receipt of such
schedule, Seller may object to such calculation by giving written notice of
objection to Buyer, in which Seller specifies in reasonable detail its
objections to such Schedule. Within 15 days thereafter, Buyer and Seller shall
meet at the offices of the Company and attempt in good faith to reasonably
resolve any disputes as to the calculation of Operating Profit. If Buyer and
Seller are unable to resolve any such disputes, the matter shall be referred to
the Accountants for final determination and the same procedures shall apply in
connection with any such referral as would apply to a referral of a dispute
involving an Objection Notice.
(e) If a Contingent Payment is payable pursuant to this Section 2.5, it
shall be paid by Buyer to Seller and shall be due and payable on the forty-fifth
day after the end of the Calculation Year unless there is on such day a dispute
between Buyer and Seller as to the amount of the Contingent Payment in which
case Buyer shall pay on such date the amount of the Contingent Payment not in
dispute and the balance, if any shall be due and payable within two (2) Business
Days after the dispute is finally resolved. Any payment of Contingent Payment
shall be made together with interest which shall accrue at the annual rate of 8%
from the forty-fifth day after the end of Calculation Year until paid in full.
ARTICLE III
CLOSING AND DELIVERIES
----------------------
3.1 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Jones, Day, Reavis
& Pogue, 901 Lakeside Avenue, Cleveland, Ohio 44114, at 9:00 a.m. Cleveland time
on December 31, 1998 and shall become effective at the Effective Time; PROVIDED,
that if all applicable waiting periods under the HSR Act have not expired prior
to three business days prior to such date, then the Closing shall occur on the
third business day after the expiration of all such applicable waiting periods;
and PROVIDED, FURTHER, that the time and place of the Closing may be changed to
such other time and place as the parties shall mutually agree in writing (in any
case, the "CLOSING DATE"). All proceedings to be taken and all documents to be
executed and delivered by all parties at the Closing shall be deemed to have
been taken and executed simultaneously and no proceedings shall be deemed to
have been taken nor documents executed or delivered until all have been taken,
executed and delivered and if the Closing deliveries are delivered to the Escrow
Agent as contemplated in Section 3.4, the transactions contemplated herein shall
be effective at the Effective Time.
3.2 SELLER'S DELIVERIES. At the Closing, Seller shall deliver or cause
to be delivered to the Escrow Agent the following items ("SELLER'S DELIVERIES")
provided, however, that if the Closing Date occurs after December 30, 1998,
Seller's Deliveries shall be delivered directly to Buyer:
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(a) One or more certificates representing the Shares
accompanied by duly executed stock powers, dated December 31, 1998 or the
Closing Date if the Closing Date occurs after December 31, 1998, in proper form
for transfer;
(b) The organizational documents of the Company and each of
its Subsidiaries certified as of the most recent practicable date by the
Secretary of State or the comparable Governmental Authority of the jurisdiction
of its organization;
(c) To the extent available, a Certificate of the Secretary of
State or comparable Governmental Authority of the jurisdiction of its
organization as to the good standing as of the most recent practicable date of
the Company and the Subsidiaries in such jurisdiction and a certificate of good
standing as of the most recent practicable date from the appropriate
Governmental Authority in each state where the Company or its Subsidiaries is
qualified to do business;
(d) A certificate of the Secretary of the Company, dated the
Closing Date, certifying as to the Code of Regulations or bylaws of the Company
and each of its Subsidiaries and as to the resolutions of the Company
authorizing this Agreement and the transactions contemplated hereby;
(e) A certificate from an officer of Seller, dated the Closing
Date, to the effect that the conditions set forth in Sections 7.3(a) and (b)
have been satisfied;
(f) The resignation of each of the members of the Board of
Directors of the Company and (if directed by the Buyer) the Subsidiaries, each
effective at the Effective Time;
(g) The Noncompetition Agreement, dated December 31, 1998 or
the Closing Date if the Closing Date occurs after December 31, 1998, and
executed by authorized officers of Seller and Derlan Industries Limited, which
shall become effective at the Effective Time;
(h) An opinion, dated the Closing Date, of Jones, Day, Reavis
& Pogue, in customary form and with customary assumptions and qualifications, to
the effect that (i) the execution, delivery and performance by Seller of this
Agreement has been duly authorized, (ii) this Agreement has been duly executed
and delivered by Seller, (iii) this Agreement constitutes a valid and binding
obligation of Seller enforceable against Seller in accordance with its terms;
and (iv) the Guaranty of Derlan Industries Limited set forth at the final page
of this Agreement constitutes a valid and binding obligation of Derlan
Industries Limited enforceable against it in accordance with its terms (in
rendering the opinion referred to in preceding clause, such counsel may rely on
the opinion of Canadian counsel acceptable to Buyer or Seller may provide a
separate opinion of such Canadian counsel on such matter);
(i) stock certificates representing all of the outstanding
capital stock of each of the Subsidiaries, registered in the name of the
Company, with each certificate being free and clear of any Liens (or a
certificate of an officer of Seller that such certificates in such form will be
delivered to Buyer within 30 days of the Effective Time);
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(j) the Records; and
(k) releases of any Liens, except Permitted Liens, that may
exist with respect to the assets of the Company and a written certificate of an
officer of Derlan Industries Limited certifying that all Intercompany Accounts
have been paid.
Notwithstanding the provisions of Section 3.2(j), Seller shall not be
required to deliver any Records which (i) are not in the possession of the
Company and its Subsidiaries and (ii) contain information about or relate to
Affiliates of Seller other than the Company and its Subsidiaries but, from and
after the Effective Time, Seller shall make the information contained in such
Records relating to the Company and its Subsidiaries available to Buyer at its
reasonable request to the extent Buyer requires such information to discharge
its legal obligations.
3.3 BUYER'S DELIVERIES. At the Closing, Buyer shall deliver or cause
to be delivered to the Escrow Agent the following items ("BUYER'S DELIVERIES")
provided, however, if the Closing Date occurs after December 30, 1998, Buyer's
Deliveries shall be delivered directly to Seller:
(a) A certificate of an officer of Buyer, dated the Closing
Date, to the effect that the conditions set forth in Sections 7.2(a) and (b)
have been satisfied;
(b) A certificate of the Secretary of Buyer, dated the Closing
Date, certifying as to the resolutions authorizing this Agreement and the
transactions contemplated hereby;
(c) The Noncompetition Agreement, dated December 31, 1998 or
the Closing Date if the Closing Date occurs after December 31, 1998, and
executed by an authorized officer of Buyer, which shall become effective at the
Effective Time;
(d) An opinion, dated the Closing Date, of Thompson Hine &
Flory LLP, in customary form and with customary assumptions and qualifications,
to the effect that (i) the execution, delivery and performance by Buyer of this
Agreement has been duly authorized, (ii) this Agreement has been duly executed
and delivered by Buyer and (iii) this Agreement constitutes a valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms;
(e) Such other documents and instruments as are required to
delivered to Seller by Buyer pursuant to this Agreement at or prior to the
Closing; and
(f) If the Closing Date occurs prior to January 1, 1999, the
Initial Payment ($11,997,358) shall be delivered by Buyer to Seller by wire
transfer on December 31, 1998 of immediately available funds to the bank account
designated by Seller at the Closing. If, however, the Closing Date occurs after
December 31, 1998, the Initial Payment shall be delivered by Buyer to Seller by
wire transfer of immediately available funds to the bank account designated by
Seller one business day prior to the Closing Date. At the time the Initial
Payment is paid to Seller, the Noncompetition Payment ($1,500,000) shall also be
paid to Seller in immediately available funds to a bank account designated by
Seller.
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3.4 CLOSING IN ESCROW. If the Closing Date occurs prior to December 31,
1998, then Seller's Deliveries and Buyer's Deliveries shall be delivered at the
Closing to the Escrow Agent, who shall hold such deliveries in escrow and act as
follows:
(a) Immediately upon Escrow Agent's receipt (by personal
delivery or facsimile transmission) of Seller's written notice that Seller has
received the Initial Payment and the Noncompetition Payment, then Escrow Agent
shall deliver Seller's Deliveries to Buyer and shall deliver Buyer's Deliveries
to Seller; or
(b) In the event that Escrow Agent has not received written
notice from Seller that Seller has received the Initial Payment and the
Noncompetition Payment on or prior to the Outside Date, then on the Outside Date
or as soon as practicable thereafter, Escrow Agent shall return Seller's
Deliveries to Seller and Buyer's Deliveries to Buyer.
The parties hereby agree to designate a person or institution as ESCROW AGENT if
the escrow provisions of this Agreement become applicable. The parties hereby
agree to hold Escrow Agent harmless from any loss or costs it may occur in
acting as Escrow Agent under this Agreement provided the Escrow Agent acts in
good faith and in a manner it reasonably believes is consistent with the
provisions of this Section 3.4.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer as of the date of this
Agreement as follows:
4.1 ORGANIZATION AND STANDING. Each of Seller, the Company and
Subsidiaries of the Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization. Each of Seller, the Company and Subsidiaries of the Company is
duly qualified to do business, and in good standing, in each jurisdiction in
which the character of the properties owned or leased by it or in which the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing would not have a material adverse
effect on the Company. Each of Seller, the Company and Subsidiaries of the
Company has the requisite corporate power and authority to own and operate its
properties and carry on its business as they are now being conducted.
4.2 AUTHORIZATION, VALIDITY AND EFFECT. Seller has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by it,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and such other agreements and
documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Seller. This Agreement has been duly and
validly executed and delivered by Seller and represents the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except as limited by (a) applicable bankruptcy, reorganization,
insolvency, moratorium or other
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similar laws affecting the enforcement of creditors' rights generally from time
to time in effect and (b) the availability of equitable remedies (regardless of
whether enforceability is considered in a proceeding at law or in equity).
4.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
56,000 Shares. All of the issued and outstanding Shares are duly and validly
issued and outstanding and are fully paid and nonassessable. The Shares have not
been issued in violation of, and are not subject to, and there are no,
outstanding Options relating to the Shares. Except as set forth on SCHEDULE 4.3,
there are no authorized or outstanding Options under which the Company may be
obligated to issue or sell any shares of capital stock or any other securities
or equity interests of the Company. The Shares represent the only issued and
outstanding shares of capital stock of the Company. Except as set forth on
SCHEDULE 4.3, Seller is the registered owner and beneficial owner of the Shares,
free and clear of any Liens. Except as set forth on SCHEDULE 4.3, there are no
agreements, commitments or contracts relating to the issuance, sale or transfer
of any equity securities or other securities of the Company or any of its
Subsidiaries.
(b) SCHEDULE 4.3 sets forth with respect to each Subsidiary of
the Company the jurisdiction of its incorporation, the jurisdictions in which
its is qualified to do business as a foreign corporation, and the number of its
authorized shares of capital stock, and the number of its outstanding shares of
capital stock. All of the issued and outstanding shares of capital stock of each
Subsidiary of the Company are duly and validly issued and outstanding and are
fully paid and nonassessable. The Company is the registered owner and the
beneficial owner of all of the outstanding capital stock of each of its
Subsidiaries, free and clear of any Liens. The outstanding shares of capital
stock of the Subsidiaries of the Company have not been issued in violation of,
and are not subject to, and there are no, outstanding Options relating to the
outstanding shares of capital stock of Subsidiaries of the Company. Except as
set forth on SCHEDULE 4.3, there are no authorized or outstanding Options under
which any Subsidiary of the Company may be obligated to issue or sell any shares
of its capital stock or any other securities or equity interests of any
Subsidiary of the Company.
4.4 SUBSIDIARIES AND INVESTMENTS. Except as set forth on SCHEDULE 4.4,
the Company has no Subsidiaries or Investments.
4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Neither the
execution and delivery of this Agreement by Seller, nor the consummation by
Seller of the transactions contemplated herein, nor compliance by Seller with
any of the provisions hereof, will conflict with or result in a breach of any
provision of the articles of incorporation or code of regulations or equivalent
organizational documents of the Company or any of its Subsidiaries, except as
set forth in SCHEDULE 4.5(a), constitute or result in the breach of any term,
condition or provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or give rise
to any right of termination, cancellation or acceleration with respect to, or
result in the creation or imposition of any Lien upon any property or assets of
the Company or its Subsidiaries under, any Contract, note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
any of them is a party or by which any of them or any of
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<PAGE> 20
their respective properties or assets may be subject, and that would, in any
such event, have a material adverse effect, or (iii) subject to receipt of the
requisite approvals set forth in SCHEDULE 4.5(b), violate any Order or Law
applicable to the Company or any of its Subsidiaries or any of their respective
properties or assets.
(b) Other than (i) notices and/or Consents under the HSR Act
and (ii) as set forth in SCHEDULE 4.5(b), no notice to, filing with,
authorization of, exemption by or Consent of any Governmental Authority or any
other Person is necessary for the consummation by Seller of the transactions
contemplated in this Agreement.
4.6 FINANCIAL STATEMENTS. The consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1997, December 31, 1996, and
December 31, 1995 and the related consolidated statements of operations and cash
flows for each of the three years in the three-year period ended December 31,
1997, together with the notes thereto and the unaudited consolidated balance
sheets and the related statements of operations and cash flows of the Company
for the interim period ended October 31, 1998 (the "COMPANY FINANCIAL
STATEMENTS"), all of which are included at SCHEDULE 4.6, have been prepared in
accordance with GAAP (except, in the case of the balance sheet for the interim
period, for the omission of notes) and fairly present, in all material respects,
the consolidated financial position and the consolidated results of operations
and cash flows of the Company and its Subsidiaries as of the dates and for the
periods indicated.
4.7 TAXES . The Company joins in the filing of a consolidated tax
return with other United States companies affiliated with Seller. The Company
and each of its Subsidiaries have filed all federal, state, county, local and
foreign tax returns, including information returns, required to be filed by it,
and paid or made adequate provision for the payment of all Taxes shown on such
returns to be owed by it. The federal income tax returns of the Seller, the
Company and Subsidiaries for the fiscal year ended December 31, 1993 and for all
fiscal years prior thereto are closed by the relevant statute of limitations,
and no claims for additional taxes for such fiscal years are pending. Except as
set forth on SCHEDULE 4.7, neither the Company nor any of its Subsidiaries is a
party to any pending Action, nor, to the Seller's Knowledge, is any such Action
threatened, by any Governmental Authority for the assessment or collection of
taxes, interest, penalties or deficiencies that would reasonably be expected to
have a material adverse effect on the Company.
4.8 PROPERTIES. Except as disclosed or reserved against in the Company
Financial Statements, the Company and its Subsidiaries have good and valid title
to all of the properties and assets, tangible or intangible, reflected in the
Company Financial Statements as being owned by the Company and its Subsidiaries
as of the dates thereof, free and clear of all Liens except for Permitted Liens.
4.9 REAL PROPERTY. SCHEDULE 4.9 contains a complete list of all the
Real Property and the Company's interest therein. The Real Property listed on
SCHEDULE 4.9 comprises all real property interests used in the conduct of the
business and operations of the Company as now conducted. All leased buildings
and all leased fixtures, equipment and other property and assets are held under
leases or subleases that are valid instruments enforceable in accordance with
their respective terms. The Company has delivered to Buyer true and complete
copies of all leases pertaining to the Real Property. All Real Property
(including the improvements thereon) (i) is
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<PAGE> 21
available for immediate use in the conduct of the business and operations of the
Company, and (ii) complies in all material respects with all applicable building
or zoning codes and regulations of any Governmental Authority having
jurisdiction. The Company has full legal and practical access to the Real
Property. Except as set forth in SCHEDULE 4.9, to the Seller's Knowledge, all
buildings, structures and facilities which are included in the Real Property are
structurally sound with no material defects and are in good operating condition
and repair, subject to normal routine wear and maintenance and are usable in the
regular ordinary course of business.
4.10 LEASES. SCHEDULE 4.10 contains a complete list of all vehicle
leases and subleases and all leases and subleases pursuant to which the Company
or the Subsidiaries lease personal property which require the payment of in
excess of $25,000 over the remaining term of the lease. Except as set forth in
SCHEDULE 4.10, (i) all such leases and (ii) all leases pertaining to Real
Property are valid, binding and enforceable in accordance with their terms,
except that such enforcement is subject to any applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and to general principles of equity
(whether or not considered in a court of law or equity), and are in full force
and effect; there are no existing material defaults by the Company or the
Subsidiaries thereunder; and the Company has not received notice of the
occurrence of any event which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a material
default thereunder by any party thereto.
4.11 PERSONAL PROPERTY. SCHEDULE 4.11 contains a complete description
of all of the Company's and the Subsidiaries' machinery, equipment and other
tangible personal property, including motor vehicles, which are used in the
operation of the Business (collectively, the "Material Equipment"). Except as
specifically disclosed on SCHEDULES 4.10 AND 4.11, the Company has good and
marketable title to all the Material Equipment, free and clear of Liens. To the
Seller's Knowledge, the Material Equipment is sufficient for Buyer to continue
the Business, in all material respects, in accordance with applicable Law as
currently conducted by the Company. Except as set forth on SCHEDULES 4.10 AND
4.11 hereto, no Person, other than the Company or any Subsidiary, owns any
equipment or other tangible property or assets on the premises of the Company
and the Subsidiaries that is necessary to the operations of the Business of the
Company and the Subsidiaries.
4.12 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 4.12, each
of the Company and its Subsidiaries (a) is in material compliance with all Laws
and Orders applicable to its business or employees conducting its business; and
(b) has received no notification or communication from any Governmental
Authority (i) asserting that the Company or any of its Subsidiaries is not in
compliance with any Law or (ii) threatening to revoke any Permit of any
Governmental Authority.
4.13 EMPLOYEE BENEFIT PLANS. (a) SCHEDULE 4.13 identifies all employee
benefit plans as defined in Section 3(3) of ERISA that the Company and its
Subsidiaries sponsor or to which any of them contributes for its employees or
their dependents (the "PLANS").
(b) Except as set forth in SCHEDULE 4.13:
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(i) the Company has delivered or made available to Buyer
copies of the following Plan documents: (A) the Plan document or
Summary Plan Descriptions, if any, currently in effect; (B) the most
recent determination letter, if any, received from the Internal Revenue
Service with respect to the qualification of any of such Plans intended
to be qualified under Section 401(a) of the Code; (C) actuarial
valuations of each of such Plans, if applicable, for the most recent
plan year for which such valuations are available or are required by
Law; and (D) the most recently filed annual return/report on Form 5500,
5500-C, 5500-R or 5500-C/R, if any, for each of such Plans sponsored by
the Company;
(ii) all contributions to each of the Plans intended to
be qualified under Section 401(a) of the Code are, and have been in the
year to which they relate, fully deductible;
(iii) other than qualified domestic relations orders as
defined in Section 414(p) of the Code and qualified medical child
support orders as defined in Section 609(a)(2)(A) of ERISA, and except
for claims for benefits in the ordinary course, to Seller's Knowledge
there are no actions, Liens, suits, arbitrations, disputes, legal,
administrative or other proceedings or governmental investigations
pending against any of the Plans;
(iv) no Plan subject to Title IV of ERISA has been
maintained during the last six years by the Company or any of its
Subsidiaries;
(v) none of the Plans is subject to Section 302 of
ERISA or Section 412 of the Code;
(vi) neither the Company nor any present or former
Subsidiary of the Company has at any time maintained, contributed to or
had an obligation to contribute to any plan under which more than one
employer makes contributions within the meaning of Sections 3(40),
4063, 4064 or 4066 of ERISA or Section 413(c) of the Code or to any
"multiemployer plan" within the meaning of Section 3(37) of ERISA;
(vii) no Plan provides medical benefits beyond termination
of service or retirement other than continuation of health care
coverage mandated by Law; and
(viii) with respect to each Plan that is a group health
plan (as defined in Section 607(1) of ERISA or Section 5000(b)(1) of
the Code), the Seller, Company or otherwise the administrator of the
Plan has complied with all material requirements of Section 4980B et.
seq of the Code and Parts 6 and 7 of Title I of ERISA except where
failure to comply would not have an adverse material effect on the
Company.
4.14 CONTRACTS. Set forth in SCHEDULE 4.14 is a list of the Contracts,
as of the date hereof, except for leases of property which are set forth at
SCHEDULE 4.10 and Plans which are set forth at SCHEDULE 4.13. Each of the
Contracts is in full force and effect and is a legal, valid and binding
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contract or agreement, and there is no default or breach (or, to the Seller's
Knowledge, any event that, with the giving of notice or lapse of time or both
would result in a material default or breach) by the Company or any of its
Subsidiaries, or, to the Seller's Knowledge, any other party, in the timely
performance of any obligation to be performed or paid thereunder or any other
material provision thereof, that, individually or in the aggregate, would have a
material adverse effect on the Company.
4.15 LEGAL PROCEEDINGS. As of the date of this Agreement, except as
set forth in SCHEDULE 4.15, there are no Actions instituted or pending, or to
the Seller's Knowledge, threatened, against the Company or any of its
Subsidiaries, or against any property, asset, interest or right of any of them.
Neither the Company nor any of its Subsidiaries is subject to any Order other
than as set forth in SCHEDULE 4.15. SCHEDULE 4.15 also sets forth a list of all
litigation that was filed against the Company (other than claims involving
workers' compensation) since January 1, 1994 in which the total damages sought
from the Company were in excess of $100,000.
4.16 BROKERS. Except for the compensation payable to Taylor Strategic
Divestitures ("Taylor Divestitures") in connection with the transactions
contemplated by this Agreement, which shall be paid by Seller, no broker, finder
or similar agent has been employed by or on behalf of Seller or the Company, and
no Person with which Seller or the Company has had any dealings or
communications of any kind other than Taylor Divestitures is entitled to any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
4.17 PROPRIETARY INFORMATION. Except as set forth on SCHEDULE 4.17,
there are no pending or, to the best of Seller's knowledge, threatened
interference, opposition or infringement actions, or any other proceedings with
respect to the Proprietary Information. SCHEDULE 4.17 lists all of the patents,
registered trademarks, service marks, trade names and registered copyrights and
all applications for any of the foregoing which are owned by the Company or a
Subsidiary of the Company. Subject to being challenged during any unexpired
opposition period provided under applicable law or to being contested as
improperly issued under applicable law, one of the Company or a Subsidiary of
the Company will be on the Closing Date the owner of the such patents and
registered trademarks in the listed jurisdictions, free and clear of any Liens.
To Seller's Knowledge, each of the Company and its Subsidiaries has the right to
use all of the other Proprietary Information it uses. Buyer acknowledges that
Seller does not make any representation or warranty hereunder that third parties
cannot and do not lawfully possess and use in their business trade secrets,
know-how, patents, trademarks, service marks, trade names, copyrights,
applications for any of the foregoing and other similar proprietary or
intellectual property rights or interests which are similar to the Proprietary
Information. Except as set forth on SCHEDULE 4.17, to Seller's Knowledge, there
is no infringement or misappropriation of the Proprietary Information.
Notwithstanding anything to the contrary, Seller does not make any
representation or warranty with respect to the validity of any patents.
4.18 INSURANCE. SCHEDULE 4.18 sets forth all policies of insurance
covering the Company and its Business and such policies are in full force and
effect. No notice of suspension or cancellation of any such policies has been
received by the Company or to Seller's Knowledge, is threatened.
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4.19 PERSONNEL.
(a) EMPLOYEES AND COMPENSATION. SCHEDULE 4.19 contains a true
and complete list of all employees of the Company and the Subsidiaries, their
job titles and current salary.
(b) LABOR RELATIONS. Neither the Company nor any Subsidiary is
a party to or subject to any collective bargaining agreements. Except as set
forth in SCHEDULE 4.19, the Company and the Subsidiaries of the Company have
complied in all material respects with all Laws relating to the employment of
labor, including those related to wages, hours, collective bargaining,
occupational safety, discrimination, and the payment of social security and
other payroll related taxes and it has not received any written notice alleging
that it has failed to comply in any material respect with any such Laws. As of
the date hereof, (i) no labor union or other collective bargaining unit
represents, or to the Seller's Knowledge, claims to represent any of its or any
of its Subsidiary's employees, and (ii) there is no union campaign being
conducted to solicit cards from employees to authorize a union to request a
National Labor Relations Board certifications election with respect to the
Company's or any of its Subsidiary's employees.
4.20 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE WITH LAW. Except as set forth in SCHEDULE 4.20,
the Business is being operated in compliance with all applicable Environmental
Laws, except for such instances of noncompliance which do not, either alone or
in the aggregate, materially adversely affect the financial condition or
operations of the Company or any of its Subsidiaries.
(b) PERMITS AND LICENSES. Except as set forth in SCHEDULE
4.20, each of the Company and its Subsidiaries has obtained all Permits,
licenses and other authorizations which are required with respect to the
properties and operations of any of the Company and its Subsidiaries under
applicable Environmental Laws. Except as set forth in SCHEDULE 4.20, each of the
Company and its Subsidiaries is in compliance with all terms and conditions of
the required Permits, licenses and authorizations, and with any order, decree,
or judgment of any Governmental Authority affecting any of the Company or its
Subsidiaries or its properties, except for such instances of noncompliance which
do not, either alone or in the aggregate, materially adversely affect the
financial condition or operations of the Company or its Subsidiaries.
(c) LEGAL PROCEEDINGS. Except as set forth in SCHEDULE 4.20,
there are no actions, suits, demands, notices, claims, investigations or
proceedings under any Environmental Law pending or, to Seller's Knowledge,
threatened against any of the Company or its Subsidiaries or relating to any
real property previously or currently owned, leased, occupied or used by any of
the them or requests for information from any Governmental Authority making
inquiries relating to any Environmental Law or any notice that any of the
Company or its Subsidiaries is or may be a potentially responsible party under
any Environmental Law.
(d) USE OR STORAGE OF HAZARDOUS SUBSTANCES. Except as set
forth on SCHEDULE 4.20, there are no Hazardous Substances currently utilized at
or stored at any property owned, leased, or operated by any of the Company or
its Subsidiaries except for those for which Permits have been
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obtained and are in effect or are present in a manner or in quantities which do
not require issuance of Permits under the Environmental Laws.
(e) RELEASES OF HAZARDOUS SUBSTANCES. Except as set forth in
SCHEDULE 4.20, there has not been any release of any Hazardous Substances on or
from any real property currently or previously owned, leased, or operated by any
of the Company or its Subsidiaries during the time any such property was owned,
leased, or operated by any of the Company or its Subsidiaries except for such
releases which do not, either alone or in the aggregate, materially adversely
affect the financial condition or operations of the Company or its Subsidiaries.
The term "release" shall have the meaning given to such term in Section 101(22)
of CERCLA.
(f) OFF-SITE DISPOSAL OF HAZARDOUS SUBSTANCES. Except as set
forth in SCHEDULE 4.20, any Hazardous Substances removed from any property
currently or previously owned, leased, or operated by any of the Company or its
Subsidiaries during the time the property was owned, leased, or operated by any
of the Company or its Subsidiaries was removed, transported off-site, treated,
stored or disposed of in compliance with applicable Environmental Laws, except
for such instances of noncompliance which do not, either alone or in the
aggregate, materially adversely affect the financial condition or operations of
the Companies.
(g) LIMITATIONS. Nothing in this Section 4.20 shall be
construed as a representation or warranty regarding activities, practices or
conditions on any real property currently or previously owned or operated by any
of the Company or its Subsidiaries, prior to Seller's ownership of the Company
and the Company's ownership of any of its Subsidiaries.
4.21 CONDUCT OF BUSINESS IN ORDINARY COURSE. Except for items set
forth on SCHEDULE 4.21 and the transactions contemplated hereby, since December
31, 1997, the Company has conducted the Business and its operations in the
ordinary course of business consistent with past practices in all material
respects and:
(a) the Company has not made any sale, assignment, lease, or
other transfer of any of its properties other than obsolete assets no longer
used in the operation of its business or other assets sold or disposed of in the
normal and usual course of business with suitable replacements being obtained
thereof;
(b) the Company has not suffered any material write-down of
the value of any assets or any material write-off as uncollectible of any
accounts receivable and has not taken any action to accelerate the collection of
accounts receivable except for actions that are consistent with past practices
of the Company;
(c) the Company and each of its Subsidiaries have paid each of
their respective creditors in the ordinary course of business unless the
existence or amount of indebtedness is being contested in good faith;
(d) except as reflected on Company Financial Statements, there
has not been any material (meaning, for this purpose, Closing Condition Material
Adverse Effect) adverse change in the financial position, results of operations,
or net worth of the Company and its Subsidiaries; and
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(e) since October 31, 1998 to the date of this Agreement, the
Company has not declared, set aside, or paid any dividend or other distribution
in respect of its capital stock, or, directly or indirectly, redeemed or
otherwise acquired any of its capital stock except for cash dividends that, in
the aggregate do not exceed, and will not exceed when taken together with any
cash dividends paid after October 31, 1998 and prior to the Effective Time,
$4,978,454.
4.22 CUSTOMERS AND SUPPLIERS . Set forth on SCHEDULE 4.22 are (i)
suppliers or other vendors of the Company from whom the Company has purchased
more than $200,000 in products and services between January 1, 1998 and October
31, 1998 and (ii) customers who have purchased more than $200,000 in products
and services from the Company between January 1, 1998 and October 31, 1998.
4.23 PRODUCT WARRANTIES AND RECALL. A true and accurate copy of any
warranty which each of the Company and its Subsidiaries are presently offering,
or has offered during the last 12 months, to customers in connection with the
sale of its products or the rendering of services is included at SCHEDULE 4.23.
Except as disclosed on SCHEDULE 4.23, (i) none of the warranties given by the
Company or any of its Subsidiaries in connection with the sale of goods and
products expires more than 15 months after the date hereof; and (ii) to the
Seller's Knowledge, there is no pending, threatened, or likely to be asserted
warranty claim relating to a product or service sold by the Company or a
Subsidiary of the Company which could have a material adverse affect on the
Company.
4.24 YEAR 2000 COMPATIBILITY. (a) Except as disclosed on SCHEDULE 4.24
and except for such matters as would not have a material adverse effect on the
Company and its operations, to the Knowledge of Seller (i) all date-sensitive
hardware, software, processes, procedures, interfaces and operating systems and
core business functions (jointly referred to as "SYSTEMS") used within the
Company's operations contain acceptable design and performance specifications so
that such Systems will not abruptly end or provide invalid or incorrect results
during the operation of Company's business on or after January 1, 2000, and (ii)
all such Systems have been designed to ensure year 2000 compatibility including,
but not limited to: date data century recognition, calculations that accommodate
same century and multi-century formulas and date values, date data interface
values that reflect the century, and which include year 2000 leap year
calculations.
(b) The Company has confirmed with all of its material
suppliers that except as disclosed on SCHEDULE 4.24, all data-sensitive
hardware, software, processes, procedures, interfaces and operating Systems used
within the supplier's operations relevant to the Company contain acceptable
design and performance specifications so that such Systems will not abruptly end
or provide invalid or incorrect results during the operation of Company's
business on or after January 1, 2000 and that all such Systems have been
designed to ensure year 2000 compatibility including, but not limited to: date
data century recognition, calculations that accommodate same century and
multi-century formulas and date values, date data interface values that reflect
the century, and which include year 2000 leap year calculations.
(c) Except as disclosed in SCHEDULE 4.24 and except for such
matters as would not have a material adverse effect on the Company, the products
sold by the Company prior to the
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Effective Time are year 2000 compatible meaning that they will not fail due to
date data century recognition issues or calculations involving same century and
multi-century formulas or data.
4.25 ACCURACY OF REPRESENTATIONS. No representation or warranty by or
with respect to the Seller contained herein or in any Exhibit, Schedule,
certificate or other document furnished by the Seller pursuant hereto contains
any untrue statement of a material fact or omits to state a material fact
necessary to make such representation or warranty not misleading in light of the
circumstances under which it was made.
Buyer acknowledges and agrees that the transactions contemplated by this
Agreement shall be without representation or warranty by the Seller, express or
implied, except as specifically set forth in this Article IV or in any
certificates or other documents delivered in connection herewith at the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date of this
Agreement as follows:
5.1 INVESTMENT INTENT. The Shares are being purchased for its own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933.
5.2 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
has the requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as presently being conducted.
5.3 AUTHORIZATION, VALIDITY AND EFFECT. Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by it,
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and such other agreements and
documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Buyer. This Agreement has been duly and
validly executed and delivered by Buyer and represents the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms except as limited by (i) applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and (ii) the
availability of equitable remedies (regardless of whether enforceability is
considered in a proceeding at law or in equity).
5.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Neither the
execution and delivery of this Agreement by Buyer, nor the consummation by Buyer
of the transactions contemplated herein, nor compliance by Buyer with any of the
provisions hereof, will conflict with or result in a breach of any provision of
the articles of incorporation or code of regulations of
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Buyer, upon obtaining the Consents listed in SCHEDULE 5.4, constitute or result
in the breach of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation or imposition of any Lien upon, any
property or assets of Buyer or, pursuant to any note, bond, mortgage, indenture,
license, agreement, lease or other instrument or obligation to which it is a
party or by which it or any of its properties or assets may be subject, and that
would, in any such event, have a material adverse effect on Buyer, or (iii)
subject to receipt of the requisite approvals referred to in SCHEDULE 5.4(b),
violate any Order or Law applicable to Buyer or any of its properties or assets.
(b) Other than (i) notices and/or Consents under the HSR Act,
and (ii) as set forth in SCHEDULE 5.4(b), no notice to, filing with,
authorization of, or exemption by, or Consent of any Governmental Authority is
necessary for the consummation by Buyer of the transactions contemplated in this
Agreement.
5.5 LEGAL PROCEEDINGS. As of the date of this Agreement and except as
set forth in Buyer's Report on Form 10-K for the year ended December 31, 1997,
there are no Actions instituted or pending, or to Buyer's Knowledge, overtly
threatened, against Buyer, or against any of its properties, assets, interests
or rights, that would have, either individually or in the aggregate, a material
adverse effect on Buyer if adversely decided. Buyer is not subject to any Order
that would have a material adverse effect on Buyer.
5.6 BUYER'S FINANCING. Buyer has available funds and commitments from
responsible financial institutions to provide funds that, taken together, are
sufficient for Buyer to consummate the transactions contemplated by this
Agreement and to pay all related fees and expenses. Buyer has provided Seller a
copy of such commitments.
5.7 NO OTHER REPRESENTATIONS. The only representations and warranties
of the Seller relied upon, or to be relied upon, by Buyer in evaluating the
Company and making the decision to purchase the Shares are those set forth in
this Agreement, an Exhibit, a Schedule, or any other document delivered at the
Closing.
5.8 BROKERS. No broker, finder or similar agent has been employed by or
on behalf of Buyer, and no Person with which Buyer has had any dealings or
communications of any kind entitled to any brokerage commission, finder's fee or
any similar compensation in connection with this Agreement or the transactions
contemplated hereby except for the compensation of Taylor Divestitures which
Seller has agreed to pay.
ARTICLE VI
COVENANTS AND AGREEMENTS
------------------------
6.1 EMPLOYEE MATTERS. (a) Buyer represents that it has no present
intention to cause the Company to terminate any employee of the Company who is
an active employee (for this purpose, persons who are on long-term or short-term
disability or leave of absence at the Effective
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Time are not considered "active employees") of the Company at the Effective Time
(the "Continued Employees").
(b) Buyer represents that it presently intends to cause the
Company after the Effective Time to continue to provide compensation and
benefits to the Continued Employees that are substantially equivalent in value
to those that they received immediately prior to the Effective Time.
(c) Except as otherwise specifically provided herein, the
Company shall not participate in, and employees of the Company shall no longer
accrue benefits under, any employee benefits plan, arrangement, or program
sponsored or maintained by Seller or its Affiliates (the "Seller Plans") after
the Effective Time. Buyer shall make information about Continued Employees
available to and otherwise cooperate with reasonable requests by the Seller or
its agents (including counsel for the Seller) with respect to (i) qualification
of the Derlan Industries, Inc. 401(k) Retirement Plan ("Seller 401(k) Plan"), or
(ii) completing an Application for Determination of Qualified Status for the
Derlan Industries, Inc. Retirement Savings Plan ("Seller Savings Plan").
(d) With respect to the "Seller Savings Plan" and the "Seller
401(k) Plan," Seller shall use reasonable commercial efforts in a timely manner
to (1) amend such plans to provide for the full vesting of all contributions of
the Continued Employees, if not fully vested at the Effective Time, under such
plans, (2) permit the Continued Employees to elect a distribution of their
accounts under such plans pursuant to Section 401(k)(10)(A)(iii) of the Code
(relating to the sale of a subsidiary) and (3) amend participant loans under
such plans as necessary to avoid the acceleration of income to the Continued
Employees and, further, Seller shall continue to accept payments thereon after
the Effective Time.
(e) With respect to the Monarch Machine Tool Company
Retirement Savings Plan (the "Buyer Savings Plan"), Buyer shall (1) use its best
effort to enroll the Continued Employees in such plan immediately after the
Effective Time, subject to such plan's six month service requirement (for which
Buyer will recognize past service with Seller, Company and its controlled group
members), (2) provide the Continued Employees with the same matching
contribution as provided under the Buyer Savings Plan for all participants
effective January 1, 1999 (100% of employee contributions up to a maximum of 4%
of their compensation), (3) allow the Buyer Savings Plan to accept direct
rollovers and rollover contributions from the Seller Savings Plan and the Seller
401(k) Plan consisting of cash and the promissory notes of participant loans
thereunder upon the receipt from Seller of a statement that the plans have
received a determination letter from the IRS indicating that the plans are
qualified and that Seller is not aware of any circumstances that would result in
the disqualification of either plan, and (4) recognize the past service with
Seller, Company and its controlled group members for any vesting and benefit
determinations under the Buyer's Savings Plan.
(f) With respect to the group health plan benefits provided
under the Derlan Industries, Inc. Group Insurance Plan (the "Seller Group Health
Plan"), Seller shall (1) offer each Continued Employee with the opportunity to
elect COBRA continuation coverage under Section 4980B of the Code under the
dental benefits portion of such plan on and after the Effective Time and,
consistent therewith, provide each Continued Employee with the required written
COBRA notice within 14 days after the Effective Time, (2) offer Richard
Groseclose COBRA continuation
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coverage under such Plan effective immediately after the Effective Time at no
out of pocket cost to him and continuing for the period required by COBRA (and
Buyer hereby agrees to reimburse Seller promptly for the cost of the premiums
for COBRA coverage under such Plan) and (3) retain the responsibility and
liability to provide COBRA continuation coverage to any participant or
beneficiary under the Seller Group Health Plan who currently is purchasing COBRA
continuation coverage or is eligible to purchase such coverage as of the
Effective Time.
(g) With respect to the Monarch Machine Tool [Group Health
Plan] (the "Buyer Group Health Plan"), Buyer shall (1) offer the Continued
Employees the opportunity to enroll in such Plan effective immediately after the
Effective Time, without any service requirement therefor and (2) provide the
Continued Employees who enroll in such plan with the level of coverage and
benefits as provided under the Buyer Group Health Plan for all participants
effective January 1, 1999, provided that any Continued Employee (or other
employee) who elects not to enroll in the Buyer Group Health Plan when initially
offered and who later elects to enroll in such Plan shall be subject to any
preexisting condition requirement under the Buyer Group Health Plan consistent
with the terms of such plan and applicable Laws.
6.2 CONDUCT OF THE COMPANY AND SELLER. During the period from the date
of this Agreement and continuing until the Effective Time, Seller shall, except
as otherwise contemplated by this Agreement:
(a) (i) cause each of the Company and its Subsidiaries to
conduct its business in the ordinary course thereof consistent with past
practice; provided, however, that the Company and Subsidiaries shall be
permitted to pay a cash dividend or dividends to Seller (or the Company, as the
case may be) in an amount equal to the income taxes on each of their income for
the period from October 31, 1998 through the Effective Time calculated in a
manner consistent with past practices, and (ii) not permit the Company to
declare, set aside, pay or make any dividend or other distribution or payment
(whether in cash, stock or property) with respect to, or purchase or redeem, any
shares of its capital stock except as provided in clause (i) with respect to
income taxes and except for cash dividends to Seller provided the total amount
of cash dividends paid to Seller since October 31, 1998 (after giving effect to
any cash dividend about to be paid) does not exceed $4,978,454 plus any cash
dividend permitted under clause (i) of this Section 6.2(a).
(b) not permit any of the Company or its Subsidiaries to make
any change or amendment to or repeal their respective charter or bylaws or
comparable governing instruments.
(c) not permit any of the Company or any of its Subsidiaries
to issue or sell shares of capital stock or any other securities of any of them
or issue any securities convertible into or exchangeable for, or rights to
purchase relating to, or enter into any contract, commitment or arrangement with
respect to the issuance of, any shares of capital stock or any other securities
of any of them, or adjust, split, combine or reclassify any of their capital
stock or other securities, or amend, permit acceleration of, or otherwise make
any other changes in their capital structures.
(d) not permit any of the Company or its Subsidiaries to (i)
adopt or amend any bonus, profit sharing, compensation, severance, stock option,
pension, retirement or other employee benefit agreement, trust, plan or
arrangement for the benefit or welfare of any present or former director,
officer or employee of any of them or (ii) increase the compensation or fringe
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benefits of any present or former director, officer or employee (except that, in
the case of employees who are not officers, individual merit increases and
promotional increases, not to exceed 4% of salary, in accordance with past
practices may be granted, but no across-the-board or generally applicable
increases may be granted), or pay any bonus, compensation or benefit not
required by any existing Plan, or hire any employee at an annual rate of
compensation (including anticipated incentive compensation, if any) in excess of
$50,000, or enter into any contract, agreement, commitment or arrangement to do
any of the foregoing.
(e) not permit any of the Company or its Subsidiaries to,
other than in the ordinary course of business, lease, sell or dispose of, or
contract to lease, sell or dispose of, in any single transaction or series of
related transactions, any asset or group of assets having a value, or selling
price, or aggregate rental, in excess of $50,000.
(f) not permit any of the Company or its Subsidiaries to,
other than in the ordinary course of business, lease, purchase or otherwise
acquire, in any single transaction or series of related transactions, any asset
or group of assets having a value or purchase price, or lease payments, in
excess of $50,000.
6.3 REASONABLE ACCESS; CONFIDENTIALITY. (a) From the date hereof until
the Closing, Seller shall cause the Company and its Subsidiaries to give Buyer
and its representatives, upon reasonable notice to the Company full and complete
access to the assets, properties, books, records, agreements and employees and
advisors of the Company and its Subsidiaries and shall cause the Company and its
Subsidiaries to permit Buyer to make such inspections as it may reasonably
require and to furnish Buyer during such period with all such information
relating to the Company and its Subsidiaries as Buyer may from time to time
reasonably request.
(b) Any information provided to or obtained by Buyer pursuant
to paragraph (a) above shall be "Information" as defined under the
Confidentiality Agreement, dated September 22, 1998, between the Company and
Buyer (the "CONFIDENTIALITY AGREEMENT"), and shall be held by Buyer in
accordance with and be subject to the terms of the Confidentiality Agreement.
(c) Buyer agrees to be bound by and comply with the provisions
set forth in the Confidentiality Agreement as if such provisions were set forth
herein, and such provisions are hereby incorporated herein by reference.
6.4 HSR FILING; OTHER ACTION. Subject to the terms and conditions
herein provided, the parties shall (a) no later than 2 Business Days after the
date hereof make their respective filings and thereafter make any other required
submissions under the HSR Act and thereafter diligently prosecute such filing;
(b) use their reasonable best efforts to cooperate with each other in (i)
determining which filings are required to be made prior to the Closing Date
with, and which Consents are required to be obtained prior to the Closing Date
from, Governmental Authorities and other Persons in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (ii) timely making all such filings and
timely seeking all such Consents; and (c) take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, using reasonable best efforts to: (x)
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resist any litigation or administrative proceeding challenging the transactions
contemplated hereby, (y) lift or rescind any injunction, restraining order or
other Order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, or (2) obtain all necessary waivers or
Consents. If, at any time after the Closing Date, any further action is
necessary or desirable to carry out the purposes of this Agreement, the officers
and directors of the parties shall take all such necessary action which is
commercially reasonable.
6.5 PUBLICITY. Seller and Buyer shall make a joint press release
announcing the execution of this Agreement and the transactions contemplated
hereby that shall be acceptable to each of Seller and Buyer. No other publicity
release or announcement concerning the transactions contemplated hereby shall be
issued by either party without the advance written consent of such other party,
except any such release or announcement as may be required by applicable Law.
6.6 TAXES; TAX RETURNS; AND TAX INDEMNITIES.
(a) DEFINITIONS. For purposes of this Section 6.6, the
following terms shall have the following meanings:
(i) "CONSOLIDATED RETURN" means any consolidated federal
income tax return or any other consolidated, combined or unitary state
or local tax return that has been or will be filed for any Pre-Closing
Tax Period by Seller or an Affiliate of Seller on behalf of an
affiliated group of corporations of which one or more of the Company or
any of its Subsidiaries was or is includible as members.
(ii) "PRE-CLOSING TAX PERIOD" means all taxable periods ending
before the Effective Time and that portion to and including the
Effective Time of any taxable period that includes (but does not end
at) the Effective Time.
(iii) "TAX" or "TAXES" means all taxes, charges, fees, levies
or other assessments imposed by any federal, state, local, or foreign
taxing authority, including without limitation, income, excise,
property, sales, use, transfer, payroll, license, employment,
production, gross receipts, windfall profits, severance, tariffs,
withholding and franchise taxes (including any interest, penalties or
additions attributable to or imposed on or with respect to any such
assessment); and any amounts that could be charged against the Company
or any of its Subsidiaries under a tax sharing agreement relating to a
Pre-Closing Tax Period provided that Taxes shall not include any
amounts for which an asset or accrual is reflected on the Closing Date
Net Worth Statement.
(iv) "TAX RETURN" means any return, report, information
return, or other document (including any related or supporting
information) filed or required to be filed with any federal, state,
local, or foreign governmental entity or other authority in connection
with the determination, assessment or collection of any Taxes or the
administration of any laws, regulations or administrative requirements
relating to any Taxes, including, without limitation, consolidated
federal income tax returns of the Seller and its Affiliates,
declarations of estimated tax and tax reports required to be filed with
respect to any of the Company and its Subsidiaries or any of their
income, properties or operations.
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(b) SECTION 338(h)(10) ELECTION. Seller and Buyer shall, at
the time and in the manner requested by Buyer if Buyer requests in a timely
manner, join in making a Section 338(h)(10) election under the Code (or any
comparable election available in any state or local tax jurisdiction) with
respect to the purchase and sale of the Shares and, in connection therewith (i)
shall cause a Department of the Treasury Form 8023 that has been appropriately
completed to be timely filed on behalf of the affiliated group of corporations,
for federal income tax purposes, of which any of the Company or any of its
Subsidiaries is a member at the Effective Time and (ii) take such other action
as Buyer shall reasonably request including, without limitation, providing Buyer
with any requested information, and making available and causing appropriate
persons to take any action on behalf of the Seller required for the making of a
Section 338(h)(10) election (or any comparable election in any state or local
tax jurisdiction) in accordance with Treasury Regulation Section 1.338(h)(10)-1
and Department of the Treasury Form 8023 (or comparable regulations of the
applicable jurisdiction), provided Buyer makes any and all such requests in a
timely manner and agrees to reimburse Seller any additional Taxes incurred by
Seller or Affiliates of Seller on account of any such Section 338(h)(10)
election under the Code (or any comparable election available in any state or
local tax jurisdiction). Seller agrees that if Buyer notifies Seller in writing
that Buyer is considering making a Section 338(h)(10) election, Seller will,
within 30 days after receiving such notice from Buyer, advise Buyer of the
additional Taxes that Seller would incur as a result of Buyer making a Section
338(h)(10) election and the amount specified by Seller shall be the amount which
Buyer is required to reimburse Seller pursuant to the preceding sentence and
further provided that if such amount is paid to Seller, then Seller will join in
the Section 338(h)(10) election..
(c) INDEMNIFICATION OF BUYER GROUP. Subject to the provisions
of Section 6.6(e), Seller shall be liable for, and shall hold the Buyer, the
Company, and Affiliates of the Buyer (the "BUYER GROUP") harmless from and
against, any and all Taxes due or payable by the Company or any of its
Subsidiaries for any Pre-Closing Tax Period, including, without limitation, any
liability pursuant to Treasury Regulations Section 1.1502-6, or any comparable
state or local provisions. Subject to performance by Buyer of its obligations
under Section 6.6(b), Taxes that Seller shall be liable for and shall hold
Buyer, the Company, and its Subsidiaries (the "Buyer Group") harmless from and
against shall include any income and franchise taxes imposed by any state or
political subdivision thereof that result from or arise out of the filing, in
accordance with Treasury Regulation Section 1.338(h)(10)-1, of a Section
338(h)(10) election (or any election of the applicable jurisdiction which treats
the purchase and sale of the Shares as a deemed purchase and sale of assets)
with respect to the purchase and sale of the Shares. Any liability of Seller for
Taxes under this Section 6.6(c) to the Buyer Group in respect of any tax period
for which a member of the Buyer Group will file a Tax Return pursuant to Section
6.6(f) shall be paid by Seller to Buyer or the Company, as applicable, within
ten (10) business days after Buyer provides the Seller with a copy of the Tax
Return to be filed.
(d) INDEMNIFICATION OF SELLER. Subject to the provisions of
Section 6.6(e), Buyer shall be liable for, and shall hold the Seller and its
Affiliates (the "SELLER GROUP") harmless from and against, any and all Taxes due
or payable by the Company, any of the Company's Subsidiaries, or Seller with
respect to the Company or any of its Subsidiaries for any taxable year or tax
period beginning after the Effective Time.
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(e) ALLOCABLE TAXES. Taxes, other than Taxes payable in
respect of a Consolidated Return, for a tax period beginning before the
Effective Time and ending after the Effective Time shall be apportioned between
Seller and the Company based upon the parties best estimate of the income and
expenses allocable to each parties period of ownership.
(f) FILING OF RETURNS. Buyer shall cause each of the Company
and each of its Subsidiaries to provide Seller a reasonable opportunity to
review prior to filing and thereafter to file any Tax Return (other than any
Consolidated Return) with respect to the business, activities or assets of any
of the Company or its Subsidiaries for any tax period beginning before the
Effective Time and ending after the Effective Time and Buyer shall pay or cause
the Company or its Subsidiary, as applicable, to pay (subject to Seller'
obligations to Buyer in respect of such Taxes therefor as provided in Section
6.6(e) all Taxes shown as due on any such Tax Return.
(g) REFUNDS. Any refunds or credits of Taxes attributable to a
Pre-Closing Tax Period for which Seller is liable for Taxes under Section 6.6(c)
shall be the property of Seller and if paid to Buyer or the Company, shall be
promptly remitted to Seller PROVIDED, that if Seller receives a refund or credit
of Taxes for any such periods and such Taxes are attributable solely to the
carry-back of losses, credits or similar items from a taxable year or period
that begins after the Effective Time and attributable to the Company or a
Subsidiary of the Company, after receipt Seller shall promptly pay to Buyer the
amount of such refund or credit, together with any interest thereon received
from the relevant taxing authority, and if any such refund or credit of Taxes is
subsequently reduced or disallowed, Buyer shall hold Seller Group harmless from
any Taxes assessed against Seller by reason of the reduction or disallowance.
(h) MAINTENANCE OF RECORDS AND ASSISTANCE. Seller and Buyer
shall each maintain (or, in the case of Buyer, cause the Company and its
Subsidiaries to maintain) the books and records that relate to any Tax Return of
the Company or a Subsidiary of the Company or any Consolidated Return for a
period of not less than seven years following the filing date of such Tax Return
or Consolidated Return, shall thereafter give the other party at least 30 days
notice of its intention to destroy any such records and shall, at the other
party's request and expense, to the extent such records relate to the Company or
a Subsidiary of the Company, turn over any such records to the other party
instead of destroying them. As soon as practicable after a request by Seller or
Buyer ("REQUESTING PARTY"), Buyer or Seller, as the case may be (the "DELIVERING
PARTY"), shall deliver to the Requesting Party such information and data and
make available such knowledgeable persons employed at the time of the request by
the Delivering Party as the Requesting Party may reasonably request, in order to
enable the Requesting Party to complete and file all Tax Returns which it is
required to file with respect to the activities or assets of the Company or a
Subsidiary of the Company or to respond to audits by any taxing authorities with
respect to such activities or assets. The Delivering Party's obligation under
this paragraph to permit the Requesting Party access to and to review the
foregoing materials is conditioned upon the Requesting Party's execution of a
reasonable confidentiality agreement with respect thereto.
(i) NOTICE. If Buyer or the Company becomes aware of any
assessment, official inquiry, examination or proceeding that could result in an
official determination with respect to any Tax for which Seller could be liable
pursuant to this Agreement, Buyer shall promptly so notify Seller in writing and
cooperate with Seller in responding to such inquiry, examination or
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<PAGE> 35
proceeding. If Seller becomes aware of any official inquiry, examination or
proceeding that could result in an official determination with respect to any
Tax for which Buyer or the Company could be liable pursuant to this Agreement,
Seller shall promptly so notify Buyer in writing and cooperate with Seller in
responding to such inquiry, examination or proceeding..
(j) Seller and Buyer agree that the Company will remain a
member of the consolidated federal income tax return of Seller and its
Affiliates for the period through the Effective Time and that the Company will
not make an election pursuant to Treasury Income Tax Regulation Section
1.1502-76(b)(5).
(k) TAX RETURN FILINGS. Seller represents that the Company and
its Subsidiaries have duly filed or caused to be filed, or shall duly file or
cause to be filed, in a timely manner (taking into account all extensions of due
dates) with the appropriate federal, state, county, local and foreign
governmental agencies all Tax Returns, which are required to be filed on or
before the Closing Date by or on behalf of the Company or its Subsidiaries and
such returns are (or will be, in the case of those filed or caused to be filed
between the date hereof and the Effective Time) complete and correct in all
material respects, and all Taxes shown to be due on such Tax Returns have been
or will have been paid in full on or before the Effective Time.
(l) INTERNATIONAL BOYCOTT. Seller represents that neither the
Company nor any of its Subsidiaries has participated in (and will not
participate in) an international boycott within the meaning of Section 999 of
the Code.
(m) U.S. REAL PROPERTY HOLDING CORPORATION. Seller represents
that neither the Company or its Subsidiaries is, and none has been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(n) PERMANENT ESTABLISHMENT. Seller represents that neither
the Company nor any of its Subsidiaries have, or has had, a permanent
establishment in any foreign country other than their respective country of
formation.
(o) TAX BASIS. SCHEDULE 6.6 sets forth the tax basis and book
basis of the assets of the Company at October 31, 1998.
6.7 RECORDS AND LITIGATION ASSISTANCE. Buyer agrees that after the
Effective Time, it will permit Seller and its representatives, for any
legitimate purpose including defense of litigation for which Seller is
responsible, tax returns, and accounting reports, during normal business hours
to have access to and examine and make copies of all of the Records. Seller
agrees that it will use its reasonable commercial efforts to prevent the
disclosure to any person or use by any person of any confidential information
which is delivered to Seller pursuant to this Section 6.7 other than pursuant to
a court order or subpoena or with respect to tax returns and other reports
required by law. With respect to the financial books and records and minute
books of the Company relating to matters on or prior to the Effective Time, for
a period of ten years after the Effective Time, Buyer shall not cause or permit
their destruction or disposal without first offering to surrender them to
Seller. In addition, Seller agrees to make certain employees of the Company and
its Subsidiaries
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<PAGE> 36
available to Seller as reasonably required after the Effective Time in
connection with any litigation against the Company or a Subsidiary which Seller
is required to defend. Seller agrees to reimburse the Company for reasonable
out-of-pocket expenses incurred by the Company to third-parties in connection
with requests of Seller pursuant to the preceding sentence.
6.8 EXCLUSIVE DEALING. The Seller shall not, and shall cause the
Company not to, from the date hereof until the earlier of (a) the termination of
this Agreement in accordance with Article VIII hereof and (b) the Closing,
directly or indirectly (i) initiate, discuss or negotiate any sale of the
Company or entertain any inquiries concerning the foregoing, or (ii) provide any
information relating to the Company or any aspects of its business to any person
or entity, with the exception of information necessary to comply with the
requirements of any Governmental Authority.
6.9 CONFIDENTIALITY AFTER CLOSING. After the Effective Time, Seller
shall keep confidential, except as to directors and officers of Buyer and its
Affiliates, and shall not use any information concerning the Company and the
Business which was considered confidential by Seller or any of the Company or
its Subsidiaries prior to the Closing Date.
6.10 UPDATING SCHEDULES. From time to time prior to the Closing (and
subject to the rights of Buyer under Section 8.1(d)), Seller by written notice
to Buyer may supplement or amend the Schedules to this Agreement with respect to
any matter which may arise hereafter and (i) which, if existing or occurring at
or prior to the date hereof, would have been required to be set forth or
described in the Schedules to this Agreement, or (ii) which is necessary to
correct any information in the Schedules to this Agreement or in any
representation and warranty of Seller which has been rendered materially
inaccurate thereby. The written notice pursuant to this Section 6.10 will be
deemed to have amended the appropriate Schedules, to have qualified the
representations and warranties contained in Article IV, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of such matter.
6.11 MAINTENANCE OF INSURANCE. Seller will cause the Company to
maintain until the Effective Time all material policies of insurance in effect
on the date hereof relating to the Business.
6.12 PAYMENT OF CERTAIN AWARDS AND OBLIGATIONS. On or prior to the
Closing the Seller will assume (and the Company's books will be made to reflect
such assumption) all of Seller's liabilities to the Company's President under
his phantom bonus agreement with the Company dated as of December 31, 1991.
6.13 RELEASE OF COMPANY FROM LONG TERM OBLIGATIONS; GUARANTEES. At or
prior to the Closing, Seller shall deliver or shall cause to be delivered to
Buyer instruments effective as of the Effective Time, releasing the Company and
its Subsidiaries from all Liens, Liabilities or other obligations arising under
(a) the Indenture dated as of January 31, 1997 among Derlan Manufacturing Inc.,
the Company, the other Guarantors listed therein and The Bank of Nova Scotia
Trust Company of New York (the "INDENTURE"), (b) the Credit Agreement dated as
of January 31, 1997 between Derlan Manufacturing Inc., the lenders named therein
and BT Bank of Canada (the "CREDIT AGREEMENT"), (c) any Contract entered into
pursuant to the Indenture or the Credit Agreement, and (d) any Contract between
the Company or any of its Subsidiaries and Derlan
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Industries Limited or any of its Subsidiaries (other than the Company and its
Subsidiaries). From and after the Effective Time, Buyer shall use commercially
reasonable efforts to replace, at Buyer's expense, those guarantees listed on
SCHEDULE 6.13 which have been issued by Seller or its Affiliates for the benefit
of the Company and its Subsidiaries. Until such guarantees are replaced Seller
shall, at its expense, cause them to remain in effect. Except as provided in the
preceding sentence, from and after the Effective Time Buyer shall, promptly upon
demand of Seller, reimburse Seller for any amounts paid by Seller or its
Affiliates under or in respect of such guarantees.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of Seller and Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction or waiver (if permitted by
applicable Law) at or prior to the Closing of each of the following conditions:
(a) The waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
(b) None of the parties hereto shall be subject to any Order
of a court of competent jurisdiction that prohibits the consummation of the
transactions contemplated by this Agreement. In the event any such Order shall
have been issued, each party agrees to use its reasonable best efforts to have
any such Order overturned or lifted.
7.2 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of the
Seller to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver at or prior to the Closing of each of the
following additional conditions:
(a) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all respects as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier date), except for such
breaches that would not, individually or in the aggregate with other breaches on
the part of Buyer materially adversely affect the ability of Buyer to consummate
the transactions contemplated hereby.
(b) Each of the agreements and covenants of Buyer to be
performed and complied with by Buyer pursuant to this Agreement prior to the
Closing Date shall have been duly performed and complied with in all material
respects.
(c) Buyer shall have delivered to the Seller a certificate,
dated as of the Closing Date and signed on its behalf by its chief executive
officer and its chief financial officer, as to the satisfaction by it of the
conditions set forth in Sections 7.2(a) and 7.2(b).
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7.3 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction or waiver at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all respects as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier date), except for such
breaches that would not, individually or in the aggregate with any other
breaches on the part of the Seller, reasonably be expected to have a Closing
Condition Material Adverse Effect on the Business.
(b) Each of the agreements and covenants of the Seller to be
performed and complied with by the Seller pursuant to this Agreement prior to or
as of the Closing Date shall have been duly performed and complied with in all
material respects.
(c) The Seller shall have delivered to Buyer a certificate,
dated as of the Closing Date and signed on its behalf by two authorized officers
of Seller as to the satisfaction by it of the conditions set forth in
subsections 7.3(a) and 7.3(b).
(d) Between the date of this Agreement and the Closing Date,
no change or event shall have occurred which has had a Closing Condition
Material Adverse Effect on the Company.
(e) Seller shall have obtained, at its cost, all releases
required under Section 6.13.
ARTICLE VIII
TERMINATION OF AGREEMENT
------------------------
8.1 TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller, upon written notice to the other
party, if the transactions contemplated by this Agreement shall not have been
consummated on or prior to the Outside Date, unless such failure of consummation
shall be due to the failure of the party seeking such termination to perform or
observe in all material respects the covenants and agreements hereof to be
performed or observed by such party;
(c) by Buyer or Seller, upon written notice to the other
party, if a Governmental Authority of competent jurisdiction shall have issued
an Order or any other action permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement, and such Order
shall have become final and non-appealable; PROVIDED, HOWEVER, that the party
seeking to terminate this Agreement pursuant to this clause (c) has used its
reasonable best efforts to remove such Order;
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(d) by Buyer, if there has been a Closing Condition Material
Adverse Effect which is not capable of being cured on or before the Outside
Date; or
(e) by Seller, if there has been a material violation or
breach by Buyer of any of the agreements, representations or warranties of Buyer
contained in this Agreement which is not capable of being cured on or before the
Outside Date.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 8.1, no party shall have any liability or any
further obligation to any other party, except as provided in this Section 8.2
and except that nothing herein shall release, or be construed as releasing, any
party hereto from any liability or damage to any other party hereto arising out
of the breaching party's willful and material breach in the performance of any
of its covenants, agreements, duties or obligations arising under this
Agreement. The obligations of the parties to this Agreement under Sections
6.3(b) and 10.1 shall survive any termination of this Agreement.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
----------------------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS . The
several representations and warranties of the parties contained in this
Agreement (or in any document delivered in connection herewith) will survive the
Closing Date; provided, however, such representations and warranties will expire
18 months after the Closing Date except (i) with respect to claims asserted by
Buyer or Seller with respect to such representations and warranties prior to
such expiration in which case they will survive until the resolution of such
claims in accordance with this Article IX; (ii) that the representations and
warranties of Seller contained in Sections 4.1, 4.2,. and 4.3 and the
representations and warranties of Buyer contained in Sections 5.1, 5.2, and 5.3
will not expire; (iii) that the representations and warranties of Seller
contained in Section 4.20 will expire 60 months after the Closing Date; and (iv)
that the representations and warranties of Seller contained in Section 4.7 will
remain operative and in full force and effect until the expiration of any
applicable statute of limitations (giving effect to any tolling, waiver or
extension thereof). The several covenants of the parties contained in this
Agreement (or in any document delivered in connection herewith) that require
performance after the Closing will remain operative and in full force and effect
without any time limitation, except as any such covenant will be limited in
duration by the express terms hereof.
9.2 INDEMNIFICATION BY BUYER . Subject to the terms and conditions of
this Article IX, from and after the Effective Time, Buyer will indemnify, defend
and hold Seller, its Affiliates, and their respective directors, officers,
representatives, employees and agents harmless from and against any and all
claims, actions, suits, demands, assessments, judgments, losses, liabilities,
damages, costs, royalties, payments, license fees and expenses (including
interest, penalties, reasonable attorneys' fees, accounting fees and
investigation costs) (collectively, "LIABILITIES") resulting from or arising out
of (i) any breach of any representation or warranty of Buyer contained herein or
in any other closing document delivered by Buyer in connection herewith, or (ii)
any breach of any covenant of Buyer contained herein or in any other closing
document delivered by Buyer in
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connection herewith, which covenant requires performance by Buyer after the
Closing, or (iii) the operation by Buyer of the Business after the Closing,
except to the extent Seller is required to indemnify Buyer with respect thereto.
9.3 INDEMNIFICATION BY SELLER. Subject to the terms and conditions of
this Article IX, from and after the Effective Time, Seller will indemnify,
defend and hold Buyer, its Affiliates (including the Company and any Subsidiary
of the Company), and their respective directors, officers, representatives,
employees and agents harmless from and against any and all Liabilities to the
extent not reflected in the Closing Date Net Worth Statement and resulting from
or arising out of (i) any breach of any representation or warranty of Seller
contained herein or in any closing document delivered by Seller in connection
herewith, (ii) any breach of any covenant of Seller or any Affiliate of Seller
contained herein or in any closing document delivered by Seller in connection
herewith, except for those covenants that terminate at or prior to the Effective
Time, (iii) any real property, line of business, or Subsidiary owned by Seller,
the Company, or an Affiliate of Seller which was disposed of prior to January 1,
1998 or any real property leased by Seller, the Company, or any Affiliate of
Seller as to which the lease terminated prior to January 1, 1998 or any
Hazardous Materials disposed of by the Company prior to January 1, 1998, (iv)
any director, officer, or employee benefit plan or arrangement of Seller or an
Affiliate of Seller (other than a Plan listed on SCHEDULE 4.13) provided the
Liabilities arose prior to January 1, 1998, (v) any obligation of the Company to
indemnify a director or officer of the Company or a Subsidiary of the Company
for acts in his or her capacity as a director or officer of the Company which
acts were committed prior to the Effective Time, (vi) any legal matter disclosed
or required to be disclosed in SCHEDULE 4.15 that was not disclosed in such
SCHEDULE 4.15, (vii) any actual bodily injury or physical damage to properties
(other than products manufactured or serviced by the Company) which actually
happened prior to the Effective Time and is attributable to a product
manufactured or service performed or the omission of a service that should have
been performed by the Company, (viii) Liens, other than Permitted Liens, against
tangible personal property included in the Closing Date Net Worth Statement,
(ix) any third party costs incurred by the Company or Buyer in obtaining the
permits, if they would have been required for the operation of the Business
prior to the Effective Time, listed at (b)1 and (b)2 of SCHEDULE 4.20, if
required for the operation of the Business, and any fines, penalties or other
charges incurred by the Company as a result of its operation of the Business
prior to the Effective Time without such permits, or (x) any action taken in
connection with the Seller 401(k) Plan for the purposes of obtaining a letter
from the IRS indicating that such plan is a qualified plan or correcting any
deficiencies in the administration, operation, or compliance status of the
Seller 401(k) Plan prior to the Effective Time.
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9.4 LIMITATIONS.
(a) Notwithstanding anything to the contrary in this Agreement, (i) no
person or entity shall be entitled to receive any indemnification payment in
respect of matters, incidents, or events which are indemnifiable under Sections
9.3(i), 9.3(iii), or 9.3(iv) until the aggregate of all Liabilities arising from
matters, incidents, or events which are indemnifiable under Sections 9.3(i),
9.3(iii), or 9.3(iv) shall exceed $250,000 (the "Threshold"), and, when such
Threshold is reached, indemnification shall be payable only for Liabilities in
excess of the Threshhold and (ii) Seller and its Affiliates shall not be
required in any event, or under any set of circumstances, to indemnify Buyer or
its Affiliates for any Liabilities in excess of $16,000,000, in the aggregate,
arising under this Agreement or associated with the transactions contemplated in
this Agreement.
(b) Buyer will not be entitled to indemnification from Seller for any
Liabilities unless and until Buyer and the Company have reasonably pursued to
final conclusion all claims for insurance available to them and their Affiliates
with respect to such Liabilities and to the extent of insurance proceeds
actually received by Buyer or the Company or their Affiliates with respect to
such Liabilities.
9.5 PROCEDURE. In the event that any third party claim or demand shall
be asserted against any indemnified party in respect of any Liabilities, the
indemnified party shall promptly, and in any event within 30 days after the
receipt of notice of such claim or demand which may give rise to a claim under
this Article IX, if a claim in respect thereof is to be made against the
indemnifying party hereunder, cause written notice thereof to be given to the
indemnifying party; provided, however, that failure to so notify the
indemnifying party shall not relieve the indemnifying party from any obligations
it may have to the indemnified party or its Affiliates hereunder, except to the
extent that it is prejudiced by such failure. In the event any claim or demand
for indemnification is made under this Article IX, the indemnifying party shall
be entitled to meaningfully participate therein and, upon delivery by the
indemnifying party to the indemnified party of written notice, the indemnifying
party may assume and control the defense thereof with counsel of its choice, and
thereafter the indemnifying party shall not be liable to such indemnified party
hereunder for any fees of other counsel subsequently accrued by the indemnified
party in connection with the defense thereof. In the event that any claim or
demand is made under this Article IX, the indemnifying party and the indemnified
party shall cooperate fully with each other in connection with the defense,
negotiation or settlement of any such claim or demand. If the indemnifying party
assumes the defense of an action, (a) the indemnified party shall be entitled to
participate therein at its sole cost and expense; and (b) no settlement or
compromise thereof may be effected by the indemnified party without the consent
of the indemnifying party. If the indemnifying party does not assume the defense
of an action, no compromise or settlement thereof may be effected at the expense
of the indemnifying party without the consent of the indemnifying party, which
consent shall not be unreasonably withheld or delayed.
9.6 EXCLUSIVE REMEDIES. From and after the Closing, Buyer's and
Seller's right to indemnification under this Article IX with respect to any
Liabilities shall be their sole and exclusive remedy for damages under or with
respect to this Agreement or the transactions contemplated hereby (other than
breaches related to Taxes for which indemnification is provided pursuant to
Section 6.6, breaches related to termination of this Agreement under Article
VIII, orthe
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Noncompetition Agreement), and they shall not be entitled to pursue, and hereby
expressly waive, any and all rights that may otherwise be available either at
law or in equity with respect thereto.
ARTICLE X
MISCELLANEOUS AND GENERAL
-------------------------
10.1 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, all costs and expenses (including all legal,
accounting, broker, finder or investment banker fees) incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses except as expressly provided herein (it being
understood that all third party costs and expenses incurred by the Company and
Seller in connection herewith shall be borne by Seller).
10.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
10.3 NO THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
10.4 NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be sufficient if in writing, and sent by
facsimile transmission (electronically confirmed), delivered in person, mailed
by first class registered or certified mail, postage prepaid, or sent by Federal
Express or other overnight courier of national reputation, addressed as follows:
If to Monarch:
The Monarch Machine Tool Company
2600 Kettering Tower
Dayton, OH 45423
Attention: Richard E. Clemens, President
Fax: (937) 910-9305
with a copy to:
Thompson Hine & Flory LLP
2000 Courthouse Plaza N.E.
Dayton, OH 45402
Attention: Joseph M. Rigot, Esq.
Fax: (937) 443-6635
37
<PAGE> 43
If to Seller:
c/o Derlan Industries, Inc.
145 King Street East, Suite 500
Toronto, Ontario
Canada M5C 247
Attention: Stephen B. Taylor
Fax: (416) 362-5334
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: John P. Dunn
Fax: (216) 579-0212
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
10.5 COMPLETE AGREEMENT. This Agreement and the schedules hereto and
the other documents delivered by the parties in connection herewith, together
with the Confidentiality Agreement, contain the complete agreement between the
parties hereto with respect to the transactions contemplated hereby and thereby
and supersede all prior agreements and understandings between the parties hereto
with respect thereto.
10.6 CAPTIONS; REFERENCES. The captions contained in this Agreement
are for convenience of reference only and do not form a part of this Agreement.
When a reference is made in this Agreement to a clause, a Section or an Article,
such reference shall be to a clause, a Section or Article of this Agreement
unless otherwise indicated.
10.7 AMENDMENT. This Agreement may be amended or modified only by an
instrument in writing duly executed by the parties to this Agreement.
10.8 WAIVER. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any of the agreements or conditions contained herein,
to the extent permitted by applicable Law. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
writing signed on behalf of such party.
10.9 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Ohio, without regard
to its rules of conflict of laws.
38
<PAGE> 44
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.11 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
10.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
DERLAN INDUSTRIES, INC.
By:/s/ Stephen Taylor
Name: Stephen Taylor
Title: Vice President
THE MONARCH MACHINE TOOL COMPANY
By:/s/ Richard E. Clemens
Name: Richard E. Clemens
Title: President and CEO
39
<PAGE> 45
GUARANTY OF DERLAN INDUSTRIES LIMITED
-------------------------------------
For good and valuable consideration and to induce The Monarch Machine
Tool Company ("Buyer") to enter into the foregoing Stock Purchase Agreement, the
undersigned Derlan Industries Limited, an Ontario, Canada corporation, hereby
guarantees the full and timely performance by Derlan Industries, Inc. ("Seller")
of each and every obligation of Seller under the Stock Purchase Agreement in
accordance with the terms of such Agreement.
The Guaranty shall be governed by, and construed and enforced in
accordance with, the laws of Ontario, Canada, without regard to its rules of
conflict of laws.
IN WITNESS WHEREOF, Derlan Industries Limited has caused this Guaranty
to be executed on its behalf by its duly authorized officer as of this 31st day
of December 1998.
DERLAN INDUSTRIES LIMITED
By /s/ STEPHEN TAYLOR
Its Vice President, Corporate Development
40
<PAGE> 46
EXHIBIT A
---------
NONCOMPETITION AGREEMENT
------------------------
THIS NONCOMPETITION AGREEMENT ("Agreement") is made as of the 31st day
of December, 1998 among THE MONARCH MACHINE TOOL COMPANY, an Ohio corporation
("Monarch"), DERLAN INDUSTRIES, INC., a Wisconsin corporation ("Derlan U.S.")
and DERLAN INDUSTRIES LIMITED, an Ontario, Canada corporation ("Derlan Parent")
(Derlan U.S. and Derlan Parent are sometimes hereinafter collectively referred
to as "Derlan"), under the following circumstances:
A. Derlan U.S., a wholly-owned subsidiary of Derlan Parent,
and Monarch are parties to a Stock Purchase Agreement dated as of
December 30, 1998 (the "Stock Purchase Agreement"), pursuant to which
Monarch has agreed to purchase all of the issued and outstanding
capital stock of GFG Corporation, a Wisconsin corporation ("GFG");
B. The value of GFG and its subsidiaries (collectively, the
"Companies") would be severely affected and materially impaired if
Derlan Parent or any of its Affiliates were to compete with any of the
Companies; and
C. The Stock Purchase Agreement provides that Derlan U.S.,
Derlan Parent and Monarch will enter into this Agreement at the Closing
(as defined in the Stock Purchase Agreement), and Derlan Parent hereby
acknowledges that the purchase of the capital stock of GFG Corporation
by Monarch and the payment of the Noncompetition Payment (as defined
herein) to Derlan U.S. is adequate consideration for Derlan Parent's
entering into this Agreement;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DEFINED TERMS. All capitalized terms used herein shall have
the respective meanings ascribed to them in the Stock Purchase Agreement unless
otherwise defined herein.
SECTION 2. NONCOMPETITION; NONCOMPETITION PAYMENT. (a) For a period of
five years, beginning at the Effective Time and ending on the fifth annual
anniversary date of the Effective Time, Derlan Parent and Derlan U.S. shall not,
and shall not permit any entity controlled by Derlan Parent ("Affiliate") to,
directly or indirectly engage in, or have any interest in, any person, firm,
corporation or business entity which, directly or indirectly, engages in the
design, engineering, manufacture, marketing, distribution, sale, and servicing
of (i) coil coating and laminating equipment, (ii) electrostatic spraying and
rotary atomizing equipment or (iii) coil and strip processing equipment or the
sale of parts, components and accessories for any such equipment (herein
referred to as a "Competitive Business").
(b) The provisions of Section 2(a) shall not be deemed to prohibit
Derlan Parent or its Affiliates, including Derlan U.S., from:
41
<PAGE> 47
(i) Acquiring any diversified entity or business which has a
constituent part which at the time of acquisition is engaged in a
Competitive Business, if the Competitive Business represents less than
ten percent (10%) of the most recent annual sales of the acquired
entity or business; it being the intention of the parties that Derlan
Parent or one of its Affiliates should not be prevented from purchasing
a holding company or some other group of companies merely because one
of the minor companies or divisions thereof being acquired is engaged
in a Competitive Business; or
(ii) Acquiring or owning not more than five percent (5%) of
the outstanding voting securities (or securities convertible into
voting securities) of any company whose securities are listed and
actively traded on any national, international or regional securities
exchange, or over-the-counter market.
(c) It is the intention of the parties that the provisions of
this Section 2 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, to the extent that the restrictions on competition
hereunder are adjudicated to be invalid or unenforceable in any such
jurisdiction, the court making such determination shall have the power to limit,
construe or reduce the duration, scope, activity and/or area of such provision
to the extent necessary to render such provision enforceable to the maximum
reasonable extent permitted by applicable law, such limited form to apply only
with respect to the operation of this section in the particular jurisdiction in
which such adjudication is made.
(d) At the time Derlan Parent and Derlan U.S. enter into this
Agreement, Monarch shall pay to Derlan U.S. $1,500,000 (the "Noncompetition
Payment").
SECTION 3. NONSOLICITATION OF EMPLOYEES. Without the written
consent of Monarch, Derlan Parent or Derlan U.S.shall not, and shall not permit
any of their Affiliates, to solicit for employment or consultation or otherwise
hire any employee of any of the Company or its Subsidiaries at any time during
the two year period commencing at the Effective Time and ending on the second
annual anniversary date of the Effective Time.
SECTION 4. EQUITABLE RELIEF. Any failure by Derlan Parent or
Derlan U.S. to comply with the terms of this Agreement may cause irreparable
damages to Monarch. Accordingly, in the event of a breach of any provision of
this Agreement by Derlan Parent or Derlan U.S., then Monarch shall have the
immediate right to secure an order enjoining such breach in addition to any of
the other remedies which may be available to Monarch at law or in equity.
SECTION 5. WAIVER. The failure of any party to insist in any
one or more instances upon performance of any of the provisions of this
Agreement or to take advantage of any of its rights hereunder shall not be
construed as a waiver of any such provisions or the relinquishment of any such
rights, and the same shall continue and remain in full force and effect. No
single or partial exercise by any party of any right or remedy shall preclude
any future exercise thereof or the exercise of any other right or remedy. Waiver
by either party of any breach of any provision
42
<PAGE> 48
of this Agreement shall not constitute or be construed as a continuing waiver or
as waiver of any other breach of any other provision of this Agreement.
SECTION 6. NOTICE. Any notice or other communication provided
for herein or given hereunder to a party hereto shall be sufficient if in
writing, and sent by facsimile transmission (electronically confirmed),
delivered in person, mailed by first class registered or certified mail, postage
prepaid, or sent by Federal Express or other overnight courier of national
reputation, addressed as follows:
If to Monarch:
The Monarch Machine Tool Company
2600 Kettering Tower
Dayton, OH 45423
Attention: Richard E. Clemens, President
Fax: (937) 910-9305
with a copy to:
Thompson Hine & Flory LLP
2000 Courthouse Plaza N.E.
Dayton, OH 45402
Attention: Joseph M. Rigot, Esq.
Fax: (937) 443-6635
If to Derlan Parent or Derlan U.S.:
Derlan Industries Limited
145 King Street East, Suite 500
Toronto, Ontario
Canada M5C 247
Attention: Stephen B. Taylor
Fax: (416) 362-5334
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: John P. Dunn
Fax: (216) 579-0212
SECTION 7. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
43
<PAGE> 49
SECTION 8. ENTIRE AGREEMENT; AMENDMENT. This Agreement shall constitute
the complete and entire agreement between the parties hereto with respect to the
subject matter hereof and shall supersede all previous oral and written
negotiations and commitments and any other writings with respect to such subject
matter. This Agreement may not be modified or amended except in a writing duly
executed by the party to be bound thereby.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"Derlan Parent"
DERLAN INDUSTRIES LIMITED
By______________________________________
Name:
Title:
"Derlan U.S."
DERLAN INDUSTRIES, INC.
By______________________________________
Name:
Title:
"Monarch"
THE MONARCH MACHINE TOOL COMPANY
By______________________________________
Richard E. Clemens
President and Chief Executive Officer
44
<PAGE> 1
Exhibit 4.1
- -----------
Execution Copy
FIRST AMENDMENT
---------------
TO
--
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 29, 1998 (this "Amendment"), is by and among THE MONARCH
MACHINE TOOL COMPANY, INC., an Ohio corporation (the "Company"), the BANKS
identified on the signature pages hereof (collectively, the "Banks" and,
individually, a "Bank") and NBD BANK, N.A., a national banking association, as
agent (in such capacity, the "Agent") for the Banks.
RECITALS
--------
A. The Company, the Banks and the Agent are parties to the Second
Amended and Restated Credit Agreement, dated as of May 29, 1998 (the "Credit
Agreement"), pursuant to which the Banks provide to the Company a revolving
credit facility, including standby letters of credit, in an aggregate principal
amount not to exceed $15,000,000, which credit facility is convertible to a term
loan.
B. The Company now desires that the Credit Agreement be amended in
order to, among other things, increase the amount of such revolving credit
facility to $25,000,000, and the Banks and the Agent are willing to so amend the
Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
-----------------------------------------
Effective upon the date the conditions precedent set forth in Article 2
of this Amendment are satisfied, which date (the "Amendment Date") shall be
determined by the Agent in its sole discretion, the Credit Agreement hereby is
amended as follows:
1.1 The definitions of the terms "APPLICABLE COMMITMENT FEE RATE",
"APPLICABLE EURODOLLAR RATE MARGIN", "APPLICABLE FLOATING RATE MARGIN" and
"APPLICABLE L/C FEE RATE" in Section 1.1 are amended and restated in full as
follows:
"APPLICABLE FACILITY FEE RATE", "APPLICABLE
EURODOLLAR RATE MARGIN", "APPLICABLE FLOATING RATE MARGIN" and
"APPLICABLE L/C FEE RATE" shall be, for purposes of
determining the facility fee payable under Section 2.3(a) for
any month (the "Application Month"), the Eurodollar Rate
applicable to any Eurodollar Rate Loan outstanding at any time
during any Application Month, the Floating Rate applicable to
any Floating Rate Loan outstanding at any time during any
Application Month, or the fee
<PAGE> 2
under Section 2.3(d) for any Letter of Credit issued during any Application
Month, as the case may be, the percent set forth under the heading "Applicable
Facility Fee Rate", "Applicable Eurodollar Rate Margin for Revolving Credit
Loans", "Applicable Eurodollar Rate Margin for the Term Loan", "Applicable
Floating Rate Margin for Revolving Credit Loans", "Applicable Floating Rate
Margin for the Term Loan" and "Applicable L/C Fee Rate", respectively, below in
the row corresponding to the range into which falls the ratio (the "Ratio") of
(a) the Consolidated Senior Debt of the Company and its Subsidiaries as of the
end of the last fiscal quarter (the "Determination Quarter") preceding such
Application Month for which financial statements have been delivered to the
Banks under Section 5.1(d)(ii) to (b) the Consolidated EBITDAL of the Company
and its Subsidiaries for the period of four consecutive fiscal quarters of the
Company ending at the end of such Determination Quarter:
<TABLE>
<CAPTION>
Applicable Applicable
Eurodollar Applicable Floating Applicable
Rate Margin Eurodollar Rate Margin Floating
for Rate Margin for Rate Margin Applicable
Applicable Revolving for the Revolving for the L/C
Facility Credit Term Credit Term Fee
Ratio Fee Rate Loans Loan Loans Loan Rate
----- -------- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Less than
2.00 to 0.25% 0.75% 1.00% 0% 0.25% 0.75%
1.00
Less than
2.50 to
1.00 but
not less 0.25% 1.00% 1.25% 0% 0.25% 1.00%
than 2.00
to 1.00
Less than
3.00 to
1.00 but 0.375% 1.375% 1.625% 0% 0.25% 1.375%
not less
than 2.50
to 1.00
Less than
3.50 to
1.00 but 0.375% 1.625% 1.875% 0% 0.25% 1.625%
not less
than 3.00
to 1.00
</TABLE>
Each change in the Applicable Facility Fee Rate, Applicable Eurodollar Rate
Margin, Applicable Floating Rate Margin and Applicable L/C Fee Rate in
accordance with this definition, as finally determined upon the Banks' receipt
of the Company's financial statements for any Determination Quarter pursuant to
Section 5.1(d)(ii), shall be effective as of the first day of the corresponding
Application Month following such Determination
<PAGE> 3
Quarter; PROVIDED that, for the period from and including the
Amendment Date (as such term is defined in the First Amendment
to this Agreement) to but excluding the first day of the
Application Month following receipt by the Banks of such
financial statements for the Determination Quarter ending on
or about December 31, 1998, the Applicable Facility Fee Rate,
Applicable Eurodollar Rate Margin, Applicable Floating Rate
Margin and Applicable L/C Fee Rate shall be set at the
respective levels corresponding to a Ratio of less than 3.00
to 1.00 but not less than 2.50 to 1.00.
1.2 The definitions of the terms "CURRENT ASSETS", "CURRENT
LIABILITIES" and "TOTAL LIABILITIES" in Section 1.1 are deleted.
1.3 The following definitions of the terms "CAPITAL
EXPENDITURES", "DIVIDENDS", "DOMESTIC SUBSIDIARY", "EBITDAL", "FIXED ASSET
ALLOWANCE", "FIXED CHARGES", "FOREIGN SUBSIDIARY", "GFG", "GUARANTIES",
"GUARANTORS", "LEASE EXPENSE", "PENSION PLAN TERMINATION", "SENIOR DEBT" and
"SUBORDINATED DEBT" are added to Section 1.1 in alphabetical order:
"CAPITAL EXPENDITURES" of any person shall mean, for
any period, all capital expenditures made by such person
during such period, as determined in accordance with generally
accepted accounting principles.
"DIVIDENDS" of any person shall mean, for any period,
all dividends, payments and other distributions by such person
during such period in respect of any class of such person's
capital stock, and all dividends, payments and other
distributions by such person during such period in connection
with the redemption, purchase, retirement or other
acquisition, directly or indirectly, of any shares of such
person's capital stock.
"DOMESTIC SUBSIDIARY" of any person shall mean any
Subsidiary of such person that is not a Foreign Subsidiary of
such person.
"EBITDAL" of any person shall mean, for any period,
the sum of (a) the EBIT of such person for such period, plus,
to the extent deducted in computation of such EBIT, (b) the
depreciation and amortization expense of such person and the
Lease Expense of such person for such period.
"FIXED ASSET ALLOWANCE" shall mean the amount from
time to time equal to $10,000,000 less all reductions thereof
from time to time pursuant to Section 2.2(b).
"FIXED CHARGES" of any person shall mean, for any
period, the sum, without duplication, of (a) Capital
Expenditures of such person for such period, plus (b) all
payments of principal or other sums paid or payable by such
person during such period with respect to Indebtedness of such
person, plus (c) Interest Expense of such person for such
period, plus (d) all debt discount and expense amortized or
required to be amortized during such period by such person,
plus (e) all obligations of such person in respect of any
interest rate or currency swap, rate cap or similar
transaction paid or required to be paid during such period by
such person, plus (f) all taxes paid or required to be paid by
<PAGE> 4
such person during such period, plus (g) all Dividends of such
person paid or payable or otherwise accumulating during such
period, and plus (h) Lease Expense of such person for such
period.
"FOREIGN SUBSIDIARY" of any person shall mean any
Subsidiary of such person incorporated or organized in any
jurisdiction other than any State of the United States.
"GFG" shall mean GFG Corporation, a Wisconsin
corporation, 100% of the capital stock of which the Company is
acquiring from Derlan Industries, Inc., a Delaware
corporation.
"GUARANTIES" shall mean the guaranties entered into
by each of the Guarantors for the benefit of the Agent and the
Banks pursuant to this Agreement in form and substance
satisfactory to the Required Banks, as amended or modified
from time to time.
"GUARANTORS" shall mean each Domestic Subsidiary of
the Company and each person otherwise entering into a Guaranty
from time to time.
"LEASE EXPENSE" of any person shall mean, for any
period, the maximum amount of all rents and other payments
(exclusive of property taxes, property and liability insurance
premiums and maintenance costs) paid or required to be paid by
such person during such period under any Capital Lease or
other lease of real or personal property in respect of which
such person is obligated as a lessee or user.
"PENSION PLAN TERMINATION" shall mean any termination
of any Plan or other pension plan of the Company or any of its
Subsidiaries, including without limitation any such
termination in connection with the changes to the Company's
retirement programs effective January 1, 1999.
"SENIOR DEBT" of any person shall mean all
Indebtedness of such person other than Subordinated Debt of
such person.
"SUBORDINATED DEBT" of any person shall mean, as of
any date, all Indebtedness of such person that is expressly
subordinate and junior in right and priority of payment to the
Advances and other Indebtedness of such person to the Agent
and the Banks in manner and by agreement satisfactory in form
and substance to the Required Banks.
1.4 The definition of the term "BORROWING BASE" in Section 1.1
is amended and restated in full as follows:
"BORROWING BASE" shall mean, as of any date, the sum
of (a) an amount equal to 80% of Eligible Accounts
Receivable, plus (b) an amount equal to 50% of Eligible
Inventory, plus (c) the Fixed Asset Allowance, minus (d) the
Fifth Third Borrowings.
1.5 The following sentence is added to the end of Section 1.2:
<PAGE> 5
When determining from time to time the Consolidated
EBITDAL or Fixed Charges of the Company and its Subsidiaries
for purposes of this Agreement, each person that is a
Subsidiary of the Company at the time of such determination
shall be deemed to have been a Subsidiary of the Company for
the entire period relevant to such determination (i.e., in
each case, the period of four fiscal quarters of the Company
ending on the last day of the relevant fiscal quarter), and
each person that was a Subsidiary of the Company at any time
during such relevant period, but is no longer a Subsidiary of
the Company at the time of such determination, shall be deemed
not to have been a Subsidiary of the Company at any time
during such period; PROVIDED that, when making the foregoing
determinations, (a) the EBITDAL and Fixed Charges of GFG for
each of its fiscal quarters ending in 1998 shall be deemed to
have been one-quarter (1/4) of its EBITDAL and Fixed Charges,
respectively, for its fiscal year 1998 in accordance with its
audited financial statements for such fiscal year, and (b)
taxes of GFG for its fiscal year 1998 may be eliminated from
such determinations to the extent GFG would not have incurred
such taxes if GFG had been a consolidated Subsidiary of the
Company for such fiscal year due to the existence of the
Company's net operating loss carryover.
1.6 The brackets around the amount "5,000,000" at the end of
Section 2.1(a) are deleted.
1.7 Paragraph (b) of Section 2.2 is relabeled as paragraph
(c), and the following new paragraph (b) is added to Section 2.2:
(b) Until such time as the aggregate amount of the
reductions of the Revolving Credit Commitments pursuant to
this Section 2.2(b) is at least $5,000,000, upon the receipt
by the Company or any of its Subsidiaries of any of the
proceeds hereinafter described, the Revolving Credit
Commitments shall be reduced by an amount equal to 100% of the
proceeds (net of expenses reasonably incurred in connection
therewith; and such net proceeds to be rounded down to the
nearest $100,000) received by the Company or any such
Subsidiary (i) from any sale, lease, license, transfer,
assignment or other disposition of any of the Company's or any
such Subsidiary's assets, other than inventory sold in the
ordinary course of business, or (ii) as the result of any
Pension Plan Termination; PROVIDED that such reductions of the
Revolving Credit Commitments shall occur from time to time
when such net proceeds (not subject of a prior reduction under
this Section 2.2(b)) aggregate at least $1,000,000, but in any
event not later than six months after the Company's or such
Subsidiary's, as the case may be, receipt thereof. Immediately
upon any such reduction of the Revolving Credit Commitments,
whether as a result of a transaction described in clause (i)
or (ii) above, the amount of the Fixed Asset Allowance shall
be reduced by an amount equal to the amount of such reduction
of the Revolving Credit Commitments. Each reduction of the
Revolving Credit Commitments pursuant to this Section 2.2(b)
shall reduce the Revolving Credit Commitments of all the Banks
proportionately in accordance with their Pro Rata Shares.
<PAGE> 6
1.8 Section 2.3(a) is amended and restated in full as follows:
(a) FACILITY FEE. The Company agrees to pay to each
Bank a facility fee on the daily average amount of such Bank's
Commitments for each month or portion thereof during the
period from the effective date of the First Amendment to this
Agreement to but excluding the Maturity Date, at a rate equal
to the Applicable Facility Fee Rate for such month. Accrued
facility fees shall be payable quarterly in arrears on the
last Business Day of each March, June, September and December,
commencing on the first such Business Day occurring after the
date of the First Amendment to this Agreement, and on the
Maturity Date.
1.9 Section 3.1(e) is added as follows:
(e) Notwithstanding anything in this Agreement or the
Notes, upon the receipt by the Company or any of its
Subsidiaries of proceeds (i) from any sale, lease, license,
transfer, assignment or other disposition of any of the
Company's or any Subsidiary's assets, other than inventory
sold in the ordinary course of business, or (ii) as the result
of any Pension Plan Termination, the Company shall prepay the
Advances in the amount equal to 100% of such proceeds (net of
expenses reasonably incurred in connection with such asset
disposition or Pension Plan Termination, as the case may be;
and such net proceeds to be rounded down to the nearest
$100,000); PROVIDED that such prepayments shall be made from
time to time when such net proceeds (not previously subject of
a prepayment under this Section 3.1(e)) aggregate at least
$1,000,000, but in any event not later than six months after
the Company's or such Subsidiary's, as the case may be,
receipt thereof. Prior to remittance to the Agent for
application to the Advances, all such proceeds shall be held
by the Company as trustee for the Agent, without commingling
with any funds belonging to the Company. For greater
certainty, the parties acknowledge that prepayments of the
Advances required under this Section 3.1(e) shall not be
limited to $5,000,000 as reductions of the Revolving Credit
Commitments may be under Section 2.2(b).
1.10 Section 5.1(g) is added as follows:
(g) DOMESTIC SUBSIDIARIES TO BECOME GUARANTORs.
Promptly and in any event within 15 days of any person
becoming a Domestic Subsidiary of the Company, cause such
person to execute and deliver a Guaranty and take such further
action, and cause such person to take such further action,
including, without limitation, causing counsel for such person
to render opinions reasonably requested by the Agent and the
Banks, all in form and substance satisfactory to the Agent and
the Banks, such that such person becomes a Guarantor of the
Advances. In addition, the Company agrees to deliver to the
Agent from time to time upon the acquisition or creation of
any Subsidiary not listed in SCHEDULE 4.4 hereto supplements
to SCHEDULE 4.4 such that such Schedule, together with such
supplements, shall at all times accurately reflect the
information provided for thereon.
<PAGE> 7
1.11 Sections 5.2(a), 5.2(b) and 5.2(c) are amended and
restated in full as follows:
(a) TANGIBLE NET WORTH. Permit or suffer the
Consolidated Tangible Net Worth of the Company and its
Subsidiaries at any time to be less than the sum of (i)
$30,000,000 plus (ii) an amount equal to 50% of Consolidated
Cumulative Net Income of the Company and its Subsidiaries
after December 31, 1998.
(b) FIXED CHARGE COVERAGE RATIO. Permit or suffer the
ratio of the Consolidated EBITDAL of the Company and its
Subsidiaries to the Consolidated Fixed Charges of the Company
and its Subsidiaries to be less than 1.00 to 1.00; such ratio
to be determined as of the end of each fiscal quarter of the
Company for the period of four fiscal quarters then ending.
(c) SENIOR DEBT TO EBITDAL. Permit or suffer the
ratio of the Consolidated Senior Debt of the Company and its
Subsidiaries as of the end of any fiscal quarter of the
Company to the Consolidated EBITDAL of the Company and its
Subsidiaries for the period of four fiscal quarters of the
Company then ending to be greater than (i) 3.50 to 1.00 at any
time from and including the effective date of the First
Amendment to this Agreement to and including March 30, 2000,
(ii) 3.00 to 1.00 at any time from and including March 31,
2000 to and including March 30, 2001, and (iii) 2.75 to 1.00
on March 31, 2001 and at any time thereafter.
1.12 Section 5.2(e) is amended and restated in full as
follows:
(e) MERGER; ACQUISITIONS; ETC. Purchase or otherwise
acquire, whether in one or a series of transactions, all or a
substantial portion of the business assets, rights, revenues
or property, real, personal or mixed, tangible or intangible,
of any person, or all or a substantial portion of the capital
stock of or other ownership interest in any other person,
PROVIDED that this Section 5.2(e) shall not prohibit (i) the
acquisition of GFG by the Company or (ii) any other such
purchase or acquisition (the "Subject Transaction") if (A)
immediately before and after such merger or acquisition, no
Default or Event of Default shall exist or shall have occurred
and be continuing, or would have occurred as of the last
fiscal quarter end of the Company if such merger or
acquisition were deemed to have occurred on the last day
immediately preceding such fiscal quarter end, and the
representation, and warranties contained in Article IV shall
be true and correct on and as of the date thereof (both before
and after such merger or acquisition is consummated) as if
made on the date such merger or acquisition is consummated,
(B) the survivor of such merger or acquisition is the Company
or a Domestic Subsidiary of the Company, and (C) the aggregate
consideration paid by the Company for all such purchases and
acquisitions after December 31, 1997 (other than the
acquisition of GFG), including, without limitation, the
Subject Transaction, is less than the amount equal to 20% of
the Consolidated Tangible Net Worth of the Company and its
Subsidiaries as of the date the Subject Transaction is
consummated; nor merge or consolidate or amalgamate with any
other person or take any other action having a similar effect,
nor enter into any joint venture or similar arrangement with
any other person in which the Company is required
<PAGE> 8
to make an equity contribution having a similar effect.
1.13 Section 5.2(q) is amended and restated in full as
follows:
(q) SUBORDINATED DEBT. Create, incur, assume or in
any other manner become liable in respect of, or suffer to
exist, any Subordinated Debt other than Subordinated Debt of
the Company and its Subsidiaries in an aggregate principal
amount outstanding not exceeding $5,000,000 at any time.
1.14 Section 5.2(r) is added as follows:
(r) PAYMENTS AND MODIFICATION OF SUBORDINATED DEBT.
Make any optional payment, prepayment, or redemption of any
Subordinated Debt, nor amend or modify, or consent or agree to
any amendment or modification, which would shorten any
maturity or increase the amount of any payment of principal or
increase the rate (or require earlier payment) of interest on
any such Subordinated Debt, nor amend any agreement under
which any Subordinated Debt is issued or created or otherwise
related thereto, nor enter into any agreement or arrangement
providing for the defeasance of any Subordinated Indebtedness.
1.15 Sections 6.1(i) and 6.1(j) are added as follows:
(i) GUARANTIES. Any event of default described in
any Guaranty shall have occurred and be continuing, or any
material provision of any Guaranty shall at any time for any
reason cease to be valid, binding and enforceable against any
obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested by any person, or
any obligor shall deny that it has any or further liability or
obligation thereunder, or any Guaranty shall be terminated,
invalidated or set aside, or be declared ineffective or
inoperative or in any way cease to give or provide to the
Agent and the Banks the benefits purported to be created
thereby; or
(j) SUBORDINATED DEBT DEFAULTS. Any default under
any subordination agreement in favor of the Agent or the Banks
with respect to any Subordinated Debt shall have occurred and
be continuing beyond any applicable grace period; or any
material provision of any such subordination agreement or any
subordination terms of any Subordinated Debt shall at any time
for any reason cease to be valid and binding and enforceable
against the Company, any of its Subsidiaries or any holder of
any Subordinated Debt, or the validity, binding effect or
enforceability thereof shall be contested by any such holder,
the Company or any of its Subsidiaries, or any such holder,
the Company or any of its Subsidiaries shall deny that it has
any further obligation under any such subordination terms or
any such subordination agreement, or any such subordination
term or subordination agreement shall be terminated,
invalidated or set aside, or be declared ineffective or
inoperative or in any way ceases to give or provide to the
Banks and the Agent the benefits purported to be created
thereby.
<PAGE> 9
1.16 The Commitment Amounts set forth next to the name of each
Bank on the signature pages of the Credit Agreement are amended and restated in
full as follows:
For NBD Bank, N.A.:
Commitment Amount: $16,250,000
For Star Bank, N.A.:
Commitment Amount: $8,750,000
1.17 REPLACEMENT OF EXHIBIT A-1. Exhibit A-1 annexed to the
Credit Agreement is deleted in its entirety and Exhibit A-1 annexed to this
Amendment shall be deemed substituted in place thereof. The Company shall
execute and deliver to each Bank a replacement revolving credit note in the form
of Exhibit A-1 annexed to this Amendment (collectively the "Replacement
Revolving Credit Notes" and individually a "Replacement Revolving Credit Note")
to be exchanged for the existing Revolving Credit Note issued by the Company to
each such Bank under the Credit Agreement (collectively the "Existing Revolving
Credit Notes" and individually an "Existing Revolving Credit Note"). On the
Amendment Date, the principal balance of the Existing Revolving Credit Notes, as
well as all other information which has been endorsed on the schedules attached
to the Existing Revolving Credit Notes or elsewhere on the books and records of
the Banks with respect to the Existing Revolving Credit Notes, shall be endorsed
on the schedules attached to the Replacement Revolving Credit Notes or elsewhere
on the books and records of the Banks with respect to the Replacement Revolving
Credit Notes. The execution and delivery by the Company of the Replacement
Revolving Credit Notes shall not in any circumstances be deemed a novation or to
have terminated, extinguished or discharged the Company's indebtedness evidenced
by the Existing Revolving Credit Notes, all of which indebtedness shall continue
under and be evidenced and governed by the Replacement Revolving Credit Notes
and the Credit Agreement, as amended.
ARTICLE 2. CONDITIONS PRECEDENT TO AMENDMENTS
---------------------------------------------
As conditions precedent to the effectiveness of the amendments
to the Credit Agreement set forth in Article 1 of this Amendment, the Agent and
the Banks shall receive the following documents and the following matters shall
be completed, all in form and substance satisfactory to the Agent and the Banks:
2.1 This Amendment duly executed on behalf of the Company, the
Agent and each of the Banks.
2.2 A Replacement Revolving Credit Note duly completed and
executed on behalf of the Company for each Bank.
2.3 A fee for this Amendment in the amount of $25,000 in
immediately available funds, for the account of the Banks in accordance with
their respective Pro Rata Shares.
<PAGE> 10
2.4 An incumbency certificate and certified copies of such
documents evidencing necessary corporate action of the Company with respect to
this Amendment, the Replacement Revolving Credit Notes and the transactions
contemplated hereby as the Banks and the Agent may reasonably request.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce the Banks and the Agent to enter into this
Amendment, the Company represents and warrants that:
3.1 The execution, delivery and performance by the Company of
this Amendment and the Replacement Revolving Credit Notes are within its
corporate powers, have been duly authorized by all necessary corporate action
and are not in contravention of any law, rule or regulation, or any judgment,
decree, writ, injunction, order or award of any arbitrator, court or
governmental authority, or of the terms of the Company's charter or by-laws, or
of any contract or undertaking to which the Company is a party or by which the
Company or its property is or may be bound or affected.
3.2 This Amendment is and, when executed and delivered, the
Replacement Revolving Credit Notes will be, legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms.
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in connection with the
execution, delivery and performance of this Amendment, the Replacement Revolving
Credit Notes or the transactions contemplated hereby or as a condition to the
legality, validity or enforceability of this Amendment or the Replacement
Revolving Credit Notes.
3.4 After giving effect to the amendments contained in Article
1 of this Amendment, the representations and warranties contained in Article IV
of the Credit Agreement are true on and as of the date hereof with the same
force and effect as if made on and as of the date hereof.
ARTICLE 4. MISCELLANEOUS
------------------------
4.1 If the Company shall fail to perform or observe any term,
covenant or agreement in this Amendment, or any representation or warranty made
by the Company in this Amendment shall prove to have been incorrect in any
material respect when made, such occurrence shall be deemed to constitute an
Event of Default.
4.2 All references to the Credit Agreement or the Existing
Revolving Credit Notes in any document, instrument or certificate referred to in
the Credit Agreement or delivered in connection
<PAGE> 11
with or pursuant thereto hereafter shall be deemed references to the Credit
Agreement, as amended hereby, and the Replacement Revolving Credit Notes,
respectively.
4.3 Any and all certificates executed pursuant to the Credit
Agreement or in connection therewith and, subject to the amendments herein
provided, the Credit Agreement shall in all respects continue in full force and
effect.
4.4 Capitalized terms used but not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be governed by and construed in
accordance with the laws of the State of Indiana.
4.6 The Company agrees to pay the reasonable fees and expenses
of Dickinson Wright PLLC, counsel for the Agent, in connection with the
negotiation and preparation of this Amendment and the documents referred to
herein and the consummation of the transactions contemplated hereby, and in
connection with advising the Agent as to its rights and responsibilities with
respect thereto.
4.7 This Amendment may be executed upon any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year first-above
written.
THE MONARCH MACHINE TOOL
COMPANY
By:_______________________________
Its:__________________________
NBD BANK, N.A.
By:_______________________________
Its:__________________________
STAR BANK, N.A.
By:_______________________________
Its:__________________________
