<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1997 Commission File number 1-5985
---------------- ------
NEWCOR, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0865770
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1825 S. Woodward Ave., Suite 240
Bloomfield Hills, MI 48302 (248) 253-2400
- --------------------------------------- -------------------------------
(Address of principal executive office) (Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
- --------------------------
Common stock, $1 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. (X)
The aggregate market value of the voting common stock held by non-affiliates of
the registrant was $39,379,000 as of January 14, 1998.
The number of shares of common stock, $1 par value, outstanding as of January
14, 1998 was 4,942,034.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Newcor, Inc. Annual Report to
Shareholders for the year ended October 31, 1997 Part I, II and IV
Portions of the Newcor, Inc. 1998 Proxy Statement Part III
<PAGE> 2
Part I
Item 1. Business
- -----------------
GENERAL DESCRIPTION OF BUSINESS:
Newcor, Inc., a Delaware corporation with its executive offices located in
Bloomfield Hills, Michigan, (together with its wholly-owned subsidiaries
referred to as the Company or Newcor) was organized in 1969 to succeed a
Michigan corporation organized in 1933. The Company is organized into three
business segments: Precision Machined Products, Rubber and Plastic and Special
Machines. The Precision Machined Products segment produces transmission,
powertrain and engine components and assemblies primarily for the automotive and
agricultural vehicle industries. The Rubber and Plastic segment produces
cosmetic and functional seals and boots and functional engine compartment
products primarily for the automotive industry. These two segments had
previously been considered a single Components and Assemblies segment by the
Company. Further segmentation has become necessary due to the growth of the
Company's Components and Assemblies business. The Special Machines segment
designs and manufactures welding, assembly, forming, heat treating and testing
machinery and equipment for the automotive, appliance and other industries.
The Company purchased the business and substantially all of the assets of
Machine Tool & Gear, Inc. (MT&G) in December 1997. MT&G manufactures
differential pinion and side gears, output shafts and rear axle shafts for the
automotive industry. The Company also signed definitive agreements to purchase
the common stock of the three related companies known as The Deco Group (Deco)
during December 1997 and Turn-Matic, Inc. (Turn-Matic) during January 1998,
pending the consummation of financing. Deco manufactures high-volume, precision
machined engine and powertrain components and assemblies for the medium and
heavy truck and automotive industries, while Turn-Matic manufactures
high-volume, precision machined engine components and assemblies for the
automotive industry.
The MT&G acquisition and pending acquisitions of Deco and Turn-Matic will result
in a very substantial increase in the size of the Company and changes in the
character and scope of its business. In addition, these transactions will
substantially increase the Company's leverage, interest expense and cash
requirements for debt service in 1998 and future years as compared to 1997 and
prior years. The Company's ability to make scheduled payments of principal of,
or to pay the interest on, or to refinance, its indebtedness or to fund planned
capital expenditures will depend on its future performance, which to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control.
During 1997, the Company purchased the common stock of Plastronics Plus, Inc.
(Plastronics), which primarily manufactures custom plastic injection-molded
components for the automotive industry. The Plastronics acquisition followed
three acquisitions in the Rubber and Plastic segment during fiscal 1996.
During May 1996, the Company completed the sale of the business and certain
assets of its Wilson Automation division. Prior to the divestiture, Wilson had
been the Company's largest division based on revenue. The disposition of Wilson
was accounted for as a discontinued operation, and, accordingly, the results of
operations of Wilson have been reclassified to discontinued operations from
continuing operations for all years presented in the Company's consolidated
statements of income and notes thereto incorporated in this report. The Company
sold the business and substantially all assets of its Newcor Machine Tool
division, which operated in the Special Machines segment, in October 1996. The
Company sold the business and substantially all assets of its Eonic division,
which operated in the Precision Machined Products segment, in March 1997.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS:
Financial information about business segments is presented in Note M (Segment
Reporting) of the Notes to Consolidated Financial Statements in Newcor's 1997
Annual Report to Shareholders. This information is hereby incorporated by
reference. This segment information is supplemented by the additional financial
information included under "Narrative Description of Business" below.
<PAGE> 3
NARRATIVE DESCRIPTION OF BUSINESS:
The markets served by the Company are highly cyclical and, in large part,
impacted by the strength of the economy generally, by prevailing interest rates
and by other factors. The markets for automotive and agricultural vehicles, for
which the Company supplies components, have all experienced strength in recent
years, but have experienced significant downturns in the past. Such downturns
have materially adversely affected the revenues, profitability and cash flow of
suppliers to these industries, including the Company, and there can be no
assurance that one or all such industries will not experience similar downturns
in the future. A cyclical decline in overall demand in any of the markets served
by the Company could have a material adverse effect on the Company's financial
condition, results of operations and debt service capability.
The Company operates in industries that are highly competitive though
fragmented. If any customer becomes dissatisfied with the Company's prices,
quality or timeliness of delivery, it could award future business or, in an
extreme case, move existing business to a competitor. There can be no assurance
that the Company's products will continue to compete successfully with the
products of competitors, including original equipment manufacturers ("OEM's")
themselves, many of which are significantly larger and have greater financial
and other resources than the Company.
Across all segments, sales in 1997 to Deere & Company, Ford Motor Company,
Chrysler Corporation and General Motors Corporation were approximately 30%, 20%,
14% and 11%, respectively of consolidated sales. Although the Company presently
has ongoing supply relationships with each of these customers, there can be no
assurance that sales to these customers will continue at the same levels or at
all. Each of these customers has, and regularly exercises, substantial
negotiating leverage over its suppliers, including the Company, and continuation
of these relationships is dependent upon the customers' satisfaction with the
price, quality and delivery of the Company's products and the Company's
engineering capabilities and customer services. While management believes its
relationships with its customers are mutually satisfactory, if any of these
customers were to reduce substantially or discontinue its purchases from the
Company, the financial condition and results of operations of the Company could
be materially adversely affected. From time to time, suppliers to these large
customers, including the Company, enter into agreements mandating periodic price
reductions, which thereby effectively require such suppliers to improve their
efficiency and reduce costs in order to maintain profit margins, and the Company
is presently a party to several such contracts.
Precision Machined Products Segment:
During 1997, the Precision Machined Products segment accounted for 46% of
consolidated total revenue. This segment consists of one division and one
subsidiary at October 31, 1997: Blackhawk Engineering and Rochester Gear, Inc.
The Eonic subsidiary, previously included in this segment, was sold during 1997.
MT&G, Deco and Turn-Matic also operate in this segment.
Blackhawk's principal line of business is machining large gray iron, nodular
iron and steel foundry castings. Rochester Gear produces high-quality shafts,
axles, transmission parts and other machined components.
In 1997, 65% of the Precision Machined Products segment revenue came from sales
to agricultural equipment manufacturers, primarily Deere & Company. In addition,
32% of revenue was from sales to the automotive market (OEM's and Tier 1
suppliers).
Both divisions in the Precision Machined Products segment have several
competitors, primarily domestic. Orders are almost exclusively obtained through
competitive bidding, based on quality, engineering capabilities, delivery and
price. Each division has established itself as a reliable, high-quality,
low-cost manufacturer in its marketplace.
Substantially all of the segment's revenue comes from domestic sales through
either the Company's sales staff or independent manufacturers' representatives.
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
<PAGE> 4
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Precision Machined Products segment is considered seasonal, varying
primarily on OEM's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Precision Machined
Products segment's divisions or the industries in which they operate.
Newcor's Precision Machined Products segment primarily operates under long-term
contracts and annual blanket purchase orders with its customers. Specific
releases against these blanket purchase orders are made on a daily basis by the
customer. Accordingly, order backlog is not considered meaningful to this group.
None of the segment's revenue is derived from government contracts.
Rubber and Plastic Segment:
During 1997, the Rubber and Plastic segment accounted for 37% of consolidated
total revenue. This segment consisted of four divisions and one subsidiary at
October 31, 1997: Deckerville, Auburn Hills, Walkerton, Livonia and Plastronics
Plus, Inc. In 1997, over 84% of the Rubber and Plastic segment revenue came from
sales to the automotive market (OEM's and Tier 1 suppliers). The remaining
revenue resulted from a wide variety of markets, including health care, food
processing, office equipment and others.
The segment utilizes dip, cast and other molding processes to manufacture both
interior components (principally transmission shift boots, steering column and
gearshift lever seals and air conditioning ducts) and engine compartment and
other body components (body and dash panel grommets and fuel filler seals). The
segment's injection molding facilities are used to manufacture fluid recovery
systems, hose and wire brackets, speaker seals and vacuum control systems. The
segment also supplies attachment and restraining products such as clips and
brackets.
Each of the divisions in the Rubber and Plastic segment has several competitors,
primarily all domestic. Orders are almost exclusively obtained through
competitive bidding, based on quality, engineering capabilities, delivery and
price. Each division has established itself as a reliable high-quality, low-cost
manufacturer in its marketplace.
Almost all of the segment's revenue results from domestic sales through either
the Company's sales staff or independent manufacturers' representatives. The
Company recently implemented a sales force reorganization, which included
replacing a number of independent sales representatives with in-house account
managers.
Most raw materials, supplies and other components are purchased from a number of
suppliers. Occasionally, a division will depend upon a single supplier for a
particular item when instructed by the customer. The Company has not experienced
any difficulty obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Rubber and Plastic segment is considered seasonal, varying primarily with
the automotive industry's semi-annual shutdowns in July and December.
There are no unusual working capital requirements within the Rubber and Plastic
segment's divisions or the industries in which they operate.
<PAGE> 5
Newcor's Rubber and Plastic segment primarily operates under long-term contracts
and annual blanket purchase orders with its customers. Specific releases against
these blanket purchase orders are made on a daily basis by the customer.
Accordingly, order backlog is not considered meaningful to this segment.
None of the segment's revenue is derived from government contracts.
Special Machines Segment:
During 1997, the Special Machines segment accounted for 17% of consolidated
total revenue. This segment consists of one division: Newcor Bay City (Bay
City). The Bay City division designs and assembles standard and special custom
machines and systems to meet its customers' welding, assembly, forming, heat
treating and testing process requirements. The Wilson Automation division and
Newcor Machine Tool division, previous business units of this segment, were sold
during 1996.
Approximately 54% of the Special Machines segment revenue came from sales to the
automotive market (OEM's and Tier 1 suppliers) during 1997. The remaining
revenue resulted from a variety of markets including appliance, consumer goods,
aerospace and others.
Competition for the Special Machines segment is from both domestic and foreign
manufacturers. Most orders are obtained through a competitive bidding process
with decisions based on machine design and performance, production and
engineering capabilities, delivery, service and price. Repeat orders for a
similar machine are sometimes single-sourced. The level of competition varies
widely depending upon the industry in which the potential customer operates, the
size of the order and technical complexity involved in fulfilling the specific
order requirements. The Company attempts to differentiate itself by providing
timely, innovative solutions to its customers' requirements.
The products of this segment are marketed primarily in the major industrial
areas of the United States, Canada and Mexico by direct sales to its customers.
The majority of the segments sales are generated by sales engineers, with some
sales coming from independent manufacturers' representatives.
Competitive quotes are obtained for most components, raw materials and supplies
from a number of suppliers. The Company has not experienced any difficulty
obtaining necessary purchased materials.
Throughout its product lines, Newcor has various patents and trademarks that
have been obtained over a number of years and expire at various times. While
Newcor considers each of them to be important to its business, the loss of any
patent or trademark would not materially affect the sales and profitability of
the Company.
The Special Machines segment is not considered seasonal.
This segment's working capital requirements can vary significantly based on the
number of and stage of contracts in process.
As of December 31, 1997, the Special Machines segment backlog was $7.1 million.
Backlog at December 31, 1996 was $8.4 million. The backlog at December 31, 1997
is expected to be completed during fiscal 1998.
None of the segment's revenues resulted from government contracts.
Environmental Compliance:
Compliance by the Company with federal, state and local laws and regulations
pertaining to the environment has not and is not anticipated to have any
material effect upon the capital expenditures, earnings or operations of the
Company. However, the Company's operations are subject to various foreign,
federal, state and local environment laws, ordinances and regulations, including
those governing discharges into the air and water, the storage, handling and
disposal of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes and the
health and safety of employees ("Environmental Laws"). The nature of the
Company's current and former operations and the history of industrial uses at
some of its facilities expose the Company to the risk of liabilities or claims
with respect to environmental and related worker health and safety
<PAGE> 6
matters. Compliance with Environmental Laws, stricter interpretations of or
amendments to such laws or more vigorous enforcement policies by regulatory
agencies may require material expenditures by the Company. In addition, under
certain Environmental Laws a current or previous owner or operator of property
may be liable for the costs of removal or remediation of certain hazardous
substances or petroleum products on, under or in such property, without regard
to whether the owner or operator knew of, or caused, the presence of the
contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred.
Employees:
At December 31, 1997, the Company had approximately 1,150 employees and 200
contract workers. Approximately 7% of the Company's employees and contract
workers at December 31, 1997 were represented by the United Auto Workers.
Collective bargaining agreements with these unions will expire at various times
in 1998 and 1999. In addition, most of the Company's customers employ workforces
represented by the United Auto Workers and other unions, and many of these
customers have experienced work stoppages at various times in the past. A
dispute between the Company and its employees, or between any of its major
customers and such customers' employees, could have a material adverse effect on
the Company's financial condition and results of operations. In addition,
sustained economic growth in the United States has resulted in lower
unemployment and higher demand for labor in many locations, including certain
locations in which the Company operates. Within the Rubber and Plastic segment,
profitability has been adversely impacted by increased scrap, high training
costs and productivity issues due to high hourly labor turnover caused by full
employment in local economies. There can be no assurance that labor market
conditions will not materially adversely affect one or more of the Company's
businesses or continue to adversely affect the Rubber and Plastic business in
the future.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SALES:
The Company does not have any foreign operations and, therefore, does not
segregate its revenue by geographic area. Export sales, principally to Mexico
and Canada, represented less than 10% of consolidated revenue in 1997, 1996 and
1995, respectively.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS UNDER THE PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report, including the "Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A") sections, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "intend," "will," "expect,"
"anticipate," "plan," "management believes," "estimate," "continue" or
"position" or the negatives of or other variations on those terms or comparable
terminology. In particular, any statement, express or implied, concerning future
operating results or the ability to generate revenues, income or cash flow are
forward-looking statements. Readers are cautioned that reliance on any
forward-looking statements involves risks and uncertainties and that, although
the Company believes that the assumptions on which the forward-looking
statements contained in this report are based are reasonable, any of those
assumptions could prove to be inaccurate. As a result, the forward-looking
statements based on those assumptions also could be incorrect, and actual
results may differ materially from any results indicated or suggested by those
forward-looking statements. The uncertainties in this regard include, but are
not limited to, those discussed under "Cautionary Statements Under the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995" in
the MD&A incorporated in this report, "Environmental Compliance" in this
section, Item 3 of this report and other cautionary statements contained
throughout the "Business Section" of this report. All forward looking statements
are expressly qualified by the cautionary statements set forth therein. In light
of these and other uncertainties, the inclusion of a forward-looking statement
in this report should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved.
<PAGE> 7
Item 2. Properties
- -------------------
The Company conducts its business in company-owned facilities totaling
approximately 518,000 square feet and leased facilities totaling approximately
77,000 square feet of office, engineering, manufacturing and warehouse space,
respectively. All of these facilities are fully utilized and are suitable to
meet the current capacity needs of the divisions. Leases expire at various times
through 2002, and the Company generally has extension options.
Below is a summary of the existing facilities:
<TABLE>
<CAPTION>
Location Square Footage Type of Interest Description of Use
-------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Newcor:
Corporate Office
Bloomfield Hills, MI 7,000 Leased Administrative Office
Precision Machined Products
Group:
Rochester Gear
Clifford, MI 45,000 Owned Transmission and powertrain components
Blackhawk Engineering
Cedar Falls, IA 54,000 Owned Tractor differential cases,
Waterloo, IA 10,000 Leased transmission cases, steering arms and
brake pedals
MT&G
Corunna, MI 100,000 Owned Differential pinion and side gears,
Fenton, MI 30,000 Leased output shafts and rear axle shafts
Fenton, MI 10,000 Owned
Rubber and Plastic Group:
Deckerville Division
Deckerville, MI 85,000 Owned Gear shift boots, steering column
Sandusky, MI 10,000 Owned seals, shift lever gap hiders and
windshield wiper covers
Livonia Division
Livonia, MI 21,000 Leased Coated metal parts
Walkerton Division
Walkerton, IN 33,000 Owned Steering column seals and shift lever
gap hiders
Auburn Hills Division
Auburn Hills, MI 9,000 Leased Shift lever boots
Plastronics
East Troy, WI 30,000 Owned Vacuum reservoirs for air
East Troy, WI 28,000 Owned conditioning, power steering and
cruise control systems, hose and wire
brackets and dash panel grommets
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Location Square Footage Type of Interest Description of Use
-------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Special Machines Group:
Newcor Bay City
Bay City, MI 123,000 Owned Automated welding and assembly systems
Divested Businesses with
Facilities Owned by Newcor and
leased to buyer:
Detroit, MI 58,000 Owned Formerly part of Eonic, which was sold
March 1997
Fraser, MI 40,000 Owned Formerly part of Newcor Machine Tool,
which was sold October 1996
</TABLE>
Item 3. Legal Proceedings
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The Company has been notified by one of its largest customers that the customer
is defending itself in a patent infringement lawsuit involving certain
processes/methods used on manufacturing equipment supplied by numerous vendors
including one of the Company's former divisions within the Special Machines
segment. The Company retained responsibility for this matter when it sold the
related business. Certain component suppliers of the Company have been notified
of their potential responsibility to the Company in connection with this action.
The Company does not possess sufficient information to evaluate the validity of
this claim and, accordingly, is unable to determine whether it will ultimately
be required to make any payment related to this lawsuit, or the extent to which
any such payment could be offset or mitigated by claims against suppliers.
During the past two years, the Company sold several of its businesses, including
the division that produced the equipment described above. In each case the
Company's agreement with the purchaser requires it to indemnify the purchaser
for various claims including certain environmental, product liability, warranty
and other claims that may arise relating to the conduct of the business before
the date of sale, subject in some cases to limits on the time within which an
indemnification claim may be brought or the maximum amount the Company may be
required to pay. The Company provided for its estimated indemnification
obligations when these businesses were sold and has no reason to believe there
are potential claims against it in excess of this provision, although no
specific amounts are included in such reserve with respect to the patent
infringement action described above.
Various other legal matters arising during the normal course of business are
pending against the Company. Management does not expect that the ultimate
liability, if any, of these matters will have a material effect on future
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended October 31, 1997.
<PAGE> 9
Part II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
- -----------------------------------------------------
The information required by this item, other than the number of shareholders, is
contained in Note N of the "Notes to Consolidated Financial Statements" in the
Newcor, Inc. 1997 Annual Report to Shareholders. This information is
incorporated herein by reference. At January 14, 1998 there were approximately
700 holders of record of the Company's common stock.
Item 6. Selected Financial Data
- --------------------------------
The information required by this item is contained in the Newcor, Inc. 1997
Annual Report to Shareholders under the heading "Five Year Financial Summary".
This information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------
The information required by this item, is contained in " Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Newcor,
Inc. 1997 Annual Report to Shareholders. This information is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The information required by this item, including selected 1997 and 1996
quarterly financial data, is contained in the consolidated financial statements
and notes thereon " Report of Independent Accountants" in the Newcor, Inc. 1997
Annual Report to Shareholders. This information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
- ------------------------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information required by Items 401 and 405 of Regulation S-K which will be
contained in the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on March 4, 1998 ("the 1998 Proxy Statement") is
incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information required by Item 402 of Regulation S-K, which will be contained
in the Company's 1998 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by Item 403 of Regulation S-K, which will be contained
in the Company's 1998 Proxy Statement is incorporated herein by reference.
<PAGE> 10
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by Item 404 of Regulation S-K, which will be contained
in the Company's 1998 Proxy Statement is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements
------------------------
The consolidated Financial Statements and Notes thereto contained in
Newcor's 1997 Annual Report to Shareholders are incorporated herein by
reference.
2. Financial Statement Schedules
---------------------------------
None required.
3. Exhibits (File number for all documents incorporated by reference
is Commission File Number 1-5985)
------------------------------------------------------------
3(a) Restated Certificate of Incorporation dated July 25, 1990
incorporated herein by reference from Exhibit 3(a) to report on
Form 10-K for the fiscal year ended October 31, 1990.
3(b) By Laws of Registrant as amended through January 14, 1991
incorporated herein by reference from Exhibit 3(b) to report on
Form 10-K for the fiscal year ended October 31, 1990.
4(a) Third Amended and Restated Revolving Credit Agreement between
Newcor, Inc. and Comerica Bank dated January 15, 1998.
Registrant hereby undertakes to furnish copies of documents
relating to $6.1 million Michigan Strategic Fund Limited
Obligation Refunding Revenue Bonds, Series 1995, to the Securities
and Exchange Commission upon its request.
10(a)* 1982 Incentive Stock Option Plan incorporated herein by reference
from Exhibit 10(a) to report on Form 10-K for the fiscal year ended
October 31, 1983.
10(b)* Newcor, Inc. Directors' Retirement Plan incorporated herein by
reference from Exhibit 10(b) to report on Form 10-K for the fiscal
year ended October 31, 1988.
10(c)* Board of Directors Deferred Directors' Fees plan incorporated
herein by reference from Exhibit 10(e) to report on Form 10-K for
the fiscal year ended October 31, 1987.
10(d)* Agreement with Thomas D. Parker dated June 7, 1989 incorporated
herein by reference from Exhibit 10(h) to report on Form 10-K for
the fiscal year ended October 31, 1992.
10(e)* Newcor, Inc. 1993 Management Stock Incentive Plan incorporated
herein by reference from Exhibit 10(j) to report on Form 10-K for
the fiscal year ended October 31, 1994.
10(f)* Amendment to Newcor, Inc. 1993 Management Stock Incentive Plan
incorporated herein by reference from Exhibit 10(k) to report on
Form 10-K for the fiscal year ended October 31, 1994.
10(g)* Employment Agreement with W. John Weinhardt dated February 13, 1995
incorporated herein by reference from Exhibit 10(g) to report on
Form 10-K for the fiscal year ended October 31, 1995.
10(h)* Change in Control Agreement with W. John Weinhardt dated February
13, 1995 incorporated herein by reference from Exhibit 10(h) to
report on Form 10-K for the fiscal year ended October 31, 1995.
10(i)* 1996 Employee Incentive Stock Plan dated March 6, 1996,
incorporated by reference from the 1996 Proxy Statement dated
February 5, 1996.
10(j)* 1996 Non-Employee Directors Stock Option Plan dated March 6, 1996,
incorporated by reference from the 1996 Proxy Statement dated
February 5, 1996.
10(k) Asset Purchase Agreement dated October 1, 1997 between Newcor, Inc.
and Machine Tool and Gear, Inc., incorporated by reference from
Registrant's Form 8-K dated December 23, 1997
10(l) Stock Purchase Agreement between Stephen Grand, Individually and as
Trustee of the Stephen Grand Revocable Trust dated July 5, 1979 and
the Stephen M. Grand Property Trust dated January 22, 1992 and
Newcor, Inc. dated December 9, 1997.
<PAGE> 11
10(m) Stock Purchase Agreement by and among each of the Shareholders of
Turn-Matic, Inc. and Newcor, Inc. dated January 16, 1998.
10(n)* Employment Agreement with Dennis H. Reckinger dated July 31, 1992.
10(o)* Employment Agreement with Robert C. Ballou dated September 25,
1995.
13 Those portions of the Newcor, Inc. 1997 Annual Report to
Shareholders that are incorporated by reference in this Form 10-K.
21 List of Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
* - Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
None.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant Newcor, Inc.
------------
By: /s/ W. John Weinhardt 1/29/98
---------------------------- -------
W. John Weinhardt, President Date
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date Signed
- --------- ----- -----------
- ---------------------------------- Director ---------
Jerry D. Campbell
/s/ John Garber 1/29/98
- ---------------------------------- Vice President Finance and ---------
John Garber Chief Financial Officer
/s/ Shirley E. Gofrank 1/29/98
- ---------------------------------- Director ---------
Shirley E. Gofrank
/s/ William A. Lawson 1/29/98
- ---------------------------------- Director ---------
William A. Lawson
- ---------------------------------- Director ---------
Jack R. Lousma
/s/ Richard A. Smith 1/29/98
- ---------------------------------- Director ---------
Richard A. Smith
- ---------------------------------- Director ---------
Kurt O. Tech
/s/ W. John Weinhardt 1/29/98
- ---------------------------------- President and Chief ---------
W. John Weinhardt Executive Officer
</TABLE>
<PAGE> 13
EXHIBIT INDEX
4(a) Third Amended and Restated Revolving Credit Agreement between Newcor,
Inc. and Comerica Bank dated January 15, 1998. Registrant
hereby undertakes to furnish copies of documents relating to $6.1
million Michigan Strategic Fund Limited Obligation Refunding Revenue
Bonds, Series 1995, to the Securities and Exchange Commission upon its
request.
10(l) Stock Purchase Agreement between Stephen Grand, Individually and as
Trustee of the Stephen Grand Revocable Trust dated July 5, 1979
and the Stephen M. Grand Property Trust dated January 22, 1992 and
Newcor, Inc. dated December 9, 1997.
10(m) Stock Purchase Agreement by and among each of the Shareholders of
Turn-Matic, Inc. and Newcor, Inc. dated January 16, 1998.
10(n)* Employment Agreement with Dennis H. Reckinger dated July 31, 1992.
10(o)* Employment Agreement with Robert C. Ballou dated September 25, 1995.
13 Those portions of the Newcor, Inc. 1997 Annual Report to Shareholders
that are incorporated by reference in this Form 10-K.
21 List of Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule (EDGAR file only).
* - Indicates management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 4(a)
================================================================================
NEWCOR, INC.
THIRD
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
DATED JANUARY 15, 1998
COMERICA BANK
================================================================================
Execution Copy
<PAGE> 2
THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDED AND RESTATED AGREEMENT, made as of the 15th day of
January, 1998, by and between NEWCOR, INC., a Delaware corporation, of
Bloomfield, Michigan (herein called "Company") and COMERICA BANK, a Michigan
banking corporation, of Detroit, Michigan (herein called "Bank");
RECITALS:
A. Company and Bank entered into a Second Amended and Restated
Revolving Credit Agreement dated March 6, 1995, as amended
("Existing Credit Agreement").
B. Company and Bank desire to amend the Existing Credit Agreement
in its entirety.
NOW, THEREFORE, Bank and Company agree that the Existing Credit
Agreement is amended in its entirety as follows:
WITNESSETH:
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Advance" shall mean a borrowing requested by Company and made by Bank
under this Agreement, including any refunding or conversions of such borrowing
pursuant to Section 2.7 hereof, and shall include a Eurodollar-based Advance and
a Prime-based Advance.
"Alternate Base Rate" shall mean for any day a rate per annum (rounded
upwards, if necessary, to the next higher 1/8 of 1%) equal to the Federal Funds
Effective Rate in effect on such day plus one percent (1%).
"Applicable Commitment Fee Percentage" shall mean as of any date of
determination, the commitment fee percentage determined in accordance with the
provisions of Section 2.11 and Schedule 2.11.
"Applicable Interest Rate" shall mean the Eurodollar-based Rate or the
Prime-based Rate, as selected by Company from time to time subject to the terms
and conditions of this Agreement.
"Applicable Margin" shall mean as of any date of determination, the
interest rate margin determined in accordance with the provisions of Section
2.11 and Schedule 2.11.
"Applicable Measuring Period" shall mean for the fiscal quarter ending
(i) April 30, 1998, the three month period beginning February 1, 1998 and ending
April 30, 1998, (ii) July 31, 1998,
<PAGE> 3
the six month period beginning February 1, 1998, and ending July 31, 1998, (iii)
October 31, 1998, the nine month period beginning February 1, 1998 and ending
October 31, 1998 and (iv) January 31, 1999 and each fiscal quarter thereafter,
the four preceding fiscal quarters.
"Base Net Worth" shall initially mean $25,000,000. On the last day of
each fiscal quarter of Company (commencing January 31, 1998, Base Net Worth
shall be increased by an amount equal to fifty percent (50%) of Net Income for
the fiscal quarter then ended. Such increase shall be effective on the last day
of the fiscal quarter in which such determination is made. For any fiscal
quarter with respect to which Net Income is less than zero, Net Income shall be
deemed to be zero.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business (including dealings in foreign exchange)
in Detroit, London and New York.
"Capital Expenditure" shall mean with respect to any person, without
duplication, any payment made directly or indirectly for the purpose of
acquiring or constructing fixed assets, real property or equipment which in
accordance with generally accepted accounting principles consistently applied
would be added as a debit to the fixed asset account of such person, including,
without limitation, amounts paid or payable under any conditional sale or other
title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment obligations of such person
thereunder would be required by generally accepted accounting principles
consistently applied to be capitalized and shown as liabilities on the balance
sheet of such person."
"Capital Lease" shall mean with respect to any person any lease of any
property (whether real, personal or mixed) by such person as lessee which, in
conformity with generally accepted accounting principles consistently applied,
is, or is required to be accounted for as a capital lease on the balance sheet
of such person, together with any renewals of such leases (or entry into new
leases) on substantially similar terms.
"Change of Control" shall have the meaning ascribed to such term in the
Note Documents.
"Commitment" shall mean the total commitment of Bank to make Advances
to Company pursuant to this Agreement in the amount of Fifty Million Dollars
($50,000,000), subject to reduction as herein provided.
"Consolidated" or "consolidated" or "Consolidating" or "consolidating"
shall, when used with reference to any financial information pertaining to (or
when used as a part of any defined term or statement pertaining to the financial
condition of) Company and its Subsidiaries, mean the accounts of Company and its
Subsidiaries determined on a consolidated or consolidating basis, as the case
may be, all determined as to principles of consolidation and, except as
otherwise specifically required by the definition of such term or by such
statements, as to such accounts, in accordance with generally accepted
accounting principles applied on a consistent basis and
2
<PAGE> 4
consistent with the financial statements, if any, as at and for the fiscal year
ended October 31, 1997.
"Debt to Capitalization Ratio" shall mean the ratio of Funded Debt to
the sum of Total Liabilities plus Net Worth (as hereafter defined).
"Debt Service Coverage Ratio" shall mean as of any date of
determination, a ratio, the numerator of which is EBITDA for the Applicable
Measuring Period ending on such date of determination less Capital Expenditures
of Company and its Consolidated Subsidiaries during such period and the
denominator of which is the sum of principal and interest payments due and
payable with respect to any indebtedness of Company (including obligations under
Capital Leases) during such period.
"EBITDA" shall mean as of any date of determination, Net Income for the
Applicable Measuring Period plus, to the extent deducted in determining Net
Income, (i) depreciation and amortization expense of Company and its
consolidated Subsidiaries for such period, (ii) interest expense of Company and
its consolidated Subsidiaries for such period and (iii) income taxes of Company
and its consolidated subsidiaries for such period, all as determined in
accordance with generally accepted accounting principles consistently applied."
"Environmental Laws" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental pollution,
contamination or other impairment of any nature, any hazardous or other toxic
substances of any nature, whether liquid, solid and/or gaseous, including smoke,
vapor, fumes, soot, acids, alkalis, chemicals, wastes, by-products, and recycled
materials. These Environmental Laws shall include but not be limited to the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976, the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act of 1986,
regulations of the Environmental Protection Agency, regulations of the Nuclear
Regulatory Agency, regulations of any state department of natural resources or
state environmental protection agency now or at any time hereafter in effect and
local health department ordinances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.
"Eurodollar-based Advance" shall mean an Advance which bears interest
at the Eurodollar-based Rate.
"Eurodollar-based Rate" shall mean a per annum interest rate which is
the sum of the Applicable Margin plus the quotient of:
(a) the per annum interest rate at which Bank's Eurodollar Lending
Office offers deposits to prime banks in the eurodollar market
in an amount comparable to the
3
<PAGE> 5
relevant Eurodollar-based Advance and for a period equal to
the relevant Eurodollar-Interest Period at approximately the
time the relevant Eurodollar-based Advance is made; divided by
(b) a percentage equal to 100% minus the maximum rate on such date
at which Bank is required to maintain reserves on
"Euro-currency Liabilities" as defined in and pursuant to
Regulation D of the Board of Governors of the Federal Reserve
System or, if such regulation or definition is modified, and
as long as Bank is required to maintain reserves against a
category of liabilities which includes eurodollar deposits or
includes a category of assets which includes eurodollar loans,
the rate at which such reserves are required to be maintained
on such category.
"Eurodollar-Interest Period" shall mean an Interest Period of one (1),
two (2), three (3), or six (6) months as selected by Company pursuant to
Sections 2.5 or 2.7 of this Agreement.
"Eurodollar Lending Office" shall mean Bank's office located at Grand
Cayman Island, British West Indies or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Company.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by Bank from three Federal funds brokers of recognized standing
selected by it.
"Funded Debt" shall mean as of any date of determination Company's and
its consolidated Subsidiaries' indebtedness for borrowed money as of such date
and the principal component of Company's and its consolidated Subsidiaries'
Capital Lease obligations as of such date, less cash and cash equivalents to the
extent exceeding $2,000,000.
"Funded Debt to EBITDA Ratio" shall mean as of any date of
determination a ratio the numerator of which is Funded Debt as of such date and
the denominator of which is EBITDA for the Applicable Measuring Period
multiplied by (i) four for the Applicable Measuring Period ending April 30,
1998, (ii) two for the Applicable Measuring Period ending July 31, 1998, (iii)
one and one third for the Applicable Measuring Period ending October 31, 1998
and (iv) one for each period thereafter.
"Guaranty" shall mean the Guaranty Agreement dated March 9, 1992 from
the Guarantors to Bank, together with any additional guaranty delivered to Bank
by a Subsidiary pursuant to the provisions of Section 6.14 hereof, in each case
as the same may be amended from time to time.
4
<PAGE> 6
"Guarantors" shall mean Rochester Gear, Inc. and Plastronics Plus, Inc.
and each other person who from time to time is required pursuant to the terms of
this Agreement to guaranty Company's obligations to Bank hereunder.
"Interest Period" shall mean a Eurodollar-Interest Period commencing on
the day a Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding
Business Day, except that as to a Eurodollar-Interest Period,
if the next succeeding Business Day falls in another calendar
month, the Eurodollar-Interest Period shall end on the next
preceding Business Day, and when a Eurodollar-Interest Period
begins on a day which has no numerically corresponding day in
the calendar month during which such Eurodollar-Interest
Period is to end, it shall end on the last Business Day of
such calendar month, and
(b) no Interest Period shall extend beyond the maturity date set
forth in the Note to which such Interest Period is to apply.
"Letter of Credit Maximum Amount" shall mean Three Million Dollars
($3,000,000).
"Net Income" shall mean the net income (or loss) of Company and its
consolidated Subsidiaries for any period determined in accordance with generally
accepted accounting principles consistently applied but excluding in any event
(i) any extraordinary gains or losses, (ii) any gains or losses from
discontinued operations or the sale of Eonic, Inc. or Newcor Machine Tool, Inc.,
and (iii) any taxes on the excluded gains and any tax deductions or credits on
account of any excluded losses.
"Net Worth" for any person shall mean, at any date, an amount computed
in accordance with generally accepted accounting principles consistently applied
and determined by subtracting total liabilities from total assets.
"Notes" shall mean the Revolving Credit Note and the Term Note and
>Note' shall refer to each of them.
"Note Documents" shall mean each of the documents and instruments
executed and delivered in connection with issuance of the Senior Subordinated
Notes.
"Pension Plans" shall mean all pension plans of Company which are
subject to ERISA.
"Permitted Liens" shall mean with respect to any Person:
5
<PAGE> 7
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of such
Person in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's liens or other like Liens arising in the
ordinary course of business which are not overdue for a period of more
than 60 days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(d) deposits to secure (i) the performance of bids, trade
contracts (other than for borrowed money), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature or (ii) the performance of leases permitted hereunder, in
each case given or incurred on terms, in amounts and otherwise in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances or Liens incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do not
in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the
business of such Person;
(f) existing liens described in Schedule 7.7;
(g) liens securing indebtedness permitted by Section 7.4(d)
incurred to finance the acquisition of fixed or capital assets,
provided that (i) such liens shall be created substantially
simultaneously with the acquisition of such fixed assets, (ii) such
liens do not at any time encumber any property other than the property
financed by such indebtedness, (iii) the amount of indebtedness secured
thereby is not increased and (iv) the principal amount of indebtedness
secured by any such lien shall at no time exceed 100% of the original
purchase price of such property;
(h) liens on assets sold to Company by Machine Tool & Gear,
Inc. ("MT&G") granted to MT&G to secure Debt owed MT&G and incurred in
connection with such purchase; and
(i) existing liens granted in connection with existing
industrial development revenue lend financings
6
<PAGE> 8
"Prime Rate" shall mean the per annum interest rate established by Bank
as its prime rate for its borrowers as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any such
time.
"Prime-based Advance" shall mean an advance which bears interest at the
Prime-based Rate.
"Prime-based Rate" shall mean a per annum interest rate which is the
greater of (i) the Prime Rate or (ii) the Alternate Base Rate.
"Request for Advance" shall mean a Request for Advance issued by
Company under this Agreement in the form annexed to this Agreement as Exhibit
"B".
"Revolving Credit Maturity Date" shall mean February 28, 2001.
"Revolving Credit Note" shall mean the revolving credit note issued by
Company under this Agreement in the form annexed to this Agreement as Exhibit
"A".
"Security Agreement" shall mean a security agreement in the form
attached hereto as Exhibit "G" from Company or a Subsidiary, as applicable, to
Bank granting to Bank a security interest in such person's tangible and
intangible personal property whether now owned or hereafter acquired.
"Senior Subordinated Notes" shall mean the notes issued in connection
with the private placement of debt referred to in Section 2.1.
"Subsidiary" shall mean a corporation of which more than fifty percent
(50%) of the outstanding voting stock is owned by Company, either directly or
indirectly, through one or more intermediaries and "Subsidiaries" shall refer,
collectively, to each Subsidiary of Company.
"Term Loan Maturity Date" shall mean May 10, 2003.
"Term Note" shall mean the term note issued by Company under this
Agreement in the form annexed to this Agreement as Exhibit "F".
"Total Liabilities" shall mean as of any date of determination all
liabilities of Company and its consolidated Subsidiaries as determined in
accordance with generally accepted accounting principles consistently applied,
less an amount equal to cash and cash equivalents as of such date but only to
the extent such cash and cash equivalents exceed $2,000,000.
2. THE INDEBTEDNESS: Revolving Credit
2.1 Bank agrees to make Advances to Company at any time and from time
to time from the effective date hereof until the Revolving Credit Maturity Date,
not to exceed the
7
<PAGE> 9
Commitment in aggregate principal amount at any one time outstanding. All of the
Advances hereunder shall be evidenced by the Revolving Credit Note under which
advances, repayments and readvances may be made, subject to the terms and
conditions of this Agreement. Advances outstanding under the Existing Agreement
shall be deemed to be Advances under this Agreement with the same Interest
Periods and Applicable Interest Rates. Interest accrued and unpaid under the
Existing Agreement shall be deemed to have accrued hereunder. Until Company
shall provide to the Bank evidence of the closing of a private placement of debt
in an amount not less than $100,000,000 on terms and conditions acceptable to
Bank, the maximum amount of Advances shall not exceed $37,000,000 outstanding at
any one time.
2.2 The Revolving Credit Note shall mature on the Revolving Credit
Maturity Date and each Advance from time to time outstanding thereunder shall
bear interest at its Applicable Interest Rate. The amount and date of each
Advance, its Applicable Interest Rate, its Interest Period, and the amount and
date of any repayment shall be noted on Bank's records, which records will be
conclusive evidence thereof.
2.3 Interest on the unpaid balance of all Prime-based Advances from
time to time outstanding, shall be payable quarterly commencing on January 31,
1998 and on the last day of each quarter thereafter. Interest accruing at the
Prime-based Rate shall be computed on the basis of a 360 day year and assessed
for the actual number of days elapsed, and in such computation effect shall be
given to any change in the Prime-based Rate resulting from a change in the
Prime-based Rate on the date of such change in the Prime-based Rate.
2.4 Interest on each Eurodollar-based Advance shall be payable on the
last day of the Interest Period applicable thereto. Interest accruing at the
Eurodollar-based Rate shall be computed on the basis of a 360 day year and
assessed for the actual number of days elapsed from the first day of the
Interest Period applicable thereto to but not including the last day thereof.
2.5 Company may request an Advance upon the delivery to Bank of a
Request for Advance executed by an authorized officer of Company, subject to the
following:
(a) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "B";
(b) each such Request for Advance shall be delivered to Bank by
4:00 p.m. on the proposed date of Advance;
(c) the principal amount of such Advance, plus the amount of any
outstanding indebtedness to be then combined therewith having
the same Applicable Interest Rate and Interest Period, if any,
shall be (i) in the case of a Prime-based Advance at least
$100,000 and (ii) in the case of a Eurodollar-based Advance at
least $500,000 or any larger amount in $100,000 increments;
8
<PAGE> 10
(d) a Request for Advance, once delivered to Bank, shall not be
revocable by Company.
2.6 Company may prepay all or part of the outstanding balance of the
Prime-based Advance(s) under the Line of Credit Note at any time, provided that
the amount of any such partial prepayment shall be at least $100,000 and the
aggregate balance of Prime-based Advance(s) remaining outstanding shall be at
least $100,000. Upon two (2) Business Days prior notice to Bank, Company may
prepay all or part of any Eurodollar-based Advance on the last day of the
Interest Period therefor, provided that the amount of any such partial
prepayment shall be at least $500,000 and the unpaid portion of such Advance
which is refunded or converted under Section 2.7 shall be subject to the
limitations of subsection (c) thereof. Any prepayment made in accordance with
this Section shall be without premium, penalty or prejudice to Company's right
to reborrow under the terms of this Agreement. Any other prepayment shall be
restricted by Section 3.1 hereof.
2.7 Company may refund any Advance in the same type of Advance or
convert any Advance to any other type of Advance upon the delivery to Bank of a
Request for Advance, subject to the following:
(a) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "B";
(b) each such Request for Advance shall be delivered to Bank by
11:00 a.m. on the proposed date of refunding or conversion,
which proposed date in the case of an outstanding
Eurodollar-based Advance shall only be on the last day of the
Interest Period applicable thereto;
(c) the amount to be converted to or refunded, plus the amount of
any outstanding indebtedness or new Advance to be then
combined therewith having the same Applicable Interest Rate
and Interest Period, if any, shall be (i) in the case of a
Prime-based Advance at least $100,000 and (ii) in the case of
a Eurodollar-based Advance at least $500,000;
(d) a Request for Advance, once delivered to Bank, shall not be
revocable by Company.
If, as to any outstanding Eurodollar-based Advance, Bank shall not receive a
timely Request for Advance, the principal amount thereof which is not then
prepaid shall be automatically converted to a Prime-based Advance on the last
day of the Interest Period applicable thereto, subject in all cases to the
requirement that the aggregate outstanding amount of Prime-based Advances shall
be at least $100,000.
2.8 Subject to the terms and conditions of this Agreement, Bank may, at
any time and from time to time until the Revolving Credit Maturity Date, upon
the request of Company, issue
9
<PAGE> 11
letters of credit ("Letters of Credit") for the account of Company, in an
aggregate amount at any one time outstanding not to exceed the Letter of Credit
Maximum Amount. Each Letter of Credit shall provide an initial expiration date
not later than the Revolving Credit Maturity Date. All applications by Company
for Letters of Credit will be submitted, and all Letters of Credit issued, in
accordance with United States Treasury Foreign Assets Control and Cuban Control
Regulations and, further, no Letters of Credit will be issued in favor of any
beneficiary in Libya, Syria, Iraq or Iran. Letters of Credit shall be issued
upon terms and conditions acceptable to Bank. A Letter of Credit commission in
the amount of one half of one percent (1/2%) per annum shall be payable with
respect to each Letter of Credit, which shall be payable annually in advance.
Letters of Credit issued under the Existing Agreement shall be deemed to be
Letters of Credit issued hereunder.
2.9 No Letter of Credit shall be issued unless, as of the date the
issuance of such Letter of Credit is requested:
(a) the face amount of the Letter of Credit requested
when added to the face amount of all other
outstanding Letters of Credit does not exceed the
Letter of Credit Maximum Amount;
(b) the face amount of the Letter of Credit requested
when added to the principal amount of all Advances
under the Line of Credit Note outstanding and other
outstanding Letters of Credit, does not exceed the
Commitment;
(c) the obligations of Company set forth in this
Agreement are valid, binding and enforceable
obligations of Company;
(d) no event of default hereunder exists and no event
which, with the giving of notice or lapse of time, or
both, would constitute an event of default hereunder
exists;
(e) the representations and warranties contained in this
Agreement are true in all material respects;
(f) no order, judgment or decree of any court, arbitrator
or governmental authority shall purport by its terms
to enjoin or restrain Bank from issuing the Letter of
Credit.
2.10 Company agrees to pay to Bank a commitment fee on the average
daily balance of the unused portion of the revolving credit (less any
outstanding Letters of Credit) at the rate of the Applicable Commitment Fee
Percentage (as in effect from time to time) per annum, computed on the actual
number of days elapsed using a year of 360 days. The commitment fee shall be
payable quarterly commencing April 1, 1998. Commitment fees accrued and unpaid
under the Existing Agreement shall be deemed to have accrued hereunder.
10
<PAGE> 12
2.11 The Applicable Margin and Applicable Commitment Fee Percentage
shall be based on the Company's Funded Debt to EBITDA Ratio (determined as of
the last day of each fiscal quarter of Company) and determined in accordance
with Schedule 2.11 hereto and shall be implemented on a quarterly basis.
Adjustments shall be effective on the first day of the first month following the
required date of delivery of the financial statements for October, January,
April and July required pursuant to the provisions of Section 6.1(b) of this
Agreement. Until the financial statements for the period ending October 31, 1998
are delivered, Level III pricing shall apply, provided, however, with respect to
the principal amount of Advances in excess of $25,000,000, Level IV pricing
shall apply and the Level IV Applicable Commitment Fee Percentage shall be
applicable for any fiscal quarter in which the aggregate outstanding amount of
Advances and Letters of Credit exceeds $25,000,000 at any time during such
fiscal quarter.
2.A. THE INDEBTEDNESS: TERM CREDIT
2.A.1 On May 13, 1996 Company borrowed the sum of Ten Million Dollars
($10,000,000). At the time of borrowing, Company executed the Term Note.
2.A.2 The indebtedness represented by the Term Note shall be repaid in
monthly principal installments each equal to One Hundred Sixty Six Thousand Six
Hundred Sixty Seven Dollars ($166,667), which payments shall commence on June
10, 1998 and continue on the tenth day of each month thereafter, until the Term
Loan Maturity Date, when the entire unpaid balance of principal and interest
thereon shall be due and payable.
2.A.3 The proceeds of the Term Note were used solely for acquisition
financing and for general corporate purposes.
2.A.4 The Term Note and the term loan hereunder shall bear interest
from the date thereof on the unpaid principal balance thereof from time to time
outstanding, at a fixed rate per annum equal to seven and eighty five one
hundredths percent (7.85%) ("Fixed Rate"), payable monthly on the tenth day of
each month commencing on the tenth day of the first month following the
disbursement of the term loan under this Section 2.A. Notwithstanding the
foregoing from and after the occurrence of an Event of Default, the principal
outstanding under the Term Note shall bear interest payable on demand, at a rate
per annum equal to the greater of (i) three percent (3%) above the Fixed Rate
and (ii) three percent (3%) above the Bank's Prime Rate.
2.A.5 All partial prepayments with respect to the Term Note shall be
applied to the Term Note in the inverse order of their respective maturities.
The Term Note may be prepaid on any principal installment payment date upon five
(5) days written notice to Bank, in whole or in part (in amounts of at least
$200,000) upon payment of a premium equal to the sum of the discounted net
present values of the interest payments that would otherwise be payable on the
principal amount being prepaid, after reducing each such interest payment by the
amount of the interest that would be payable on each interest payment due date
if the principal amount being prepaid were re-invested at the Current Market
Rate therefor plus $500. For these purposes, "Current
11
<PAGE> 13
Market Rate" shall mean a per annum interest rate equal to one half percent
(1/2%) above the rate reasonably determined by Bank (based on quotations from
established dealers) to be in effect two days prior to the repayment date in
the secondary market for United States Treasury securities of a comparable
amount and with a comparable term to maturity as the principal amount being
prepaid. For the purposes of computation, the discount rate for each
computation will be the Current Market Rate for the relevant principal
installment. Upon any involuntary prepayment of the Term Note, Company shall
pay to Bank a prepayment premium equal to the prepayment premium which would be
due and payable hereunder if Company had voluntarily elected to prepay the Term
Note (in an amount equal to such involuntary prepayment) on such date of
involuntary prepayment."
3. SPECIAL PROVISIONS, CHANGES IN CIRCUMSTANCES AND YIELD PROTECTION.
3.1 As to any Eurodollar-based Advance, if any prepayment thereof shall
occur on any day other than the last day of an Interest Period (whether pursuant
to this Article, or by acceleration, or otherwise), or if an Applicable Interest
Rate shall be changed during any Interest Period pursuant to this Article,
Company shall reimburse Bank on demand for any costs incurred by Bank as a
result of the timing thereof including but not limited to any costs incurred in
liquidating or employing deposits from third parties, provided that Bank shall
have delivered to Company a certificate setting forth the basis for determining
such costs, which certificate shall be conclusively presumed correct save for
manifest error.
3.2 For any Interest Period for which the Applicable Interest Rate is
the Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending Office
which maintains books separate from those of the rest of Bank, Bank shall have
the option of maintaining and carrying the relevant Advance on the books of such
Eurodollar Lending Office.
3.3 If with respect to any Interest Period Bank determines that, by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts are not being
offered to the Bank for such Interest Period, then Bank shall forthwith give
notice thereof to the Company. Thereafter, until Bank notifies Company that such
circumstances no longer exist, the obligation of Bank to make Eurodollar-based
Advances, and the right of Company to convert an Advance to or refund an Advance
as a Eurodollar-based Advance shall be suspended.
3.4 If, after the date hereof, the introduction or implementation of,
or any change in, any applicable law, rule or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, shall make it unlawful or impossible
for the Bank (or its Eurodollar Lending Office) to honor its obligations
hereunder to make or maintain any Advance with interest at the Eurodollar-based
Rate, Bank shall forthwith give notice thereof to Company. Thereafter (a) the
obligation of Bank to make Eurodollar-based Advances and the right of
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Company to convert an Advance or refund an Advance as a Eurodollar-based Advance
shall be suspended and thereafter Company may select as Applicable Interest
Rates only those which remain available, and (b) if Bank may not lawfully
continue to maintain an Advance to the end of the then current Interest Period
applicable thereto, the Prime-based Rate shall be the Applicable Interest Rate
for the remainder of such Interest Period.
3.5 If the adoption or implementation after the date hereof, or any
change after the date hereof in, any applicable law, rule or regulation of any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) made by any such authority, central bank or comparable agency
after the date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any
tax, duty or other charge with respect to any Advance or the
Revolving Credit Note or shall change the basis of taxation of
payments to Bank (or its Eurodollar Lending Office) of the
principal of or interest on any Advance or the Revolving
Credit Note or any other amounts due under this Agreement in
respect thereof (except for changes in the rate of tax on the
overall net income of Bank or its Eurodollar Lending Office
imposed by the jurisdiction in which Bank's principal
executive office or Eurodollar Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by Bank (or its Eurodollar
Lending Office) or shall impose on Bank (or its Eurodollar
Lending Office) or the foreign exchange and interbank markets
any other condition affecting any Advance or the Revolving
Credit Note;
and the result of any of the foregoing is to increase the costs to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount of
any sum received or receivable by Bank under this Agreement or under the
Revolving Credit Note, by an amount deemed by the Bank to be material, then Bank
shall promptly notify Company of such fact and demand compensation therefor and,
within fifteen days after demand by Bank, Company agrees to pay to Bank such
additional amount or amounts as will compensate Bank for such increased cost or
reduction. Bank will promptly notify Company of any event of which it has
knowledge which will entitle Bank to compensation pursuant to this Section. A
certificate of Bank setting forth the basis for determining such additional
amount or amounts necessary to compensate Bank shall be conclusively presumed to
be correct save for manifest error.
3.6 In the event that at any time after the date of this Agreement any
change in law such as described in Section 4.5, hereof, shall, in the reasonable
opinion of Bank require that the credit provided under this Agreement be treated
as an asset or otherwise be included for purposes
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<PAGE> 15
of calculating the appropriate amount of capital to be maintained by Bank or any
corporation controlling Bank, Bank shall notify Company. Company and Bank shall
thereafter negotiate in good faith an agreement to increase the commitment fee
payable to Bank hereunder, to a rate which in the reasonable opinion of Bank
will adequately compensate the Bank for the costs associated with such change in
law. If Company and Bank are unable to agree on such increase within thirty (30)
days from the date of the notice to Company, Company shall have the option,
exercised by written notice to Bank within forty-five (45) days from the date of
the aforesaid notice to Company from Bank, to terminate this Agreement, in which
event, all sums then outstanding to Bank hereunder shall be due and payable in
full. If (a) Company and Bank fail to agree on an increase in the commitment
fee, or (b) Company fails to give timely notice that it has elected to exercise
its option to terminate this Agreement as set forth above, then this Agreement
shall automatically terminate as of the last day of the aforesaid forty-five
(45) day period, in which event all sums then outstanding to Bank hereunder
shall be due and payable in full.
3.7 Anything herein to the contrary notwithstanding, Company shall not
be required to pay any increased costs under Sections 3.5 or 3.6 for any period
ending prior to the date that is 120 days prior to the making of a Bank's
initial request for such additional amounts unless the applicable change in law
or other event resulting in such increased costs is effective retroactively to a
date more than 120 days prior to the date of such request, in which case Bank
request for such additional amounts relating to the period more than 120 days
prior to the making of the request must be given not more than 120 days after
Bank becomes aware of the applicable change in law or other event resulting in
such increased costs.
4. CONDITIONS
4.1 Company agrees to furnish Bank prior to the initial borrowing under
this Agreement, in form and substance to be satisfactory to Bank, with (i)
certified copies of resolutions of the Board of Directors of Company and each
Guarantor evidencing approval of the borrowing hereunder and the transactions
contemplated hereby; (ii) certified copies of Company's and each Guarantor's
Certificate of Incorporation and Bylaws; and (iii) a certificate of good
standing from the state of Company's and each Guarantor's incorporation and from
the states in which each of them is qualified to do business.
4.2 Bank shall not be obligated to make any Advance if at the time of
such request for Advance, the Advances outstanding under the Revolving Credit
Note and the stated amount of outstanding Letters of Credit when added to the
amount requested would exceed the Commitment.
4.3 As security for all indebtedness of Company to Bank hereunder,
Company agrees to furnish, execute and deliver to Bank, or cause to be
furnished, executed and delivered to Bank, prior to or simultaneously with the
initial borrowing hereunder, in form to be satisfactory to Bank and supported by
appropriate resolution in certified form authorizing same, the following:
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<PAGE> 16
(a) The Security Agreements; and
(b) A Guaranty from each of Company's Subsidiaries in form similar
to that annexed as Exhibit "C".
To the extent that Company or a Guarantor has heretofore given a security
interest to Bank to certain of the foregoing and such documents and agreements
comply with the requirements of this Agreement, it is hereby agreed that such
documents and agreements shall remain in full force and effect for the purposes
of this Agreement, but Bank may, if it deems it necessary or desirable, require
execution of a new agreement or agreements.
5. REPRESENTATIONS AND WARRANTIES
Company represents and warrants and such representations and warranties
shall be deemed to be continuing representations and warranties during the
entire life of this Agreement:
5.1 It and each of its Subsidiaries is a corporation duly organized and
existing in good standing under the laws of their respective states of
incorporation; it and each of its Subsidiaries is duly qualified and authorized
to do business as a foreign corporation in each jurisdiction where the character
of their assets or the nature of their activities makes such qualification
necessary; execution, delivery and performance of this Agreement, and any other
documents and instruments required under this Agreement, and the issuance of the
Notes by Company are within its corporate powers, have been duly authorized, are
not in contravention of law or the terms of Company's Articles of Incorporation
or Bylaws, and do not require the consent or approval of any governmental body,
agency or authority; and this Agreement and any other documents and instruments
required under this Agreement, when issued and delivered under this Agreement,
will be valid and binding in accordance with their terms.
5.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the issuance
of the Notes by Company, are not in contravention of the unwaived terms of any
indenture, agreement or undertaking to which Company is a party or by which it
is bound.
5.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of Company
is threatened against Company or any of its Subsidiaries, the outcome of which
could materially impair Company's or any of its Subsidiaries' financial
condition or its ability to carry on its business.
5.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Company's or any of its Subsidiaries' assets, except to
Bank, or as permitted in this Agreement.
5.5 As of the date of execution of this Agreement, there are no
Subsidiaries of Company except the Subsidiaries listed in attached Schedule 5.5.
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<PAGE> 17
5.6 There exists no default by Company or any Subsidiary under the
provisions of any instrument evidencing any permitted debt or of any agreement
relating thereto.
5.7 Neither Company nor any Subsidiary maintains or contribute to any
Pension Plans subject to ERISA except the plans listed on Exhibit "D" hereto
("Pension Plans"). The "unfunded past service liability" of the Pension Plans,
as of October 31, 1997, was approximately as noted on Exhibit "D", and there is
no accumulated funding deficiency within the meaning of ERISA, or any existing
liability with respect to the Pension Plan owed to the Pension Benefit Guaranty
Corporation or any successor thereto.
5.8 The balance sheet and operating statements of Company and its
Consolidated Subsidiaries dated October 31, 1997, previously furnished Bank, is
complete and correct and fairly presents the financial condition of Company and
its Consolidated Subsidiaries and the results of its and their operations; since
said date there has been no material adverse change in the financial condition
of Company and its Consolidated Subsidiaries; to the knowledge of Company's
officers, neither Company nor any Subsidiary has any contingent obligations as
of such date (including any liability for taxes) not disclosed by or reserved
against in said balance sheet, and at the present time there are no material
unrealized or anticipated losses from any present commitment of Company or any
of its Consolidated Subsidiaries.
5.9 All tax returns and tax reports of Company and its Subsidiaries
required by law to be filed have been duly filed or extensions obtained, and all
taxes, assessments and other governmental charges or levies (other than those
presently payable without penalty and those currently being contested in good
faith for which adequate reserves have been established) upon Company and its
Subsidiaries (or any of its or their properties) which are due and payable have
been paid. The charges, accruals and reserves on the books of Company and its
Subsidiaries in respect of the Federal income tax for all periods are adequate
in the opinion of Company.
5.10 Company and its Subsidiaries are, in the conduct of their
business, in compliance in all material respects with all federal, state or
local laws, statutes, ordinances and regulations applicable to it, the
enforcement of which, if they were not in compliance, would adversely affect
their business or the value of their property or assets. Company and its
Subsidiaries have all approvals, authorizations, consents, licenses, orders and
other permits of all governmental agencies and authorities, whether federal,
state or local, required to permit the operation of their business as presently
conducted, except such approvals, authorizations, consents, licenses, orders and
other permits with respect to which the failure to have can be cured without
having an adverse effect on the operation of such business.
5.11 No representation or warranty by Company in this Agreement, nor
any written statement or certificate (including financial statements) furnished
or to be furnished to Bank pursuant hereto contains or will contain any
materially untrue statement of any fact or omits or will omit to state a fact
necessary to make such representation, warranty, statement or certificate not
misleading.
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5.12 Neither Company nor any Subsidiary is a party to any litigation or
administrative proceeding, nor so far as is known by Company is any litigation
or administrative proceeding threatened against Company or any Subsidiary, which
in either case involves a potential liability in excess of $100,000 and which
(A) asserts or alleges that Company or any Subsidiary violated Environmental
Laws, (B) asserts or alleges that Company or any Subsidiary is required to clean
up, remove, or take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials, or (C) asserts or alleges that Company or any Subsidiary is required
to pay all or a portion of the cost of any past, present, or future cleanup,
removal or remedial or other response action which arises out of or is related
to the disposal, depositing, discharge, leaking or other release of any
hazardous substances or materials by Company or any Subsidiary.
5.13 To the best knowledge of Company, there are no conditions existing
currently or likely to exist during the term of this Agreement which would
subject Company or any Subsidiary to damages, penalties, injunction relief or
cleanup costs under any applicable Environmental Laws involving an amount in
excess of $100,000 or which require or are likely to require cleanup, removal,
remedial action or other response pursuant to applicable Environmental Laws by
Company or any Subsidiary the cost of which is likely to exceed $100,000.
5.14 Neither Company nor any Subsidiary is subject to any judgment,
decree, order or citation related to or arising out of applicable Environmental
Laws noncompliance with which is reasonable likely to have a material adverse
effect on Company or any Subsidiary and to the best knowledge of the Company,
neither Company nor any Subsidiary has been named or listed as a potentially
responsible party by any governmental body or agency in a matter arising under
any applicable Environmental Laws involving a potential cost in excess of
$100,000.
5.15 Company and it Subsidiaries have all material permits, licenses
and approvals required under applicable Environmental Laws.
6. AFFIRMATIVE COVENANTS
Company covenants and agrees that it will, so long as Bank is committed
to make any advances or issue Letters of Credit under this Agreement and so long
as any indebtedness or any Letters of Credit remain outstanding under this
Agreement:
6.1 Furnish Bank:
(a) within ninety (90) days after and as of the end of each of
Company's fiscal years, a detailed Consolidated audit report
of Company and its Consolidated Subsidiaries certified to by
independent certified public accountants satisfactory to Bank;
(b) within forty five (45) days after and as of the end of each
fiscal quarter, excluding the last quarter of each fiscal
year, a Consolidated and Consolidating balance sheet
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and statement of profit and loss and surplus reconciliation of
Company and its Consolidated Subsidiaries certified by an
authorized officer of Company;
(c) such information as required by the terms and conditions of
any security agreements referred to in this Agreement;
(d) promptly, and in form to be satisfactory to Bank, such other
information as Bank may request from time to time.
6.2 On a Consolidated statement basis, maintain, as of the end of each
fiscal quarter, Net Worth of not less than the Base Net Worth.
6.3 On a Consolidated statement basis, maintain as of the end of each
fiscal quarter, a Debt Service Coverage Ratio of not less than 1.75 to 1.0.
6.4 On a Consolidated statement basis, maintain as of the end of each
fiscal quarter a Funded Debt to EBITDA Ratio of not more than the following
amounts during the periods specified below:
Present through October 30, 1998 5.5 to 1.0
October 31, 1998 through October 30, 1999 4.5 to 1.0
October 31, 1999 and thereafter 3.5 to 1.0
6.5 On a Consolidated statement basis, maintain, as of the end of each
fiscal quarter, a Debt to Capital Ratio of not more than:
Present through October 30, 1998 .85 to 1.0
October 31, 1998 through October 30, 1999 .80 to 1.0
October 31, 1999 and thereafter .75 to 1.0
6.6 Pay and discharge, and cause its Subsidiaries to pay and discharge,
all taxes and other governmental charges and all contractual obligations calling
for the payment of money, before the same shall become overdue, unless and to
the extent only that such payment is being contested in good faith.
6.7 Maintain, and cause its Subsidiaries to maintain, insurance
coverage on their physical assets and against other business risks in such
amounts and of such types as are customarily carried by companies similar in
size and nature, and in the event of acquisition of additional property, real or
personal, or of incurrence of additional risks of any nature, increase such
insurance coverage in such manner and to such extent as prudent business
judgment and present practice would dictate; and in the case of all policies
covering property mortgaged or pledged to Bank or property in which Bank shall
have a security interest of any kind whatsoever, other than those policies
protecting against casualty liabilities to strangers, all such insurance
policies shall provide that the loss payable thereunder shall be payable to
Company and Bank as
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<PAGE> 20
their respective interests may appear; copies of all said policies, including
all endorsements thereon and those required hereunder, to be deposited with
Bank.
6.8 Permit, and cause its Subsidiaries to permit, Bank, through its
authorized attorneys, accountants, and representatives, to examine Company's and
its Subsidiaries' books, accounts, records, ledgers and assets of every kind and
description at all reasonable times upon oral or written request of Bank.
6.9 Promptly notify Bank of any condition or event which constitutes or
with the running of time and/or the giving of notice would constitute a default
under this Agreement, and promptly inform Bank of any material adverse change in
Company's or any Subsidiary's financial condition.
6.10 Furnish to the Bank concurrently with the delivery of each of the
financial statements required by Section 6.1(a) and (b) hereof, a statement
prepared and certified by the chief financial officer of Company (or in his
absence, a responsible senior officer of Company) (a) setting forth all
computations necessary to show compliance by Company with the financial
covenants contained in Section 6.2, 6.3, 6.4 and 6.5 of this Agreement as of the
date of such financial statements, (b) stating that as of the date thereof, no
condition or event which constitutes an event of default or which with the
running of time and/or the giving of notice would constitute an event of default
has occurred and is continuing, or if any such event or condition has occurred
and is continuing or exists, specifying in detail the nature and period of
existence thereof and any action taken with respect thereto taken or
contemplated to be taken by Company and (c) stating that the signer has
personally reviewed this Agreement and that such certificate is based on an
examination sufficient to assure that such certificate is accurate.
6.11 Maintain in good standing, and cause each Subsidiary to maintain
in good standing, all licenses required by the State of Michigan, or any agency
thereof, or other governmental authority that may be necessary or required for
Company or any Subsidiary to carry on its general business objects and purposes.
6.12 Furnish, and cause each Subsidiary to furnish, Bank, upon Bank's
request, in form satisfactory to Bank with pledges, assignments, mortgages, lien
instruments or other security instruments covering any or all of Company's and
each Subsidiary's real or personal property, of every nature and description,
whether now owned or hereafter acquired, to the extent that Bank may in its sole
reasonable discretion require.
6.13 Comply, and cause each Subsidiary to comply, with all material
requirements imposed by ERISA as presently in effect or hereafter promulgated
including, but not limited to, the minimum funding requirements of the Pension
Plans.
6.14 Promptly notify Bank after the occurrence thereof in writing of
any of the following events:
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(a) the termination of Company's or any Subsidiary's Pension Plan
pursuant to Subtitle C of Title IV of ERISA or otherwise;
(b) the appointment of a trustee by a United States District Court
to administer the Pension Plan;
(c) the commencement by the Pension Benefit Guaranty Corporation
("PBGC"), or any successor thereto of any proceeding to
terminate the Company's or any Subsidiary's Pension Plan;
(d) the failure of the Company's or any Subsidiary's Pension Plan
to satisfy the minimum funding requirements for any plan year
as established in Section 412 of the Internal Revenue Code of
1954, as amended;
(e) the withdrawal of the Company or any Subsidiary from a Pension
Plan; or
(f) a reportable event, within the meaning of Title IV of ERISA,
which Company is required to report to the PBGC.
6.15 Company shall cause each person which now is or hereafter becomes
a Subsidiary to deliver to Bank, in accordance with this Section 6.15, a fully
executed guaranty agreement in the form attached as Exhibit "C" and such other
instruments and documents related to such guaranty as Bank shall reasonably
request. Within three (3) Business Days after a person becomes a Subsidiary,
Company shall notify Bank of such occurrence in writing. The guaranty and other
documents to be executed and delivered pursuant to this Section 6.15 shall be
delivered to Bank within fifteen (15) days after the date such notice is
required.
7. NEGATIVE COVENANTS
Company covenants and agrees that so long as Bank is committed to make
any advances or issue Letters of Credit under this Agreement and so long as any
indebtedness or any Letters of Credit remain outstanding under this Agreement,
it will not, and it will cause its Subsidiaries not to, without the prior
written consent of Bank:
7.1 Purchase, acquire or redeem any of its capital stock or make any
material change in its capital structure or general business objects or purpose.
7.2 Enter into any merger or consolidation or sell, lease, transfer, or
dispose of all, substantially all, or any material part of its assets, except in
the ordinary course of its business.
7.3 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except (i) by endorsement for deposit in the
ordinary course of business, (ii) guaranties in favor of Bank, and (iii) the
guaranty by Company's Subsidiaries of Company's obligations with respect to the
Senior Subordinated Notes.
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7.4 Become or remain obligated for any indebtedness for borrowed money,
or for any indebtedness incurred in connection with the acquisition of any
property, real or personal, tangible or intangible, except:
(a) indebtedness to Bank;
(b) current unsecured trade, utility or non-extraordinary accounts
payable arising in the ordinary course of Company's business;
(c) indebtedness described in attached Exhibit "E";
(d) in addition to that specified above and in (e) below, purchase
money indebtedness for the purchase of fixed assets in an
amount not exceeding $1,000,000 in the aggregate at any time
outstanding; and
(e) indebtedness owing MT&G in the principal amount of
$21,650,000.
7.5 Purchase or otherwise acquire or become obligated for the purchase
of all or substantially all of the assets or business interests of any person,
firm or corporation or any shares of stock of any corporation, trusteeship or
association or in any other manner effectuate or attempt to effectuate an
expansion of present business by acquisition, other than the purchase of the
stock of GMC, Deco Technologies, Inc, Deco International, Inc. and Turn-Matic,
Inc.
7.6 Make or allow to remain outstanding any investment (whether such
investment shall be of the character of investment in shares of stock, evidences
of indebtedness or other securities or otherwise) in, or any loans or advances
to, any person, firm, corporation or other entity or association, except:
(a) advances in the ordinary course of business to officers
payable within thirty days;
(b) advances by Company or a domestic Subsidiary to Company's
domestic Subsidiaries in the ordinary course of business and
advances by a Subsidiary to Company in the ordinary course of
business;
(c) investments in an amount not exceeding Five Hundred Thousand
Dollars ($500,000) in the aggregate;
(d) short-term investments of cash in cash equivalents for the
purposes of cash management in accordance with Company's
normal business practices; and
(e) investments by Company in a Subsidiary which is a Guarantor.
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7.7 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except:
(a) to Bank; and
(b) Permitted Liens;
7.8 Sell, assign, transfer or confer a security interest in any
account, contract, note, trade acceptance or other receivable, except to Bank.
7.9 Enter into, maintain, or make contribution to, directly or
indirectly, any Pension Plan that is subject to ERISA, except the Pension Plans.
7.10 Except for this Agreement and the Note Documents and the
agreements with MT&G in existence on the date hereof and disclosed to Bank in
writing, enter into or allow to exist any agreement, document or instrument
which would restrict or prevent Company or any Subsidiary from granting Bank
liens upon, security interests in and pledges of its assets which are senior in
priority to all other liens and encumbrances.
7.11 Amend or modify any of the terms of the Note Documents or
purchase, redeem or prepay any of the Senior Subordinated Notes.
8. ENVIRONMENTAL PROVISIONS
8.1 Company shall comply, and shall cause its Subsidiaries to comply,
in all material respects with all applicable Environmental Laws.
8.2 Company shall provide to Bank, immediately upon receipt, copies of
any correspondence, notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or alleging a circumstance
or condition which requires or may require a financial contribution by Company
or any Subsidiary in an amount in excess of $100,000 or a cleanup, removal,
remedial action, or other response by or on the part of Company or any
Subsidiary under applicable Environmental Laws involving a cost in excess of
$100,000 or which seeks damages or civil, criminal or punitive penalties
involving an amount in excess of $100,000 from Company or any Subsidiary for an
alleged violation of Environmental Laws.
8.3 Company shall promptly notify Bank in writing as soon as Company
becomes aware of any condition or circumstance which makes the environmental
warranties contained in this Agreement incomplete or inaccurate in any material
respect as of any date.
8.4 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or inaccurate
in any material respect as of any date, Company shall, at the reasonable request
of Bank, at Company's sole expense, retain
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an environmental professional consultant, reasonably acceptable to Bank, to
conduct a thorough and complete environmental audit regarding the changed
condition and/or circumstance and any environmental concerns arising from that
changed condition and/or circumstance. A copy of the environmental consultant's
report will be promptly delivered to Bank upon completion.
8.5 At any time Company or any Subsidiary, directly or indirectly
through any professional consultant or other representative, determines to
undertake a material environmental audit, assessment or investigation, Company
shall promptly provide Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and intended scope of the
environmental audit. Upon receipt, Company will promptly provide to Bank copies
of all final findings and conclusions of any such environmental investigation.
Preliminary findings and conclusions shall be provided if final reports have not
been completed and delivered to Bank within 60 days following completion of the
preliminary findings and conclusions.
8.6 Company hereby indemnifies, saves and holds Bank and any of its
past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages, suits,
penalties, costs, liabilities and expenses (including but not limited to
reasonable investigation, environmental audit(s), and legal expenses) arising
out of any claim, loss or damage of any property, injuries to or death of
persons, contamination of or adverse affects on the environment, or any
violation of any applicable Environmental Laws, caused by or in any way related
to property owned by Company or any Subsidiaries, or due to any acts of Company,
its officers, directors, shareholders, employees, consultants and/or
representatives; provided, however, that the foregoing indemnification shall not
be applicable when arising from events or conditions occurring while the Bank is
in sole possession (subject to the rights of any creditors of Company) of the
property. In no event shall Company be liable hereunder for any loss, damages,
suits, penalties, costs, liabilities or expenses arising from any act of gross
negligence or willful misconduct of Bank, or its agents or employees.
9. DEFAULTS
9.1 Upon occurrence of any of the following events of default:
(a) non-payment of the principal or interest due under the terms
of this Agreement or on any Note due in accordance with the
terms thereof;
(b) default in the observance or performance of any of the
conditions, covenants or agreements of Company set forth in
Sections 6, 7 or 8, hereof;
(c) default in the observance or performance or any of the other
conditions, covenants or agreements of Company herein set
forth and continuance thereof for thirty (30) days after
notice to Company by Bank;
(d) any representation or warranty made by Company herein or in
any instrument submitted pursuant hereto proves untrue in any
material respect when made;
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(e) default in the observance or performance of any of the
conditions, covenants or agreements of Company or any
Subsidiary set forth in any collateral document of security
which may be given to secure the indebtedness hereunder or in
any other collateral document related to or connected with
this agreement or the indebtedness hereunder;
(f) default in the payment of any other obligation of Company or
any Subsidiary for borrowed money, or in the observance or
performance of any conditions, covenants or agreements related
or given with respect thereto and such default shall be
continued for a period sufficient to permit acceleration of
the indebtedness prior to its expressed maturity;
(g) judgments for the payment of money in excess of the sum of One
Hundred Thousand Dollars ($100,000) in the aggregate shall be
rendered against Company or any Subsidiary, and such judgments
shall remain unpaid, unvacated, unbonded or unstayed by appeal
or otherwise for a period of sixty (60) consecutive days from
the date of its entry;
(h) the occurrence of any "reportable event", as defined in ERISA,
which is determined to constitute grounds for termination by
the Pension Benefit Guaranty Corporation of any Pension Plan
maintained by or on behalf of the Company or any Subsidiary
for the benefit of any of its employees or for the appointment
by the appropriate United States District Court of a trustee
to administer such Pension Plan and such reportable event is
not corrected and such determination is not revoked within 30
days after notice thereof has been given to the plan
administrator or the Company; or the institution of
proceedings by the Pension Benefit Guaranty Corporation to
terminate any such Pension Plan or to appoint a trustee to
administer such Pension Plan; or the appointment of a trustee
by the appropriate United States District Court to administer
any such Pension Plan;
(i) revocation of any Guaranty or any negative and deferred pledge
letter;
(j) default by Company in the observance or performance of any
obligation under any agreement made by Company with Bank in
connection with the issuance of any of the Letters of Credit;
(k) if there shall occur a Change in Control;
then, or at any time thereafter, unless such default is remedied, Bank may give
notice to Company declaring all outstanding indebtedness hereunder to be due and
payable, whereupon the Notes and all indebtedness then outstanding hereunder
shall immediately become due and payable without further notice and demand, as
the case may be, and Bank's commitment to make further advances and to issue
Letters of Credit under this Agreement shall automatically terminate.
24
<PAGE> 26
9.2 If a creditors' committee shall have been appointed for the
business of Company or any Subsidiary; or if Company or any Subsidiary shall
have made a general assignment for the benefit of creditors or shall have been
adjudicated bankrupt, or shall have filed a voluntary petition in bankruptcy or
for reorganization or to effect a plan or arrangement with creditors; or shall
file an answer to a creditor's petition or other petition filed against it,
admitting the material allegations thereof for an adjudication in bankruptcy or
for reorganization; or shall have applied for or permitted the appointment of a
receiver or trustee or custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for any of its property
or assets (otherwise than upon application or consent of Company or a
Subsidiary) and such receiver, trustee, or custodian so appointed shall not have
been discharged within forty-five (45) days after the date of his appointment;
or if an order shall be entered and shall not be dismissed or stayed within
forty-five (45) days from its entry, approving any petition for reorganization
of Company or any Subsidiary; then the Notes and all indebtedness then
outstanding hereunder shall automatically become immediately due and payable,
and Bank's commitment to make further advances and to issue Letters of Credit
under this Agreement shall automatically terminate.
9.3 From and after the occurrence of any event of default under this
Agreement or any event which automatically causes the indebtedness outstanding
hereunder or under the Notes to become immediately due and payable, the
indebtedness under the Revolving Credit Note shall bear interest at three
percent (3%) above the Prime-based Rate as it may vary from time to time, which
interest shall be payable on demand.
10. MISCELLANEOUS
10.1 This Agreement shall be binding upon and shall inure to the
benefit of Company and Bank and their respective successors and assigns, except
that the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Company.
10.2 Company shall pay all closing costs and expenses, including, by
way of description and not limitation, reasonable outside attorney fees and lien
search fees incurred by Bank in connection with the commitment, consummation and
closing of this Agreement. All of said amounts required to be paid by Company
may, at Bank's option, be charged by Bank as an advance against the proceeds of
the Notes. All costs, including attorney fees and auditor fees, incurred by Bank
in reviewing, revising, protecting or enforcing any of its or any of the Bank's
rights against Company or defending Bank from any claims or liabilities by any
party or otherwise incurred by Bank in connection with an event of default or
the enforcement of this Agreement or the related documents, including by way of
description and not limitation, such charges in any court or bankruptcy
proceedings or arising out of any claim or action by any person against Bank
which would not have been asserted were it not for Bank's relationship with
Company hereunder, shall also be paid by Company.
10.3 Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is
25
<PAGE> 27
required to be made for the purposes of this Agreement, it shall be done in
accordance with generally accepted accounting principles consistently applied.
10.4 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank
would otherwise have.
10.5 All notices with respect to this Agreement shall be deemed to be
completed upon mailing by certified mail to the following:
To Company:
1825 S. Woodward
Suite 240
Bloomfield Hills, Michigan 48302
Attention: Director of Corporate Finance
To Bank:
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Metropolitan Loan Division - D
10.6 This Agreement and the Notes have been delivered at Detroit,
Michigan, and shall be governed by and construed and enforced in accordance with
the laws of the State of Michigan. Whenever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10.7 No amendments or waiver of any provisions of this Agreement nor
consent to any departure by Company therefrom shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, waiver or consent
with respect to any provision of this Agreement shall affect any other provision
of this Agreement.
10.8 In the event Company's obligation to pay interest on the principal
balance of the Notes is or becomes in excess of the maximum interest rate which
Company is permitted by law to contract or agree to pay, giving due
consideration to the execution date of this Agreement, then, in that event, the
rate of interest applicable shall be deemed to be immediately reduced to
26
<PAGE> 28
such maximum rate and any payments in excess of such maximum rate shall be
deemed to have been payments in reduction of principal and not of interest.
10.9 This Agreement shall become effective upon the execution hereof by
Bank and Company.
10.10 COMPANY AND BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH
COMPANY AND BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER
DOCUMENTS CONTEMPLATED HEREBY.
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK NEWCOR, INC.
By: [SIG] By: W. John Weinhardt
------------------- --------------------
W. John Weinhardt
Its: Vice President Its: President
By: John J. Garber
--------------------
John J. Garber
Its: Vice President
27
<PAGE> 29
ACKNOWLEDGEMENT
The undersigned accepts and agrees to the amendment and restatement of
the Existing Agreement and agree to the continued effectiveness of the Guaranty
originally executed and delivered to Comerica Bank (successor in interest by
reason of merger to Manufacturers Bank, N.A.) by the undersigned on March 9,
1992.
ROCHESTER GEAR, INC.
By: W. John Weinhardt
-----------------------
W. John Weinhardt
Its: Chairman of the Board
By: John J. Garber
-----------------------
John J. Garber
Its: Treasurer
28
<PAGE> 30
EXHIBIT "A"
REVOLVING CREDIT NOTE
Detroit, Michigan
$50,000,000 January 15, 1998
On or before the Revolving Credit Maturity Date (which initially is
February 28, 2001), FOR VALUE RECEIVED, NEWCOR, INC., a Delaware corporation
(herein called "Company") promises to pay to the order of COMERICA BANK, a
Michigan banking corporation (herein called "Bank") at its Main Office at 500
Woodward Avenue, Detroit, Michigan, 48226 in lawful money of the United States
of America the indebtedness or so much of the sum of Fifty Million Dollars
($50,000,000) as may from time to time have been advanced and then be
outstanding hereunder pursuant to the Third Amended and Restated Revolving
Credit Agreement dated January 15, 1998, made by and between Company and Bank
(herein called "Agreement"), together with interest thereon as hereinafter set
forth.
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate as elected by Company or as
otherwise determined under the Agreement.
Interest on the unpaid balance of all Prime-based Advances shall be
payable quarterly commencing on January 31, 1998 and on the last day of each
quarter thereafter. Interest accruing at the Prime-based Rate shall be computed
on the basis of a 360 day year and assessed for the actual number of days
elapsed, and in such computation effect shall be given to any change in the
Prime-based Rate on the date of such change in the Prime-based Rate.
Interest on each Eurodollar-based Advance shall be payable on the last
day of the Interest Period applicable thereto. Interest accruing at the
Eurodollar-based Rate shall be computed on the basis of a 360 day year and
assessed for the actual number of days elapsed from the first day of the
Interest Period applicable thereto to but not including the last day thereof.
From and after the occurrence of any event of default hereunder or
under the Agreement or any event which automatically causes the indebtedness
outstanding hereunder to become immediately due and payable, the indebtedness
outstanding hereunder shall bear interest at Three percent (3%) above the
Prime-based Rate as it may vary from time to time, which interest shall be
payable daily.
This Note is a note under which advances, repayments and readvances may
be made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.
<PAGE> 31
Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, release,
or forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted Bank by other instrument or by law.
This Note is a replacement for a Revolving Credit Note dated December
5, 1997 in the original principal amount of $37,000,000 by Company payable to
Bank.
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
NEWCOR, INC.
By: W. John Weinhardt
-----------------------
W. John Weinhardt
Its: President
By: John J. Garber
-----------------------
John J. Garber
Its: Vice President
2
<PAGE> 32
EXHIBIT "B"
REQUEST FOR ADVANCE
Pursuant to the Third Amended and Restated Revolving Credit Agreement
dated January 15, 1998, (herein called "Agreement"), the undersigned hereby
requests COMERICA BANK to make a(an)__________ 1 Advance to the undersigned on ,
19 , in the amount of_______________________DOLLARS, ($________) under the
Revolving Credit Note dated January 15, 1998, issued by the undersigned to said
Bank (herein called "Note"). The Interest Period for the requested Advance, if
applicable, shall be ______________________ .2 The last day of the Interest
Period for the amounts being converted or refunded hereunder, if applicable, is
, 19 .
The undersigned certifies that no event has occurred or condition
exists which constitutes, or with the passage of time and/or giving of notice
would constitute, a default under the Agreement or the Note, and none will exist
upon the making of the Advance requested hereunder. The undersigned further
certifies that upon advancing the sum requested hereunder, the aggregate
principal amount outstanding under the Note will not exceed the face amount
thereof. If the amount advanced to the undersigned under the Note shall at any
time exceed the face amount thereof, the undersigned will pay such excess amount
on demand.
The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with Bank
separately designated by the undersigned or as the undersigned may otherwise
direct, unless this Request for Advance is being submitted for a conversion or
refunding, in which case it shall refund or convert that portion stated above of
the existing outstandings under the Note.
______________________
1Insert, as applicable, "Eurodollar-based", or "Prime-based".
2For a Eurodollar-based Advance insert, as applicable, "one month", "two
months", "three months", or "six months".
<PAGE> 33
Dated this_______ day of_____________, 19__.
NEWCOR, INC.
By:______________________
Its:_____________________
By:______________________
Its:_____________________
2
<PAGE> 34
EXHIBIT "C"
COMERICA LOGO GUARANTY
As of January 15, 1998, the undersigned, for value received, unconditionally and
absolutely guarantee(s) to Comerica Bank ("Bank"), a Michigan banking
corporation, payment when due, whether by stated maturity, demand, acceleration
or otherwise, of all existing and future indebtedness ("Indebtedness") to the
Bank of Newcor, Inc., a Delaware corporation ("Borrower"). Indebtedness includes
without limit any and all obligations or liabilities of the Borrower to the
Bank, whether absolute or contingent, direct or indirect, voluntary or
involuntary, liquidated or unliquidated, joint or several, known or unknown; any
and all indebtedness, obligations or liabilities for which Borrower would
otherwise be liable to the Bank were it not for the invalidity, irregularity or
unenforceability of them by reason of any bankruptcy, insolvency or other law or
order of any kind, or for any other reason; any and all amendments,
modifications, renewals and/or extensions of any of the above; and all costs of
collecting Indebtedness, including, without limit, attorney fees. Any reference
in this Guaranty to attorney fees shall be deemed a reference to reasonable
fees, charges, costs and expenses of both in-house and outside counsel and
paralegals, whether or not a suit or action is instituted, and to court costs if
a suit or action is instituted, and whether attorney fees or court costs are
incurred at the trial court level, on appeal, in a bankruptcy, administrative or
probate proceeding or otherwise. All costs shall be payable immediately by the
undersigned when incurred by the Bank, without demand, and until paid shall bear
interest a the highest per annum rate applicable to any of the Indebtedness, but
not in excess of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned under this Guaranty is
UNLIMITED unless specifically limited in the Additional Provisions of this
Guaranty, and this obligation (whether unlimited or limited to the extent
specified in the Additional Provisions) shall include, IN ADDITION TO any
limited amount of principal guaranteed, all interest on that limited
amount, and all costs incurred by the Bank in collection efforts against
the Borrower and/or the undersigned or otherwise incurred by the Bank in
any way relating to the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agree(s) that (a) this limitation
shall not be a limitation on the amount of Borrower's Indebtedness to the
Bank; (b) any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at, or prior to, the time of
the payment; and (c) the liability of the undersigned to the Bank shall at
all times be deemed to be the aggregate liability of the undersigned under
this Guaranty and any other guaranties previously or subsequently given to
the Bank by the undersigned and not expressly revoked, modified or
invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty of payment and not of
collection and remains effective whether the Indebtedness is from time to
time reduced and later increased or entirely extinguished and later
reincurred. The undersigned deliver(s) this Guaranty based solely on the
undersigned's independent investigation of (or decision not to investigate)
the financial condition of Borrower and is (are) not relying on any
information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or
later. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the Bank after the
financial condition of the Borrower, or the Borrower's ability to pay debts
as they mature, has deteriorated.
3. APPLICATION OF PAYMENTS: The undersigned authorize(s) the Bank, either
before or after termination of this Guaranty, without notice to or demand
on the undersigned and without affecting the undersigned's liability under
this Guaranty, from time to time to: (a) apply any security and direct the
order or manner of sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the Bank, in such order
as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies
otherwise. The undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements upon request.
4. SECURITY: The undersigned grant(s) to the Bank a security interest in and
the right of setoff as to any and all property of the undersigned now or
later in the possession of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has
(have) against the Borrower (other than any claim under a deed of trust or
mortgage covering California real property) with full right on the part of
the Bank, in its own name or in the name of the undersigned, to collect and
enforce these claims. The undersigned agree(s) that no security now or
later held by the Bank for the payment of any Indebtedness, whether from
the Borrower, any guarantor, or otherwise, and whether in the nature of a
security interest, pledge, lien, assignment, setoff, suretyship, guaranty,
indemnity, insurance or otherwise, shall affect in any manner the
unconditional obligation of the undersigned under this Guaranty, and the
Bank, in its sole discretion, without notice to the undersigned, may
release, exchange, enforce and otherwise deal with any security without
affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the
Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment
of the Indebtedness, and the undersigned is (are) not relying upon any
asset(s) in which the Bank has or may have a lien or security interest for
payment of the Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is guaranteed by two or more
guarantors, the obligation of the undersigned shall be several and also
joint, each with all and also each with any one or more of the others, and
may be enforced at the option of the Bank against each severally, any two
or more jointly, or some severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the guarantors for any
consideration which it deems adequate, and may fail or elect not to prove a
claim against the estate of any bankrupt, insolvent, incompetent or
deceased guarantor; and after that, without notice to any guarantor, the
Bank may extend or renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantor(s). The undersigned
acknowledge(s) that the effectiveness of this Guaranty is not conditioned
on any or all of the indebtedness being guaranteed by anyone else.
6. TERMINATION: Any of the undersigned may terminate their obligation under
this Guaranty as to future Indebtedness (except as provided below) by (and
only by) delivering written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written acknowledgement of
delivery; provided, however, the termination shall not be effective until
the opening of business on the fifth (5th) day ("effective date") following
written acknowledgement of delivery. Any termination shall not affect in
any way the unconditional obligations of the remaining guarantor(s),
whether or not the termination is known to the remaining guarantor(s). Any
termination shall not affect in any way the unconditional obligations of
the terminating guarantor(s) as to any Indebtedness existing at the
effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any
Borrower loan with the Bank existing at the effective date of termination
(whether advances or readvances by the Bank after the effective date of
termination are optional or obligatory), or any modifications, extensions
or renewals of any of this Indebtedness,
<PAGE> 35
whether in whole or in part, and as to all of this Indebtedness and
modifications, extensions or renewals of it, this Guaranty shall continue
effective until the same shall have been fully paid. The Bank has no duty
to give notice of termination by any guarantor(s) to any remaining
guarantor(s). The undersigned shall indemnify the Bank against all claims,
damages, costs and expenses, including, without limit, attorney fees,
incurred by the Bank in connection with any suit, claim or action against
the Bank arising out of any modification or termination of a Borrower loan
or any refusal by the Bank to extend additional credit in connection with
the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior revocation, termination, surrender
or discharge of this Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the effectiveness of this
Guaranty, and of all liens, pledges and security interests securing this
Guaranty, shall automatically continue or be reinstated in the event that
any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded under any applicable state
or federal law, including, without limitation, laws pertaining to
bankruptcy or insolvency, in which case this Guaranty, and all liens,
pledges and security interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or rescinded payment
or credit had not been received or given by the Bank, and whether or not
the Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of this
Guaranty and the liens, pledges and security interests securing it, the
undersigned agree(s) upon demand by the Bank, to execute and deliver to the
Bank those documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of the undersigned to do so shall not
affect in any way the reinstatement or continuation. If the undersigned
do(es) not execute and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed (which appointment is
coupled with an interest) the true and lawful attorney of the undersigned
(with full power of substitution) to execute and deliver such documents in
the name and on behalf of the undersigned.
8. WAIVERS: The undersigned waive(s) any right to require the Bank to: (a)
proceed against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property security held
from the Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Michigan or other applicable Uniform
Commercial Code; or (c) pursue any other remedy in the Bank's power. The
undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any Indebtedness, and
agree(s) that the Bank may, once or any number of times, modify the terms
of any Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the unconditional
obligation of the undersigned under this Guaranty.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such
waiver is by this reference incorporated into each security agreement,
collateral assignment, pledge and/or other document from the undersigned
now or later securing this Guaranty and/or the Indebtedness, and
acknowledge(s) that as of the date of this Guaranty no such defense or
setoff exists.
9. WAIVER OF SUBROGATION: The undersigned waive(s) any and all rights (whether
by subrogation, indemnity, reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to this Guaranty
until the Indebtedness has been paid in full.
10. SALE/ASSIGNMENT: The undersigned acknowledge(s) that the Bank has the right
to sell, assign, transfer, negotiate, or grant participations in all or any
part of the Indebtedness and any related obligations, including, without
limit, this Guaranty, without notice to the undersigned and that the Bank
may disclose any documents and information which the Bank now has or later
acquires relating to the undersigned or to the Borrower in connection with
such sale, assignment, transfer, negotiation, or grant. The undersigned
agree(s) that the Bank may provide information relating to this Guaranty or
relating to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
11. GENERAL: This Guaranty constitutes the entire agreement of the undersigned
and the Bank with respect to the subject matter of this Guaranty. No
waiver, consent, modification or change of the terms of the Guaranty shall
bind any of the undersigned or the Bank unless in writing and signed by the
waiving party or an authorized officer of the waiving party, and then this
waiver, consent, modification or change shall be effective only in the
specific instance and for the specific purpose given. This Guaranty shall
inure to the benefit of the Bank and its successors and assigns and shall
be binding on the undersigned and the undersigned's heirs, legal
representatives, successors and assigns including, without limit, any
debtor in possession or trustee in bankruptcy for any of the undersigned.
The undersigned has (have) knowingly and voluntarily entered into this
Guaranty in good faith for the purpose of inducing the Bank to extend
credit or make other financial accommodations to the Borrower. If any
provision of this Guaranty is unenforceable in whole or in part for any
reason, the remaining provisions shall continue to be effective. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
12. HEADINGS: Headings in this Agreement are included for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
13. ADDITIONAL PROVISIONS: None.
14. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
GUARANTY OR THE INDEBTEDNESS.
2
<PAGE> 36
IN WITNESS WHEREOF, Guarantor(s) has (have) signed and delivered this Guaranty
the day and year first written above.
GUARANTOR(S): PLASTRONICS, INC.
WITNESSES (as to all signatures):
[SIG]
- ------------------------------------------- By: W. John Weinhardt
SIGNATURE OF --------------------------
Its: Chairman
-----------------------
[SIG]
- ------------------------------------------- By: John J. Garber
SIGNATURE OF --------------------------
Its: Treasurer
-----------------------
ENC CORP.
By: W. John Weinhardt
--------------------------
Its: Chairman
-----------------------
By: John J. Garber
--------------------------
Its: Treasurer
-----------------------
NEWCOR M-T-L, INC.
By: W. John Weinhardt
--------------------------
Its: Chairman
-----------------------
By: John J. Garber
--------------------------
Its: Treasurer
-----------------------
ROCHESTER GEAR, INC.
By: W. John Weinhardt
--------------------------
Its: Chairman
-----------------------
By: John J. Garber
--------------------------
Its: Treasurer
-----------------------
GUARANTOR'S ADDRESS:
1825 S. Woodward, Suite 240
Bloomfield Hills, Michigan 48302
3
<PAGE> 37
EXHIBIT D
NEWCOR, INC. PENSION PLANS
5.7
UNFUNDED PAST
RETIREMENT PLAN SERVICE LIABILITY (SURPLUS)
- --------------- ---------------------------
Newcor, Inc. Salaried Retirement Plan* (662,070)
Bay City UAW #496 Plan 1,354,100
* Wilson Automation UAW Plan was merged into the Newcor Inc. Salaried
Retirement Plan on January 1, 1998. The funding surplus represents both the
Newcor, Inc. Salaried Retirement Plan and the Wilson Automation UAW Plan.
<PAGE> 38
EXHIBIT "F"
TERM NOTE
Detroit, Michigan
$10,000,000 May 13, 1996
FOR VALUE RECEIVED, Newcor, Inc., a Delaware corporation (herein called
"Company") promises to pay to the order of COMERICA BANK, a Michigan banking
corporation (herein called "Bank"), at its Main Office at 500 Woodward Avenue,
Detroit, Michigan, the principal sum of Ten Million Dollars ($10,000,000) in
lawful money of the United States of America payable in monthly principal
installments each in the amount of One Hundred Sixty Six Thousand Six Hundred
Sixty Seven Dollars ($166,667), commencing on June 10, 1998 and on a like day of
each month thereafter until May 10, 2003, when the entire unpaid balance of
principal and interest thereon shall be due and payable, together with interest
thereon as hereinafter set forth.
The principal balance from time to time outstanding hereunder shall
bear interest at the per annum interest rate of seven and eighty five one
hundredths percent (7.85%) or as otherwise determined under the Agreement (as
defined below), and interest shall be computed, assessed and payable as set
forth in the Agreement.
This Note evidences borrowing under, is subject to, is secured in
accordance with, and may be matured under, the terms of the Second Amended and
Restated Revolving Credit Agreement dated March 6, 1995 between Company and Bank
(as the same may be amended or modified from time to time, ("Agreement")), to
which reference is hereby made. As additional security for this Note, Company
grants Bank a lien on all property and assets including deposits and other
credits of the Company, at any time in possession or control of or owing by Bank
for any purpose.
Company waives presentment for payment, demand, protest and notice of
dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, or forbearance
granted by any holder of this Note to any party now or hereafter liable hereon.
Any transferees of, or endorser, guarantor or surety paying this Note in full
shall succeed to all rights of Bank, and Bank shall be under no further
responsibility for the exercise thereof or the loan evidenced hereby. Nothing
herein shall limit any right granted Bank by any other instrument or by law.
<PAGE> 39
All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
NEWCOR, INC., a Delaware
corporation
By: W. John Weinhardt
-------------------------
Its: PRESIDENT
------------------------
By: John Garber
-------------------------
Its: VICE PRESIDENT
------------------------
2
<PAGE> 40
EXHIBIT "G"
COMERICA LOGO SECURITY AGREEMENT (All Assets)
As of January 15, 1998, for value received, the undersigned ("Debtor") grants to
Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Rochester Gear, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. COLLATERAL shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts, general intangibles, chattel
paper, contract rights, deposit accounts, documents and instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
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(e) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property
(except real property which is not a fixture) which are now or later
in possession or control of Bank, or as to which Bank now or later
controls possession by documents or otherwise, and
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights
of any kind (including but not limited to stock splits, stock rights,
voting and preferential rights), products, and proceeds of or
pertaining to the above including, without limit, cash or other
property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Debtor.
2. WARRANTIES, COVENANTS AND AGREEMENTS. Debtor warrants, covenants and agrees
as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank
to examine, inspect, and copy any of Debtor's books and records.
Debtor shall, at the request of Bank, mark its records and the
Collateral to clearly indicate the security interest of Bank under
this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject
to a security interest in favor of Bank, Debtor shall be deemed to
have warranted that (a) Debtor is the lawful owner of the Collateral
and has the right and authority to subject it to a security interest
granted to Bank; (b) none of the Collateral is subject to any
security interest other than that in favor of Bank and other than
Permitted Liens and there are no financing statements on file, other
than in favor of Bank and those evidencing Permitted Liens; and (c)
Debtor acquired its rights in the Collateral in the ordinary course
of its business or in connection with a transaction approved by Bank
in writing.
2.3 Debtor will keep the Collateral free at all times from all claims,
liens, security interests and encumbrances other than those in favor
of Bank and those other than Permitted Liens. Debtor will not,
without the prior written consent of Bank, sell, transfer or lease,
or permit to be sold, transferred or leased, any or all of the
Collateral, except for Inventory in the ordinary course of its
business and will not return any Inventory to its supplier and except
for obsolete equipment sold for fair market value in an amount not
greater than $100,000 during any fiscal year of Debtor. Bank or its
representatives may at all reasonable times inspect the Collateral
and may enter upon all premises where the Collateral is kept or might
be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue a
perfected and first (subject to Permitted Liens which are permitted
pursuant to the terms of the Credit Agreement to be first) security
interest of Bank in the Collateral. Debtor agrees that Bank has no
obligation to acquire or perfect any lien on or security interest in
any asset(s), whether realty or personalty, to secure payment of the
Indebtedness, and Debtor is not relying upon assets in which the Bank
may have a lien or security interest for payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges which
at any time are or may become a lien, charge, or encumbrance upon any
Collateral, except to the extent contested in good faith and bonded
in a manner satisfactory to Bank or reserved against as set forth in
the Credit Agreement. If Debtor fails to pay any of these taxes,
assessments, or other charges in the time provided above, Bank has
the option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate which could
be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause. Debtor has and
will maintain at all times (a) with respect to the Collateral,
insurance under an "all risk" policy against fire and other risks
customarily insured
<PAGE> 41
against, and (b) public liability insurance and other insurance as
may be required by law or reasonably required by Bank, all of which
insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing, with respect to
Collateral, a lender's loss payable endorsement acceptable to Bank.
Debtor will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been procured.
If Debtor fails to maintain satisfactory insurance, Bank has the
option (but not the obligation) to do so and Debtor agrees to repay
all amounts so expended by Bank immediately upon demand, together
with interest at the highest lawful default rate which could be
charged by Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts Receivable,
Debtor shall be deemed to have warranted that except as otherwise
indicated (a) each of those Accounts Receivable is valid and
enforceable without performance by Debtor of any act; (b) each of
those account balances are in fact owing, (c) there are no setoffs,
recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts
Receivable represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have been
endorsed and/or delivered by Debtor to Bank, (e) Debtor has not
received with respect to any Account Receivable, any notice of the
death of the related account debtor, nor of the dissolution,
liquidation, termination of existence, insolvency, business failure,
appointment of a receiver for, assignment for the benefit of
creditors by, or filing of a petition in bankruptcy by or against,
the account debtor, and (f) as to each Account Receivable, the
account debtor is not an affiliate of Debtor, the United States of
America or any department, agency or instrumentality of it, or a
citizen or resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings requested by
Bank to perform, enforce performance of, and collect all Accounts
Receivable. Debtor shall neither make nor permit any modification,
compromise or substitution for any Account Receivable without the
prior written consent of Bank other than in the ordinary course of
business of Debtor. Debtor shall, at Bank's request, arrange for
verification of Accounts Receivable directly with account debtors or
by other methods acceptable to Bank.
2.8 Debtor at all times shall be in compliance in all material respects
with all applicable laws, including without limit any laws,
ordinances, directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the environment
("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of (a) the ultimate sale
or exchange thereof; or (b) presentation, collection, renewal, or
registration of transfer thereof; or (c) loading, unloading, storing,
shipping, transshipping, manufacturing, processing or otherwise
dealing with it preliminary to sale or exchange; such redelivery
shall be in trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds or
products of it unless Bank specifically so agrees in writing. If
Debtor requests any such redelivery, Debtor will deliver with such
request a duly executed financing statement in form and substance
satisfactory to Bank. Any proceeds of Collateral coming into Debtor's
possession as a result of any such redelivery shall be held in trust
for Bank and immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or all of
the Collateral to Debtor, and such delivery by Bank shall discharge
Bank from all liability or responsibility for such Collateral. Bank,
at its option, may require delivery of any Collateral to Bank at any
time with such endorsements or assignments of the Collateral as Bank
may request.
2.10 At any time after the occurrence of an Event of Default and without
notice, Bank may (a) cause any or all of the Collateral to be
transferred to its name or to the name of its nominees; (b) receive
or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any
time payable or receivable on account of the Collateral, and hold the
same as Collateral, or apply the same to the Indebtedness to the
extent due, the manner and distribution of the application to be in
the sole discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or consolidation
agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and
accept other property in exchange for the Collateral and hold or
apply the property or money so received pursuant to this Agreement.
2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then shall have with respect to
Collateral so delivered all the rights and powers of Bank under this
Agreement, and after that Bank shall be fully discharged from all
liability and responsibility with respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial
condition of Borrower and is not relying on any information furnished
by Bank. Debtor assumes full responsibility for obtaining any further
information concerning the Borrower's financial condition, the status
of the Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any duty on
the part of Bank, and agrees that Debtor is not relying upon nor
expecting Bank to disclose to Debtor any fact now or later known by
Bank, whether relating to the operations or condition of Borrower,
the existence, liabilities or financial condition of any guarantor of
the Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact may
have upon Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility that
Borrower may incur Indebtedness to Bank after the financial condition
of Borrower, or Borrower's ability to pay debts as they mature, has
deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and
against any and all claims, damages, fines, expenses, liabilities or
causes of action of whatever kind, including without limit consultant
fees, legal expenses, and attorney fees, suffered by any of them as a
direct or indirect result of any actual or asserted violation of any
law, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including
without limit Environmental Laws.
3. COLLECTION OF PROCEEDS.
3.1 Debtor agrees to collect and enforce payment of all Collateral until
Bank shall direct Debtor to the contrary. Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully
and promptly cooperate and assist Bank in the collection and
enforcement of all Collateral and to hold in trust for Bank all
payments received in connection with Collateral and from the sale,
lease or other disposition of any Collateral, all rights by way of
suretyship or guaranty and all rights in the nature of a lien or
security interest which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a) endorse
to Bank and immediately deliver to Bank all payments received on
Collateral or from the sale, lease or other disposition of any
Collateral or arising from any other rights or interests of Debtor in
the Collateral, in the form received by Debtor without commingling
with any other funds, and (b) immediately deliver to Bank all
property in Debtor's possession or later coming into Debtor's
possession through enforcement of Debtor's rights or interests in the
Collateral. Debtor irrevocably authorizes Bank or any Bank employee
or agent to endorse the name of Debtor upon any checks or other items
which are received in payment for any Collateral, and to do any and
all things necessary in order to reduce these items to money. Bank
shall have no duty as to the collection or protection of Collateral
or the proceeds of it, nor as to the preservation of any related
rights, beyond the use of reasonable care in the custody and
preservation of Collateral in the possession of Bank. Debtor agrees
to take all steps necessary to preserve rights against prior parties
with respect to the Collateral. Nothing in this Section 3.1 shall be
deemed a consent by Bank to any sale, lease or other disposition of
any Collateral.
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<PAGE> 42
3.2 Debtor agrees that immediately upon Bank's request (whether or not
any Event of Default exists) the Indebtedness shall be on a
"remittance basis" as follows: Debtor shall at its sole expense
establish and maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post Office lock
box (the "Lock Box"), to which Bank shall have exclusive access and
control. Debtor expressly authorizes Bank, from time to time, to
remove contents from the Lock Box, for disposition in accordance with
this Agreement. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted, for
the credit of Debtor, to the Lock Box, and Debtor shall include a
like statement on all invoices; and (b) a non-interest bearing
deposit account with Bank which shall be titled as designated by Bank
(the "Cash Collateral Account") to which Bank shall have exclusive
access and control. Debtor agrees to notify all account debtors and
other parties obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash Collateral
Account, and Debtor, at Bank's request, shall include a like
statement on all invoices. Debtor shall execute all documents and
authorizations as required by Bank to establish and maintain the Lock
Box and the Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of
Debtor to Bank on account of partial or full payment of, or with
respect to, any Collateral shall, at Bank's option, (i) be applied to
the payment of the Indebtedness, whether then due or not, in such
order or at such time of application as Bank may determine in its
sole discretion; provided, however, prior to the occurrence of an
Event of Default, such amounts will be applied to Debtor's revolving
credit Indebtedness, if any, or, (ii) be deposited to the Cash
Collateral Account. Debtor agrees that Bank shall not be liable for
any loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or remedies
under this Agreement, including without limitation indirect, special
or consequential damages, loss of revenues or profits, or any claim,
demand or action by any third party arising out of or in connection
with the processing of items or the exercise of any other rights or
remedies under this Agreement. Debtor agrees to indemnify and hold
Bank harmless from and against all such third party claims, demands
or actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. DEFAULTS, ENFORCEMENT AND APPLICATION OF PROCEEDS.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness
when due, or such portion of it as may be due, by acceleration or
otherwise and continuation beyond any applicable period of cure;
or
(b) The occurrence of an Event of Default (as defined in the Credit
Agreement).
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all of
the Indebtedness to be immediately due and payable, and shall have
and may exercise any one or more of the following rights and
remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions
of the Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and
security interest granted by this Agreement, to recover judgment
for all amounts then due and owing as Indebtedness, and to
collect the same out of any Collateral or the proceeds of any
sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all
Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and
take possession of all or any of it and/or render it unusable;
and without being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of all or any
Collateral at one or more public or private sales, leasings or
other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all
notice of sale, lease or other disposition, and advertisement,
and other notice or demand, any right or equity of redemption,
and any obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to sell, lease, or
otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise
be required by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under the power
of sale, by virtue of judicial proceedings or otherwise, it shall
not be necessary for Bank or a public officer under order of a
court to have present physical or constructive possession of
Collateral to be sold. The recitals contained in any conveyances
and receipts made and given by Bank or the public officer to any
purchaser at any sale made pursuant to this Agreement shall, to
the extent permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated (including, without
limit, as to the amounts of the principal of and interest on the
Indebtedness, the accrual and nonpayment of it and advertisement
and conduct of the sale); and all prerequisites to the sale shall
be presumed to have been satisfied and performed. Upon any sale
of any Collateral, the receipt of the officer making the sale
under judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money, and the
purchaser shall not be obligated to see to the application of the
money. Any sale of any Collateral under this Agreement shall be a
perpetual bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct
payment of it to Bank. Bank may, itself, upon the occurrence of any
Event of Default so notify and direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first upon all
expenses authorized by the Uniform Commercial Code and all reasonable
attorney fees and legal expenses incurred by Bank; the balance of the
proceeds of the sale or other disposition shall be applied in the
payment of the Indebtedness, first to interest, then to principal,
then to remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled to it
under applicable law. Debtor shall remain liable for any deficiency,
which it shall pay to Bank immediately upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum
to which Bank may be entitled for the breach of this Agreement by
Debtor. Nothing in this Agreement shall reduce or release in any way
any rights or security interests of Bank contained in any existing
agreement between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank in
enforcing any of its rights under this Agreement shall operate as a
waiver of any other default or of the same default on a future
occasion or of any rights.
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<PAGE> 43
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful attorney
of Debtor (with full power of substitution) in the name, place and
stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or acquittances
for any moneys due or to become due on any Collateral and to
endorse any item representing any payment on or proceeds of the
Collateral;
(b) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or
desirable by Bank to evidence, perfect, or continue the security
interests granted in this Agreement; and
(c) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to
Bank at any place designated by Bank which is reasonably convenient
to Bank and Debtor.
5. MISCELLANEOUS.
5.1 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by law
shall be given to, or made upon, Debtor at the first address
indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written notice of
all contemplated changes in Debtor's name, chief executive office
location, and/or location of any Collateral, but the giving of this
notice shall not cure any Event of Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and
any related obligations, including without limit this Agreement. In
connection with the above, but without limiting its ability to make
other disclosures to the full extent allowable, Bank may disclose all
documents and information which Bank now or later has relating to
Debtor, the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to this
Agreement or relating to Debtor to the Bank's parent, affiliates,
subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank
to Debtor can be set off and applied by Bank on any Indebtedness at
any time(s) upon maturity but without demand therefor and without
notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed against
any person or property; (b) give notice of the terms, time and place
of any public or private sale of personal property security held from
Borrower or any other person, or otherwise comply with the provisions
of Section 9-504 of the Uniform Commercial Code; or (c) pursue any
other remedy in the Bank's power. Debtor waives notice of acceptance
of this Agreement and presentment, demand, protest, notice of
protest, dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness, any and
all other notices to which the undersigned might otherwise be
entitled, and diligence in collecting any Indebtedness, and agree(s)
that the Bank may, once or any number of times, modify the terms of
any Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit
Borrower to incur additional Indebtedness, all without notice to
Debtor and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor unconditionally and
irrevocably waives each and every defense and setoff of any nature
which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this
Agreement, and acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral assignment,
pledge and/or other document from Debtor now or later securing the
Indebtedness, and acknowledges that as of the date of this Agreement
no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts
paid or the value of any Collateral given by Debtor pursuant to this
Agreement until the Indebtedness has been paid in full.
5.8 In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement,
Debtor agrees that a written notice given to Debtor at least five
days before the date of the act shall be reasonable notice of the act
and, specifically, reasonable notification of the time and place of
any public sale or of the time after which any private sale, lease,
or other disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A notice shall be deemed to be
given under this Agreement when delivered to Debtor or when placed in
an envelope addressed to Debtor and deposited, with postage prepaid,
in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an
overnight courier. The mailing shall be by overnight courier,
certified, or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of
this Agreement shall automatically continue or be reinstated in the
event that any payment received or credit given by Bank in respect of
the Indebtedness is returned, disgorged, or rescinded under any
applicable law, including, without limitation, bankruptcy or
insolvency laws, in which case this Agreement, shall be enforceable
against Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or not
Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of
this Agreement, Debtor agrees upon demand by Bank to execute and
deliver to Bank those documents which Bank determines are appropriate
to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Debtor to do
so shall not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns
and to any other holder who derives from Bank title to or an interest
in the Indebtedness or any portion of it, and shall bind Debtor and
the heirs, legal representatives, successors, and assigns of Debtor.
Nothing in this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given
to or conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform
Commercial Code. "Uniform Commercial Code" means Act No. 174 of the
Michigan Public Acts of 1962, as amended.
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<PAGE> 44
5.13 No single or partial exercise, or delay in the exercise, of any right
or power under this Agreement, shall preclude other or further
exercise of the rights and powers under this Agreement. The
unenforceability of any provision of this Agreement shall not affect
the enforceability of the remainder of this Agreement. This Agreement
constitutes the entire agreement of Debtor and Bank with respect to
the subject matter of this Agreement. No amendment or modification of
this Agreement shall be effective unless the same shall be in writing
and signed by Debtor and an authorized officer of Bank. This
Agreement shall be governed by and construed in accordance with the
internal laws of the State of Michigan, without regard to conflict of
laws principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in this
Agreement prevent Bank from making demand, without notice and with or
without reason, for immediate payment of any or all of that
Indebtedness at any time(s), whether or not an Event of Default has
occurred.
5.15 Debtor's chief executive office is located and shall be maintained at
1825 South Woodward
Suite 240
Bloomfield Hills, MI 48302
If Collateral is located at other than the chief executive office,
such Collateral is located and shall be maintained at: See attached
Schedule of Collateral Locations.
Collateral shall be maintained only at the locations identified in
this Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement under the Uniform Commercial
Code and may be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable provisions of
the Uniform Commercial Code, but the obligations contained in Section
2.13 of this Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE
INDEBTEDNESS.
7. SPECIAL PROVISIONS APPLICABLE TO THIS AGREEMENT. All capitalized terms used
herein (unless the context clearly requires otherwise) not defined herein
are used as defined in that certain Third Amended and Restated Revolving
Credit Agreement dated January 15, 1998 ("Credit Agreement").
Debtor:
NEWCOR, INC.
By: W. John Weinhardt
--------------------------------
Its: President
--------------------------------
By: John J. Garber
--------------------------------
Its: V.P. C.F.O.
--------------------------------
5
<PAGE> 45
SCHEDULE 2.11
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Funded Debt to <3.0 to 1.0 >3.0 to 1.0 & >3.5 to 1.0 & >4.0 to 1.0 & >4.5 to 1.0
EBITDA Ratio - <3.5 to 1.0 <4.0 to 1.0 <4.5 to 1.0
- - -
- ---------------------------------------------------------------------------------------------------------------------------
Applicable Margin 1/2% 3/4% 1% 1 3/4% 2 1/2%
- ---------------------------------------------------------------------------------------------------------------------------
Applicable 1/4% 1/4% 1/4% 3/8% 3/8%
Commitment Fee
Percentage
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 46
SCHEDULE 5.5
SUBSIDIARIES OF NEWCOR, INC.
ROCHESTER GEAR, INC.
PLASTRONICS, INC.
NEWCOR M-T-L, INC.
ENC CORP.
<PAGE> 1
EXHIBIT 10(l)
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BETWEEN
STEPHEN GRAND, INDIVIDUALLY AND AS TRUSTEE
OF THE STEPHEN GRAND REVOCABLE
TRUST DATED JULY 5, 1979 AND THE
STEPHEN M. GRAND PROPERTY TRUST
DATED JANUARY 22, 1992
AND
NEWCOR, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
----
ARTICLE I
SALE OF DECO SHARES.................................................... 1
1.1 The Sale.................................................... 1
1.2 Estimated Purchase Price.................................... 2
1.3 PostClosing Purchase Price Adjustment....................... 3
1.4 Permitted Distribution...................................... 5
1.5 Additional Permitted Distribution........................... 5
ARTICLE II
THE CLOSING 5
2.1 Time and Place of Closing................................... 5
2.2 Deliveries By Seller........................................ 6
2.3 Deliveries By Buyer......................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER 8
3.1 Corporate Organization, Etc................................. 8
3.2 Capitalization.............................................. 8
3.3 Subsidiaries....................... ....................... 9
3.4 Authority Relative to this Agreement ....................... 9
3.5 Consents and Approvals; No Violations.......................10
3.6 Financial Statements........................................11
3.7 Absence of Certain Changes..................................11
3.8 Compliance with Law.........................................12
3.9 Contracts and Commitments...................................13
3.10 Litigation..................................................14
3.11 Taxes.......................................................14
3.12 Employee Benefit Plans; ERISA...............................16
3.13 Title to Properties.........................................20
3.14 Trademarks, Etc.............................................20
3.15 Insuranc....................................................22
3.16 Environmental Matters.......................................22
3.17 Brokers and Finders.........................................25
3.18 Conflicts of Interest.......................................25
3.19 Liabilities.................................................26
3.20 Suppliers...................................................26
3.21 Inventory...................................................26
3.22 Accounts Receivable.........................................26
3.23 Employee Relations..........................................27
3.24 Certain Payments............................................27
3.25 Books and Records...........................................27
3.26 Disclosure..................................................27
3.27 Real Property and Real Property Leases......................28
3.28 Effect of Transaction.......................................28
3.29 Product Warranty and Product Recalls........................28
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<PAGE> 3
PAGE
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER............................... 29
4.1 Corporate Organization, Etc................................. 29
4.2 Authority Relative to this Agreement........................ 29
4.3 Consents and Approvals; No Violations....................... 30
4.4 Investment Intent........................................... 30
4.5 Brokers and Finders......................................... 30
4.6 Access...................................................... 30
4.7 Buyer's Expertise and Investigation......................... 31
4.8 Litigation.................................................. 32
4.9 MESC Notice................................................. 32
ARTICLE V
COVENANTS OF THE PARTIES.............................................. 32
5.1 Conduct of Business of the Deco Companies................... 33
5.2 Access to Information....................................... 33
5.3 Continued Accuracy of Seller's Representations and
Warranties................................................. 34
5.4 Consents and Approvals...................................... 34
5.5 Filings; Cooperation; Information........................... 35
5.6 Further Assurances.......................................... 35
5.7 Seller Indemnification...................................... 35
5.8 Buyer Indemnification....................................... 36
5.9 Information for Buyer's Statements, Reports,
Applications and SEC Filings............................... 37
5.10 Acquisition Proposal........................................ 38
5.11 Indemnification of Seller for Business Decisions
As An Officer or Director of the Deco Companies............ 39
5.12 Environmental Assessments................................... 40
ARTICLE VI
TAX MATTERS
6.1 Certain Tax Matters......................................... 40
6.2 Tax Matters and Post-Closing Cooperation.................... 41
6.3 Clearance Certificate....................................... 42
6.4 Nonforeign Affidavit........................................ 42
6.5 Transfer Taxes.............................................. 42
6.6 Access to Records Following Closing......................... 42
6.7 Filing of Tax Returns....................................... 43
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS.................................... 43
7.1 Representations and Warranties True......................... 44
7.2 Performance................................................. 44
7.3 No Injunction or Proceeding................................. 44
7.4 Consents.................................................... 44
7.5 HSR Act..................................................... 44
-ii-
<PAGE> 4
PAGE
----
7.6 Documents and Certificates.............................. 45
7.7 Counsel Opinion......................................... 45
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS.................................. 45
8.1 Representations and Warranties True..................... 45
8.2 Performance............................................. 46
8.3 No Injunction or Proceeding............................. 46
8.4 Consents................................................ 46
8.5 HSR Act................................................. 46
8.6 Closing Certificates.................................... 46
8.7 General Release......................................... 46
8.8 Noncompetition Agreement................................ 47
8.9 Indemnity Escrow Agreement.............................. 47
8.10 Counsel Opinion......................................... 47
8.11 Permitted Distribution.................................. 47
8.12 No Litigation........................................... 47
8.13 No Material Adverse Change.............................. 47
8.14 Financing............................................... 47
ARTICLE IX
TERMINATION........................................................ 47
9.1 Termination............................................. 47
9.2 Procedure and Effect of Termination..................... 48
9.3 Disbursement of Deposit................................. 49
9.4 Payment of Seller Payment by Seller to Buyer............ 50
ARTICLE X
MISCELLANEOUS PROVISIONS........................................... 51
10.1 Certain Definitions..................................... 51
10.2 Amendment and Modification.............................. 57
10.3 Extension; Waiver....................................... 57
10.4 Entire Agreement; Assignment............................ 57
10.5 Severability............................................ 58
10.6 Notices................................................. 58
10.7 Governing Law........................................... 59
10.8 Publicity............................................... 59
10.9 Table of Contents and Headings.......................... 60
10.10 Counterparts............................................ 60
10.11 Expenses................................................ 60
10.12 Exclusion of Warranties and Acknowledgment of Buyer..... 60
10.13 Limited Survival........................................ 61
10.14 Indemnification Procedures and Limitations.............. 62
10.15 Exclusive Remedies...................................... 67
10.16 Incorporation of Exhibits and Schedules................. 67
10.17 Parties................................................. 67
10.18 No Construction Against Drafter......................... 67
10.19 Further Assurances...................................... 67
-iii-
<PAGE> 5
PAGE
----
10.20 Relationship of the Parties.............................. 68
10.21 Dispute Resolution....................................... 68
10.22 Exclusive Jurisdiction................................... 69
10.23 Time of the Essence...................................... 70
10.24 Disclosures in the Disclosure Schedule................... 70
10.25 Additional Termination Rights............................ 71
EXHIBIT LIST
Exhibit 1.2(a)(i) Indemnity Escrow Agreement
Exhibit 1.2(c) Opening Statement
Exhibit 1.3(b) Agreed-upon Procedure for Final Statement
Exhibit 1.4 Permitted Distribution
Exhibit 2.2(i) Form of Noncompetition Agreement
Exhibit 2.2(j) Form of General Release
Exhibit 5.7(c) Special Indemnity Matters
Exhibit 5.9(b) Certain Items to be Delivered by Seller in connection with
the Closing Date Financing
Exhibit 6.1 Allocation of Purchase Price for Purposes of Section
338(h)(10) of the Code
Exhibit 7.6 Form of Seller's Closing Certificate
Exhibit 7.7 Form of Opinion of Counsel to Buyer
Exhibit 8.6 Form of Buyer's Closing Certificate
Exhibit 8.10 Form of Opinion of Counsel to Seller
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated December 9, 1997 (the "Agreement"), is
made between Stephen Grand, individually and as Trustee of the Stephen Grand
Revocable Trust dated July 5, 1979 and the Stephen M. Grand Property Trust
dated January 22, 1992 (individually and jointly and severally in any one or
more combinations, "Seller"), and Newcor, Inc., a Michigan corporation
("Buyer").
RECITALS
A. Seller owns all of the issued and outstanding shares (collectively,
the "Deco Shares") of capital stock of each of Grand Machining Co., a
Michigan corporation ("Deco-Grand"), Deco Technologies, Inc., a Michigan
corporation ("Deco Tech"), and Deco International, Inc., a Michigan corporation
("Deco International"). Deco-Grand, Deco Tech and Deco International are
sometimes referred to herein individually as a Deco Company and sometimes
individually and jointly and severally in any one or more combinations as the
"Deco Companies".
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Deco Shares, upon the terms and conditions set forth in this
Agreement.
C. Not later than December 10, 1997, Buyer will deposit the sum of
$5,000,000 (the "Deposit") into escrow with First of America Bank, N.A. (the
"Deposit Escrow Agent") to be held, administered and disbursed in accordance
with the provisions of this Agreement and the Escrow Agreement (the "Deposit
Escrow Agreement") executed and delivered by Buyer, Seller and the Deposit
Escrow Agent on the date hereof.
Therefore, the parties, intending to be legally bound, agree as follows:
ARTICLE II
SALE OF DECO SHARES
1.1 The Sale. Upon the terms and conditions set forth in this Agreement,
at the Closing (as defined in Section 2.1 below), Seller will sell, assign and
deliver to Buyer, and Buyer will purchase and accept from Seller, the Deco
Shares.
<PAGE> 7
1.2 Estimated Purchase Price.
(a) Upon the terms and conditions set forth in this Agreement, in
consideration of the sale, assignment and delivery of the Deco Shares,
subject to adjustment after the Closing in accordance with Section 1.3
below, at the Closing Buyer will pay to Seller for the Deco Shares an
amount equal to the Estimated Purchase Price (as defined in subsection
(d) below) as follows:
(i) An amount equal to $1,000,000 shall be deposited by Buyer
in escrow with First of America Bank, N.A. or such other escrow
agent as may be selected by Buyer and Seller (the "Indemnity Escrow
Agent") to be held, administered and disbursed in accordance with
the provisions of an Escrow Agreement in substantially the form
attached hereto as Exhibit 1.2(a)(i) to be executed and delivered
by Seller, Buyer and the Escrow Agent in connection with the
Closing (the "Indemnity Escrow Agreement");
(ii) the Deposit shall be disbursed by the Deposit Escrow
Agent to Seller; and
(iii) the balance of the Estimated Purchase Price (net of the
amounts described in clause (i) and (ii) of this Section 1.2(a))
shall be paid to Seller by certified or cashier check payable to
Seller or by wire transfer of immediately available funds to an
account or accounts designated by Seller prior to the Closing.
(b) Not less than two days prior to the Closing, Seller will prepare
and submit to Buyer a statement (the "Preliminary Statement") setting
forth the estimated Net Book Value (as defined in Section 1.3(a) below)
as of the Closing Date (as defined in Section 2.1 below) (the "Estimated
Net Book Value") (including detail of the components of the Estimated Net
Book Value as they would appear on a combined balance sheet of the Deco
Companies prepared in a manner consistent with the combined unaudited
balance sheets of the Deco Companies as of the Reference Date (as defined
in Section 3.6 below), but giving effect to all of the Adjustments (as
defined in subsection (c) below) irrespective of whether the same have
theretofore been distributed to Seller as part of the Permitted
Distribution (as defined in Section 1.4 below) or otherwise, except that
no effect will be given to the cash, cash equivalents and marketable
securities components of the Adjustment beyond any distributions thereof
made (or declared) at or prior to the delivery of the Preliminary
Statement so long as Seller shall agree in a writing delivered to Buyer
with the Preliminary Statement that no further distributions of cash,
cash equivalents and marketable securities will be made as part of the
Permitted Distribution or otherwise.
-2-
<PAGE> 8
(c) At the Closing, the parties will calculate the difference
between the Estimated Net Book Value and $9,925,800 (the "Opening Net
Book Value"). The Opening Net Book Value represents (i) the Net Book
Value as of March 31, 1997 minus (ii) $12,044,900 (which represents the
net amount of certain adjustments to the assets and liabilities of the
Deco Companies (the "Adjustments") to reflect, among other things, excess
cash and cash equivalents and other non-operating assets and liabilities
on hand with the Deco Companies as of such date) to be distributed by the
Deco Companies at or before the Closing as the Permitted Distribution,
all as set forth on Exhibit 1.2(c) (the "Opening Statement").
(d) If the Estimated Net Book Value exceeds the Opening Net Book
Value, the Base Amount (as defined in subsection (e) below) will be
increased by the amount of such excess. If the Estimated Net Book Value
is less than the Opening Net Book Value, the Base Amount will be
decreased by the amount of such shortfall. As used in this Agreement, the
"Estimated Purchase Price" will mean the Base Amount, as increased or
decreased pursuant to this subsection.
(e) As used in this Agreement, the "Base Amount" will be equal to
$54,825,000.
1.3 Post-Closing Purchase Price Adjustment.
(a) For purposes of this Agreement, the "Net Book Value," as of a
specified date, will mean the amount by which the sum of total assets of
the Deco Companies as of such date exceeds the sum of the total
liabilities of the Deco Companies as of such date, as reflected on the
Opening Statement, the Preliminary Statement or the Final Statement (as
defined in subsection (b) below), as applicable, and as determined in a
manner consistent with the combined unaudited balance sheets of the Deco
Companies as of the Reference Date.
(b) As promptly as practicable following the Closing, but in no
event later than 90 days after the Closing, Seller will prepare and
submit to Buyer a statement (the "Final Statement") setting forth the Net
Book Value as of the Closing Date (the "Final Net Book Value") (including
detail of the components of the Final Net Book Value as they would appear
on a combined balance sheet of the Deco Companies prepared in a manner
consistent with (i) the combined unaudited balance sheets of the Deco
Companies as of the Reference Date, and (ii) the Preliminary Statement,
but giving effect to (x) all Adjustments other than cash, cash
equivalents and marketable securities whether distributed or not pursuant
to Section 1.4 or otherwise and (y) Adjustments to cash, cash equivalents
and marketable securities to the extent actually distributed (or
distribution declared) on or prior to the Closing; and setting forth any
post-Closing adjustment to the purchase price that needs to be made as a
result of any difference between the
-3-
<PAGE> 9
Estimated Net Book Value and the Final Net Book Value. In the
preparation of the Final Statement, Seller shall fully comply with the
agreed-upon procedures described on Exhibit 1.3(b) attached hereto. Buyer
will give Seller access to the books and records of the Deco Companies and
Buyer to the extent requested by Seller for purposes of preparing the
Final Statement and will cause appropriate personnel of the Deco Companies
and Buyer to assist Seller and Seller's Representatives (as defined in
Section 10.1(a) below), at no cost to Seller, in the preparation of the
Final Statement.
(c) To the extent that the Final Net Book Value is greater than the
Estimated Net Book Value, the purchase price for the Deco Shares will be
increased by an amount equal to such excess, as more fully set forth in
this Section 1.3. To the extent that the Final Net Book Value is less
than the Estimated Net Book Value, the purchase price for the Deco Shares
will be reduced by an amount equal to such shortfall, as more fully set
forth in this Section 1.3.
(d) If Buyer disputes the Final Statement prepared by Seller or
Seller's calculation of the Final Net Book Value, as set forth on the
Final Statement, Buyer will notify Seller in writing setting forth its
objections in detail within 30 days after delivery of the Final
Statement. If Buyer does not so notify Seller within such 30-day period,
Buyer will be deemed to have conclusively accepted the Final Statement
and the Final Net Book Value set forth thereon. If Buyer does so notify
Seller, Buyer and Seller will endeavor in good faith to resolve any
dispute over the Final Statement and/or the calculation of the Final Net
Book Value. Each party will cooperate with the other party in the
determination of the Final Net Book Value and any purchase price increase
or decrease to be made after the Closing Date, including allowing the
other party and its Representatives access after the Closing to the books
and records of the Deco Companies. If Buyer and Seller are unable to
resolve any such dispute within 30 days of the delivery of the Final
Statement, such dispute will be submitted to the Detroit office of Ernst
& Young, L.L.P. or such other nationally recognized accounting firm in
the United States as is mutually acceptable to Buyer and Seller (the
"Independent Accounting Firm"), which will resolve all such disputes
within 30 days from their submission. The decision of the Independent
Accounting Firm will be final and binding upon Buyer and Seller. Seller
and Buyer will each be responsible for 50% of the expenses of the
Independent Accounting Firm.
(e) Any purchase price increase or decrease to be made under this
Agreement will (i) include simple interest at the rate of 8-1/2% per
annum from the day after the Closing Date through the date of payment of
any such increase or decrease, and (ii) be paid by the appropriate party,
in cash or by wire transfer of immediately available funds to an account
or
-4-
<PAGE> 10
accounts designated by the receiving party, promptly but in no event
later than ten days following the earlier to occur of the parties'
agreement on any such adjustment or the decision of the Independent
Accounting Firm.
1.4 Permitted Distribution. At or before the Closing, the parties
acknowledge that Seller, to the extent permitted by applicable Governmental
Regulation (as defined in Section 3.5(d) below), will cause the Deco Companies
to declare and make a distribution to Seller of the assets and liabilities that
constitute the Adjustments as more specifically described on Exhibit 1.4 (the
"Permitted Distribution"); provided, however, that the Deco Companies shall not
make or declare any Permitted Distribution (and Seller shall not cause any of
the Deco Companies to make or declare any such distribution) of the cash, cash
equivalent and marketable securities components thereof beyond any such
distributions actually taken into account in preparing the Preliminary
Statement.
1.5 Additional Permitted Distribution. In addition to the Permitted
Distribution, at or before the Closing, the parties acknowledge that Seller, to
the extent permitted by applicable Governmental Regulation, will cause the
Deco Companies to declare and make a distribution to Seller of all obligations
of the Deco Companies to DLJ (as defined in Section 3.17) and the attorneys and
accountants for the Deco Companies (the "Additional Permitted Distribution"),
and no such obligations shall be included in the Preliminary Statement or the
Final Statement to the extent so distributed.
ARTICLE IIII
THE CLOSING
2.1 Time and Place of Closing. Upon the terms and conditions set forth
in this Agreement, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Miller, Canfield,
Paddock and Stone, P.L.C., Bloomfield Hills, Michigan, at 10:00 a.m. (local
time) on a Business Day (as defined in Section 10.1) that is designated by
Buyer so that the Closing will occur contemporaneously with the closing of the
Closing Date Financing (as defined in Section 10.1), but such date (a) shall
not be a date later than the Deadline (as defined below) and (b) shall be a
date after (i) expiration or early termination of the "waiting period" and any
extensions thereof under the HSR Act (as defined in Section 3.5(b) below) and
(ii) if an injunction, court order or other Governmental Regulation enjoining
or restraining consummation of the transactions contemplated by this Agreement
has been obtained, the reversal, lifting or other successful appeal or
resolution of such injunction, order or Governmental Regulation, or at such
other place and on such other date as the parties may mutually agree in
writing. The consummation of the transactions contemplated by this
-5-
<PAGE> 11
Agreement and the Closing will be deemed to take place at 11:59 p.m.
(local time) on the date on which the Closing actually occurs, and such date
will be referred to as the "Closing Date" under this Agreement. For purposes
of this Agreement, "Deadline" shall mean March 31, 1998 or such later date as
the Deadline shall have been extended pursuant to Sections 9.1(d)(i), 9.1(f)(i)
and 9.4(b) hereof.
2.2 Deliveries By Seller. At the Closing, Seller will deliver (or cause
to be delivered) the following to Buyer:
(a) Stock certificates representing the Deco Shares, duly endorsed
in blank or accompanied by stock powers with signatures guaranteed by a
financial institution that is a participant in the Securities Transfer
Agents Medallion Program or the New York Stock Exchange Medallion
Signature Guarantee Program.
(b) The resignations, effective as of the Closing Date, of all
members of the Boards of Directors and officers of the Deco Companies.
(c) The stock books, stock ledgers and minute books of the Deco
Companies.
(d) True and complete copies of the Articles of Incorporation of the
Deco Companies, as certified by the appropriate state official, and
certificates of good standing of the Deco Companies from the appropriate
state official in each state listed in Section 3.1 of the Disclosure
Schedule, which articles (as so certified) and certificates of good
standing are dated not more than thirty (30) days prior to the Closing
Date.
(e) As to each of the Deco Companies, a certificate of Seller
certifying that attached thereto are true and complete copies of the
Bylaws of such company, as amended through the Closing Date and as in
full force and effect on the Closing Date, and that the Articles of
Incorporation of such company, as certified by the appropriate state
official and as delivered at the Closing, have not been amended or
rescinded since the date of such certification and remain in full force
and effect on the Closing Date.
(f) A certificate of Seller dated as of the Closing Date and duly
executed by Seller certifying as to the fulfillment of the conditions set
forth in Sections 8.1 through 8.5 below.
(g) The certificate (duly executed by Seller) contemplated by
Section 8.6 below.
(h) A Noncompetition Agreement in substantially the form attached
hereto as Exhibit 2.2(i) (the "Noncompetition Agreement") duly executed
by Seller.
-6-
<PAGE> 12
(i) A General Release in substantially the form attached hereto as
Exhibit 2.2(j) (the "General Release") duly executed by Seller.
(j) The Indemnity Escrow Agreement duly executed by Seller.
(k) All other documents, instruments and writings required to be
delivered by Seller at or prior to the Closing pursuant to this
Agreement.
2.3 Deliveries By Buyer. At the Closing, Buyer will deliver (or cause to
be delivered) the following to Seller:
(a) The Estimated Purchase Price for the Deco Shares in accordance
with Section 1.2 above).
(b) True and complete copies of the Articles of Incorporation of
Buyer, as certified by the appropriate state official, and a certificate
of good standing of Buyer from the appropriate official of the
jurisdiction of Buyer's incorporation, which articles (as so certified)
and certificate of good standing are dated not more than thirty (30) days
prior to the Closing Date.
(c) A certificate of an officer of Buyer certifying on behalf of
Buyer that attached thereto are true and complete copies of the Bylaws of
Buyer, as amended through the Closing Date and as in full force and
effect on the Closing Date, and that the Articles of Incorporation of
Buyer, as certified by the appropriate state official and as delivered at
the Closing, have not been amended or rescinded since the date of such
certification and remain in full force and effect on the Closing Date.
(d) True and complete copies of corporate resolutions of the Board
of Directors of Buyer authorizing the execution, delivery and performance
of this Agreement and consummation of the transactions contemplated by
this Agreement which resolutions are certified on behalf of Buyer by an
officer of Buyer as being valid and in full force and effect on the
Closing Date.
(e) A certificate of an officer of Buyer dated as of the Closing
Date certifying on behalf of Buyer as to the fulfillment of the
conditions set forth in Sections 7.1 through 7.5 below.
(f) The documents and certificates (duly executed by Buyer if
appropriate) contemplated by Section 7.6 below.
(g) All other documents, instruments and writings required to be
delivered by Buyer at or prior to the Closing pursuant to this Agreement.
-7-
<PAGE> 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
To induce Buyer to execute and deliver this Agreement and to consummate
the transactions contemplated hereby, Seller represents and warrants to Buyer
as follows as of the date of this Agreement as of the Closing Date, each such
representation and warranty being independently material:
3.1 Corporate Organization, Etc. Each of the Deco Companies is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan and has all requisite power and authority
(corporate and other) to conduct its business as it is now being conducted and
to own, lease and operate its property and assets. Each of the Deco Companies
is duly qualified or licensed and is in good standing in each of the
jurisdictions listed on Section 3.1 of the disclosure schedule of Seller
delivered to Buyer on the date hereof (the "Disclosure Schedule") being each
jurisdiction in which the ownership or leasing of property or the conduct of
its business requires such qualification or license, except where the failure
to be so qualified or licensed is not, in the aggregate, has not had, and is
not reasonably likely to have, a Seller Material Adverse Effect. For purposes
of this Agreement, "Seller Material Adverse Effect" means with respect to any
fact, circumstance, occurrence, event, change or development, that such fact,
circumstance, occurrence, event, change or development either alone or together
with other like facts, circumstances, occurrences, events, changes and
developments (a) has, or is reasonably likely to have (at the time in question
or at any time in the future), a material adverse effect on the business,
assets, financial condition or results of operations of the Deco Companies
taken as a whole or (b) has impaired, hindered or adversely affected, or is
reasonably likely to impair, hinder or adversely affect (at the time in
question or at any time in the future), the ability of Seller to execute or
deliver this Agreement or any of the Related Agreements, to perform any of
Seller's material obligations under this Agreement or any of the Related
Agreements or to consummate any of the material transactions contemplated by
this Agreement or any of the Related Agreements, or (c) has adversely affected,
or is reasonably likely to adversely affect (at the time in question or at any
time in the future), the validity or enforceability of any of the material
provisions of this Agreement or any of the Related Agreements against Seller.
Except as set forth on Section 3.1 of the Disclosure Schedule, none of the Deco
Companies has, during the past six (6) years, used or assumed any other names
in connection with their businesses or otherwise. Section 3.1 of the
Disclosure Schedule also contains true and complete copies of the Articles of
Incorporation and Bylaws of each of the Deco Companies.
3.2 Capitalization.
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(a) The authorized capital stock of Deco-Grand consists of 500
common shares, $100 par value, 163.086 shares of which are issued and
outstanding. The authorized capital stock of Deco Tech consists of 60,000
common shares, no par value, 100 shares of which are issued and
outstanding. The authorized capital stock of Deco International consists
of 6,000 common shares, $10 par value, 100 shares of which are issued and
outstanding.
(b) Seller owns (beneficially and of record) all of the issued and
outstanding shares of capital stock of the Deco Companies (consisting
solely of the Deco Shares) free and clear of all Encumbrances (as defined
in Section 10.1), except for those arising in connection with this
Agreement or those arising from applicable securities laws. All of the
issued and outstanding common shares of each of the Deco Companies have
been duly authorized, validly issued and fully paid and are
nonassessable. Upon delivery to Buyer at the Closing, Buyer will obtain
good title to the Deco Shares, free and clear of all Encumbrances, except
those created by Buyer or those arising from applicable securities laws.
(c) There are no outstanding (i) securities convertible into or
exchangeable for any capital stock of any of the Deco Companies, (ii)
options, warrants or other rights to purchase or subscribe for any
capital stock of any of the Deco Companies or (iii) contracts,
commitments, agreements, understandings or arrangements relating to the
issuance of any capital stock of any of the Deco Companies, any such
convertible or exchangeable securities or any such options, warrants or
rights pursuant to which any of the Deco Companies or Seller is subject
or bound.
3.3 Subsidiaries. Except as set forth in Section 3.3 of the Disclosure
Schedule, none of the Deco Companies has any Subsidiaries (as defined in the
next sentence). As used in this Agreement, a "Subsidiary" of any entity means
any other entity in which (other than directors qualifying shares required by
applicable Governmental Regulation) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency) are
owned, beneficially and of record, by such entity or by one or more of the
other Subsidiaries of such entity or by any combination thereof.
3.4 Authority Relative to this Agreement. Seller has all requisite power,
authority and capacity to execute and deliver this Agreement and each of the
Related Agreements and to consummate the transactions contemplated by this
Agreement and each of the Related Agreements. The execution and delivery
of this Agreement and the Related Agreements and the consummation of the
transactions contemplated by this Agreement and the Related Agreements by
Seller have been duly and validly authorized by all required action on the
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<PAGE> 15
part of Seller (including the trustees and beneficiaries of the related
trusts). This Agreement has been (and when the Related Agreements have been
executed and delivered to Buyer at the Closing each of the Related Agreements
will have been) duly and validly executed and delivered by Seller, and this
Agreement constitutes (and when the Related Agreements are executed and
delivered to Buyer at the Closing each of the Related Agreements will
constitute) a legal, valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by general equitable principles (regardless of
whether considered in a proceeding in equity or at law).
3.5 Consents and Approvals; No Violations. Neither the execution and
delivery of this Agreement or any of the Related Agreements by Seller, nor the
performance of any of Seller's obligations under this Agreement or any of the
Related Agreements, nor the consummation of any of the transactions
contemplated by this Agreement or any of the Related Agreements by Seller will:
(a) Violate any provision of the Articles of Incorporation or Bylaws
of any of the Deco Companies.
(b) Require any consent, waiver, approval, authorization or permit
of, or filing with or notification to (each a "Consent"), any foreign,
federal, state, county, municipal or other government or governmental or
regulatory authority, agency or commission or court of competent
jurisdiction (each, a "Governmental Entity") or any other Person
(including, but not limited to, under any Obligation (as defined in
subsection (c) below), except for filings with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (together, the "HSR Act").
(c) Result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to
any right of termination or cancellation) under, any of the terms,
conditions or provisions of any indenture, mortgage, note, bond,
financing commitment, loan agreement, Encumbrance, license, Government
Authorization or other authorization, contract, lease, agreement or other
instrument or obligation (each, an "Obligation") to which any of the Deco
Companies or Seller is a party or by which any of their respective
properties or assets may be bound or give rise to any Encumbrance upon
the Deco Shares or any of the properties or assets of any of the Deco
Companies.
(d) Violate any law, statute, ordinance, rule or regulation or any
order, writ, judgment, injunction, decree or
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<PAGE> 16
award of any Governmental Entity or arbitrator (each, a "Governmental
Regulation") applicable to any of the Deco Companies or Seller.
3.6 Financial Statements. Seller has previously provided to Buyer the
following financial statements (collectively, the "Financial Statements"): for
each of Deco-Grand and Deco Tech the audited balance sheets, the related
statements of income and retained earnings and the related statements of cash
flows (including any related notes thereto) as of and for the fiscal years
ended December 31, 1994, December 31, 1995 and December 31, 1996; and, for the
Deco Companies, the combined unaudited balance sheets as of March 31, 1997 (the
"Reference Date") and September 30, 1997. Except as otherwise set forth in
Section 3.6 of the Disclosure Schedule, the Financial Statements fairly present
in all material respects the financial position, results of operations, changes
in stockholders equity and cash flows of the respective companies as of the
dates or for the periods presented in the Financial Statements in conformity
with generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved.
3.7 Absence of Certain Changes. Except as disclosed in Section 3.7 of the
Disclosure Schedule and as otherwise contemplated by this Agreement, to
Seller's and the Deco Companies' Knowledge (as defined in Section 10.1), since
the Reference Date, none of the following have occurred with respect to the
Deco Companies:
(a) Any damage, destruction or casualty loss that has or constitutes
or is reasonably likely to have or constitute a Seller Material Adverse
Effect.
(b) Conducted their business in any material respect not in the
ordinary course of business consistent with past practice, except in
connection with the transactions contemplated by this Agreement.
(c) Any change in the accounting principles or practices used by
them (except as required by GAAP).
(d) Except in the ordinary course of business consistent with past
practice, sold, transferred or otherwise disposed of any of their
material properties or assets.
(e) Any change or aggregate of changes in the financial condition,
results of operations, business, assets, or liabilities of any of the
Deco Companies that has resulted or constitutes, or would reasonably be
expected to result in or constitute, a Seller Material Adverse Effect.
(f) Any increase in the compensation or rate of compensation or
commission (excluding bonus) payable or to become payable by any of the
Deco Companies to any of their
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<PAGE> 17
directors, officers, salaried employees earning more than $75,000 per
annum, salesmen or agents, other than to Seller, or any General Increase
in the compensation or rate of compensation payable or to become payable
to any of their hourly employees or salaried employees earning $75,000 per
annum or less ("General Increase" for purposes hereof shall mean any
increase applicable to a class or group of employees and does not include
increases granted to individual employees for merit, length of service,
change in position or responsibility or other reasons applicable to
specific employees and not generally to a class or group thereof), or any
aggregate increase in compensation to any directors, officers or salaried
employees, of more than $5,000, or any termination of any key employee or
any employee whose compensation was in excess of $75,000 per annum.
(g) Any one capital expenditure or any series of related capital
expenditures (other than emergency repairs and replacements), the amount
or aggregate amount of which (as the case may be) is in excess of
$300,000.
3.8 Compliance with Law. Except as disclosed in Sections 3.11, 3.12 and
3.16 of the Disclosure Schedule:
(a) The businesses of the Deco Companies are not being conducted in
violation of, and the Deco Companies are now in full compliance with,
their respective Articles of Incorporation, Bylaws and all applicable
Governmental Regulations. No event has occurred or circumstance exists
that (with or without notice or lapse of time) may constitute or result
in a violation by any Deco Company of any Governmental Regulation. The
businesses of the Deco Companies at no time in the past have been
conducted in violation of, and the Deco Companies at all times in the
past have been in full compliance with, their respective Articles of
Incorporation, Bylaws and all applicable Governmental Regulations (except
where any such violation or failure to be in compliance would not give
rise to any liability of any kind (whether known or unknown, matured or
unmatured, asserted or not asserted, liquidated or not liquidated,
accrued, absolute, contingent or otherwise) on any of the Deco
Companies).
(b) The Deco Companies have all Governmental Authorizations (as
defined in Section 10.1) necessary to conduct their businesses as
currently conducted, except where such failure to have such Governmental
Authorizations, in the aggregate, does not have or constitute, and is not
reasonably likely to have or constitute, a Seller Material Adverse
Effect. Each such Governmental Authorization is valid and in full force
and effect.
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<PAGE> 18
3.9 Contracts and Commitments.
(a) Section 3.9 of the Disclosure Schedule sets forth a list of the
following agreements and commitments (if written and if oral a summary of
the material provisions thereof) to which any of the Deco Companies is a
party or by which any of their respective assets are bound (collectively,
the "Contracts"):
(i) Employment, severance or termination agreements and any
post-retirement medical plans or supplemental executive retirement
plans.
(ii) Collective bargaining agreements.
(iii) Agreements which provide for aggregate future payments
by or to any of the Deco Companies of more than $250,000 per year
which are not terminable by such Deco Company on less than 180 or
fewer days' notice without penalty (other than purchase orders
entered into in the ordinary course of business and third party
payor or plan sponsor arrangements).
(iv) Agreements containing covenants limiting the freedom of
any of the Deco Companies to compete with any Person in any line of
business or in any area or territory.
(v) Material leases and licenses of any of the Deco Companies.
(vi) Indentures, mortgages and notes or other debt instruments
evidencing indebtedness for borrowed money to which any of the Deco
Companies is a party.
(vii) each licensing agreement or other contract or commitment
with respect to patents, trademarks, copyrights, or other
Intellectual Property Assets (as defined in Section 3.14),
including agreements with current or former employees, consultants,
or contractors regarding the appropriation or the non-disclosure of
any of the Intellectual Property Assets.
(viii) each joint venture, partnership, and other contract and
commitment (however named) involving a sharing of profits, losses,
costs, or liabilities by any Deco Company with any other Person.
(ix) each warranty, guaranty, and/or other similar undertaking
with respect to contractual performance extended by any Deco
Company.
(b) None of the Deco Companies are in default and, to Seller's and
the Deco Companies' Knowledge, none of the Deco
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<PAGE> 19
Companies has any basis to believe that the other party is in default,
under any of the Contracts and no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give any Deco
Company or other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Contract. Seller has provided to Buyer
true and complete copies of the Contracts.
3.10 Litigation. Except as set forth in Section 3.10 of the Disclosure
Schedule and except with regard to taxes, employee benefits and environmental
matters (which are the subject of other Sections in this Agreement):
(a) There is no Proceeding (as defined in Section 10.1) pending or,
to Seller's and the Deco Companies' Knowledge, threatened against any of
the Deco Companies or Seller before any Governmental Entity or arbitrator
and, to Seller's and the Deco Companies' Knowledge, there is no
reasonable basis for any such Proceeding.
(b) None of the Deco Companies is subject to any outstanding
judgment, order, writ, injunction, decree or award of any Governmental
Entity or arbitrator.
3.11 Taxes.
(a) For purposes of this Agreement:
(i) The term "Taxes" means all federal, state, local, foreign,
and other net income, gross income, gross receipts, profits, goods
and services, social security, sales, use, ad valorem, single
business, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, franchise,
business license, occupation, real property gains, severance,
stamp, occupation, premium, property, windfall profits, customs,
duties, or other taxes, fees, assessments, environmental,
alternative minimum, windfall and capital taxes, and all other
obligations of the same or a similar nature to any of the
foregoing, together with any interest and any penalties, additions
to tax, or additional amounts with respect thereto, and the term
"Tax" means any one of the foregoing Taxes;
(ii) The term "Return" means all returns, declarations,
reports, statements, schedules, notices, forms or other documents
or information required to be filed in respect of the
determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement
of any
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<PAGE> 20
legal requirement relating to any Tax, and the term "Return"
means any one of the foregoing Returns;
(iii) The term "Code" means the Internal Revenue Code of 1986,
as amended. All citations to the Code or to the regulations
promulgated thereunder shall include any amendments or any
substitute successor provisions thereto.
(b) There have been properly completed and filed on a timely basis
and in correct form all Returns required to be filed by the Deco
Companies. As of the time of filing, all Returns correctly reflected
(and all Returns required to be filed by Seller pursuant to Article VI
hereof will correctly reflect at the time of filing) the facts regarding
the income, business, assets, operations, activities, status, or other
matters of each Deco Company or any other information required to be
shown thereon. An extension of time within which to file any Return that
has not been filed has not been requested or granted.
(c) With respect to all amounts in respect of Taxes imposed with
respect to the income or operations of any of the Deco Companies for
which any of the Deco Companies is or could be liable, whether to taxing
authorities (as, for example, under Governmental Regulation) or to other
Persons (as, for example, under tax allocation agreements), with respect
to all taxable periods or portions of periods ending on or before the
Closing Date, all applicable tax laws and agreements have been fully
complied with, and all such amounts of Taxes required to be paid to
taxing authorities or others on or before the date hereof have been paid,
and all such amounts required to be paid by the Closing Date will be paid
on or prior to the Closing Date.
(d) Except as otherwise set forth in Section 3.11 of the Disclosure
Schedule, there exists no proposed Tax assessment against any of the Deco
Companies. All Taxes that any Deco Company is or was legally required to
withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Entity or
other Person.
(e) There are no Encumbrances for Taxes (other than for current
Taxes not yet due and payable) on any of the assets or properties of the
Deco Companies.
(f) There is no Tax sharing agreement that will require any payment
by any Deco Company.
(g) Each of the Deco Companies is, and at all times within the ten
(10) year period preceding the Closing Date (or since formation if formed
within such ten (10) year period) has been, an "S Corporation."
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<PAGE> 21
Each of the Deco Companies (i) made an effective, valid and binding S
election pursuant to Section 1362 of the Code, (ii) has since such
election maintained its status as an S Corporation pursuant to Section
1361 of the Code without lapse or interruption, and (iii) has made and
continuously maintained elections similar to the federal S election in
each state or local jurisdiction the Company does business or is required
to file a Return to the extent such states or jurisdictions permit such
elections. None of the Deco Companies will or can be subject to any
built-in gains Tax under Section 1374 of the Code or any similar
corporate level Tax imposed on the Deco Companies by any taxing
authority.
(h) The transaction contemplated herein is not subject to the tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of Governmental
Regulation.
(i) The Seller is not a Person other than a United States person
within the meaning of the Code.
(j) Except as otherwise set forth in Section 3.11 of the Disclosure
Schedule, there is no pending audit or review by the IRS (as defined in
Section 3.12(b)(viii)) or any other tax authority and none of the Deco
Companies nor Seller has received any written notice of any threatened
audit or review by the IRS or any other tax authority.
(k) To the Knowledge of Seller and the Deco Companies, Seller is
eligible and has the authority to consent to the federal Section
338(h)(10) Election (as defined in Section 6.1) under the Code with
respect to the transactions contemplated in this Agreement.
3.12 Employee Benefit Plans; ERISA.
(a) (i) Section 3.12(a)(i) of the Disclosure Schedule contains an
accurate and complete list of all plans, contracts, programs and
arrangements, including, but not limited to, collective bargaining
agreements, pensions, bonuses, deferred compensation, retirement,
severance, hospitalization, insurance, salary continuation, and
other employee benefit plans, programs or arrangements, maintained
currently or at any time within the previous five (5) years by any
of the Deco Companies or any company related by ownership to any of
the Deco Companies within the meaning of Code Section 414(b), (c)
or (m) ("Related Company") or under which any of the Deco Companies
or any Related Company has had any obligations with respect to an
employee of any of the Deco Companies or of a Related Company (the
"Plans").
(ii) None of the Deco Companies or any Related Company
contributes or has any obligation to contribute
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<PAGE> 22
to any "multiemployer plans" within the meaning of 3(37) of ERISA
("Multiemployer Plans").
(b) Seller has delivered to Buyer true and complete copies of the
following:
(i) all documents that set forth the terms of each Plan and of
any related trust, including all amendments, plan descriptions
and/or summary plan descriptions, whether required to be prepared
and distributed to plan participants under ERISA;
(ii) all collective bargaining agreements pursuant to which
contributions have or are being made or obligations incurred for
pension and/or welfare benefits by any of the Deco Companies or any
Related Company;
(iii) all registration statements filed with respect to any
Plan;
(iv) all insurance policies purchased to provide benefits
under any Plan;
(v) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors
that relate or related to any Plan;
(vi) all notifications to employees of their rights under
ERISA Section 601 et seq. and Code Section 4980B;
(vii) the Form 5500 filed for the three most recent plan years
with respect to each Plan, including all schedules thereto and the
opinions of independent accountants;
(viii) all notices that were given by any of the Deco
Companies, a Related Company or any Plan to the United States
Internal Revenue Service ("IRS"), the United States Pension Benefit
Guaranty Corporation ("PBGC") or the United States Department of
Labor, pursuant to Governmental Regulation, within the four (4)
years preceding the date of this Agreement, and all such notices
that were required to be given by such agencies to any of the Deco
Companies, any Related Company or any Plan, within such time
period;
(ix) the most recent determination letter issued to
any Plan which is intended to be tax-qualified under Code Section
401(a); and
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<PAGE> 23
(x) the Form PBGC-1 for the three most recent plan years with
respect to each Plan that is subject to Title IV of ERISA.
(c) Except as specifically set forth in Section 3.12(c) of the
Disclosure Schedule:
(i) each Plan which is an "employee pension benefit plan,"
within the meaning of Section 3(2) of ERISA, and its related trust
("Pension Plan and Trust") which is intended to be tax qualified
now meets, and since its inception has met, the requirements for
qualification under Sections 401(a) and 401(k) of the Code and is
now, and since its inception has been, exempt from taxation under
Section 501(a) of the Code, and the IRS has issued a current
favorable determination letter with respect to the qualified status
of each Pension Plan and Trust and has not taken any action to
revoke such letter;
(ii) Each of the Deco Companies has performed all obligations
required to be performed by it under the Plans (including, but not
limited to, the making of all contributions), and has made
appropriate entries in its financial records and statements for all
obligations and liabilities under such plans that have accrued but
are not due.
(iii) Each of the Plans has been operated in compliance with
the requirements of all Governmental Regulations applicable to such
Plans, including but not limited to ERISA and the Code;
(iv) None of the Deco Companies nor, to the Seller's and the
Deco Companies' Knowledge, any other "disqualified person" or
"party in interest," within the meanings of Section 4975 of the
Code or Section 3(14) of ERISA, respectively, has engaged in any
"prohibited transaction," as such term is defined in Section 4975
of the Code or Section 406 of ERISA, which could, following the
Closing Date, subject any Plan (or its related trust), Buyer, any
of the Deco Companies, or any officer, director or employee of any
of them, to any Tax or penalty imposed under the Code or ERISA;
(v) there are no Proceedings pending (other than routine
claims for benefits) or, to the Seller's and the Deco Companies'
Knowledge, threatened against any Plan or against the assets of any
Plan;
(vi) each "plan official," within the meaning of Section 412
of ERISA, of each Plan is bonded to the extent required by said
Section 412;
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<PAGE> 24
(vii) no statement, either written or oral, has been made by
any of the Deco Companies to any Person with regard to any Plan
that was not in accordance with the Plan and that could have an
adverse economic consequence to any of the Deco Companies or Buyer
and each Plan can be terminated within sixty (60) days;
(viii) no Proceeding has been initiated to terminate any Plan
and any such termination will not subject any of the Deco Companies
or Buyer to liability to any Person;
(ix) the Deco Companies have no liability to the IRS with
respect to any Plan, including any liability imposed by Chapter 43
of the Code;
(x) no retiree benefits are payable under any "employee
welfare benefit plan," within the meaning of Section 3(1) of ERISA
("Welfare Plan");
(xi) each Welfare Plan which is a group health plan within the
meaning of Section 5000 of the Code complies and in each case has
complied with the applicable requirements of Sections 601 through
608 of ERISA and Sections 162(k) or 4980B of the Code, as
applicable;
(xii) no payment that is owed or may become due to any
director, officer, employee or agent of any of the Deco Companies
will be non-deductible to such Deco Company or subject to Tax under
Sections 280G or 4999 of the Code, nor will any of the Deco
Companies be required to "gross up" or otherwise compensate any
such Person because of the imposition of any excise tax on a
payment to such Person; and
(xiii) the completion of the transactions contemplated in this
Agreement will not result in the payment, vesting or acceleration
of any benefit.
(d) Except as specifically set forth in Section 3.12(d) of the
Disclosure Schedule, with respect to any Plan that is subject to Part 3
of Title I of ERISA, Section 412 of the Code or Title IV of ERISA:
(i) Each of the Deco Companies and each Related Company has
met the minimum funding standard, and has made all contributions
required, under ERISA Section 302 and Code Section 412;
(ii) no accumulated funding deficiency, whether or not waived,
exists with respect to any Plan and no event has occurred or
circumstance exists that may result
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<PAGE> 25
in an accumulated funding deficiency as of the last day of the
current plan year of any such Plan;
(iii) the actuarial report for each Plan fairly represents the
financial condition and the results of operations of each such Plan
in accordance with GAAP;
(iv) since the last valuation date for each Plan, no event has
occurred or circumstance exists that would increase the amount of
benefits under any such Plan or that would cause the excess of plan
assets over benefit liabilities (as defined in ERISA Section 4001)
to decrease, or the amount by which benefit liabilities exceed
assets to increase;
(v) no reportable event (as defined in ERISA Section 4043) has
occurred;
(vi) the Deco Companies do not have any liability to the PBGC
with respect to any Plan and, to Seller's and the Deco Companies'
Knowledge, no facts or circumstances exist that may give rise to
any liability of any of the Deco Companies or Buyer under Title IV
of ERISA;
(vii) none of the Deco Companies nor any Related Company
has ceased operations at any facility or has withdrawn from
any Plan in a manner that would subject any of the Deco Companies
to liability under ERISA Sections 4062(e), 4063 or 4064;
(viii) the PBGC has not instituted proceedings to treat a Plan
as terminated and no event has occurred or circumstance exists that
may constitute grounds under ERISA Section 4042 for the termination
of, or the appointment of a trustee to administer, any Plan.
3.13 Title to Properties. Each of the Deco Companies has good title to
all assets which it purports to own including those which are reflected on the
combined unaudited balance sheets of such Deco Companies as of the Reference
Date included in the Financial Statements (except for assets and properties
sold, consumed or otherwise disposed of by such Deco Company in the ordinary
course of business since the Reference Date) and all assets acquired by such
Deco Company since the Reference Date (except for any such assets sold,
consumed or otherwise disposed of by such Deco Company in the ordinary course
of business). Such assets and properties are owned free and clear of all
Encumbrances, except for (a) liens for current Taxes not yet due and payable or
for Taxes the validity of which is being contested in good faith, and (b)
mechanic's, materialmen's and other similar statutory Encumbrances which have
arisen in the ordinary course of business.
3.14 Trademarks, Etc.
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<PAGE> 26
(a) Except as set forth in Section 3.14(a) of the Disclosure
Schedule, there are no registered or unregistered trademarks, trade
names, service marks, copyrights, patents or applications therefor which
are used by any of the Deco Companies and which are material to the
conduct of the business of any of the Deco Companies as currently
conducted. For purposes of this Agreement, "Intellectual Property
Assets" means and includes: (i) the names Grand Machining Co., Deco
Technologies, Inc. and Deco International, Inc., all fictional business
names, assumed names, trade names, registered and unregistered
trademarks, service marks, and applications; (ii) all patents, patent
applications, and inventions and discoveries that may be patentable
(collectively, "Patents"); (iii) all copyrights in both published works
and unpublished works; and (iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information, data,
process technology, plans, drawings, and blue prints; in each case that
are owned, used, or licensed by any of the Deco Companies as licensee or
licensor.
(b) The Deco Companies own or possess adequate licenses or other
valid rights to use all of the Intellectual Property Assets within the
territory of the Deco Companies' current business. The conduct of the
business of the Deco Companies as now conducted does not conflict with
any trademarks, trade names, service marks, copyrights, patents, trade
secrets or other intellectual property assets of others in any way which
has or constitutes, or is reasonably likely to have or constitute, a
Seller Material Adverse Effect.
(c) With respect to each of the Patents listed in Section 3.14(a) of
the Disclosure Schedule of which the inventor is or was an employee of
the Deco Companies, the Deco Companies, to Seller's and the Deco
Companies' Knowledge, have had all rights thereto, including all
modifications, improvements and extensions thereof, assigned to them by
the inventor of such patent.
(d) To Seller's and the Deco Companies' Knowledge, there are no
United States or other foreign patents or published foreign patent
applications the claims of which prevent, or would reasonably be expected
to prevent, Buyer from operating the Deco Companies as currently operated
or the Deco Companies from continuing to operate as currently operated in
the countries in which they are currently doing business.
(e) The Intellectual Property Assets are all those necessary for the
operation of the Deco Companies' businesses as they are currently
conducted. Except as otherwise set forth in Section 3.14(e) of the
Disclosure Schedule, one or more of the Deco Companies is the owner of
all right, title, and interest in and to each of the material
Intellectual Property Assets, free and clear of all Encumbrances and has
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the right to use without payment to any other Person all of the
Intellectual Property Assets.
3.15 Insurance.
(a) Neither Seller nor any of the Deco Companies has received any
notice that any of the Deco Companies is in default under any insurance
policy with regard to the property, assets, operations or business of the
Deco Companies. There are no pending claims against or under any such
insurance policies made by any of the Deco Companies as to which the
insurers have denied liability.
(b) Section 3.15(b) of the Disclosure Schedule describes:
(i) any material self-insurance arrangement by or affecting
any Deco Company, including any reserves established thereunder;
and
(ii) all material obligations of the Deco Companies to third
parties with respect to insurance (including such obligations under
leases and service agreements) and identifies the policy under
which such coverage is provided.
(c) All policies to which any Deco Company is a party or that
provide coverage to Seller, any Deco Company, or any director or officer
of any Deco Company: (A) are valid, outstanding, and enforceable; (B) are
sufficient for compliance with all Governmental Regulations and Contracts
to which any Deco Company is a party or by which any of them is bound;
(C) will continue in full force and effect immediately following the
consummation of the transactions contemplated in this Agreement unless
Buyer takes some action to discontinue such policies; and (D) do not
provide for any retrospective premium adjustment or other
experienced-based liability on the part of any Deco Company.
3.16 Environmental Matters. Except as set forth in Section 3.16 of the
Disclosure Schedule:
(a) Each of the Deco Companies is, and at all times has been, in
full compliance with, and has not been and is not in violation of or
liable under (whether any such violation or liability is known or
unknown, matured or unmatured, liquidated or not liquidated, asserted or
not asserted absolute, contingent or otherwise), any Environmental Law
(as defined in Section 10.1). Neither Seller nor any of the Deco
Companies has any basis to expect that there exists any, nor has any of
them or any other Person for whose conduct any of them are liable
received any actual or threatened order, notice, or other written
communication from (i) any Governmental Entity or private citizen, or
(ii) the current or
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prior owner or operator of any Facilities (as defined in Section 10.1) of,
any actual or potential violation or failure to comply with any
Environmental Law by Seller, any of the Deco Companies or any other
Person for whose conduct any of them are liable, or of any actual or
threatened obligation of Seller, any of the Deco Companies or
any Person for whose conduct any of them are liable to undertake or bear
the cost of any Environmental, Health, and Safety Liabilities (as defined
in Section 10.1) with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Seller
or any of the Deco Companies has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by
Seller, any Deco Company or any other Person for whose conduct any of
them are liable, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Seller and the Deco
Companies, threatened claims, Encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health, and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to or
affecting any of the properties and assets (whether real, personal, or
mixed) in which Seller or any of the Deco Companies has an interest and
there are, to the Knowledge of Seller and the Deco Companies, no such
pending or threatened claims, Encumbrances or other restrictions with
respect to or affecting any such properties or assets as to which Seller
or any of the Deco Companies formerly had an interest.
(c) Neither Seller nor any of the Deco Companies has any basis to
expect that there exists any, nor has any of them or any other Person for
whose conduct any of them are liable received any citation, directive,
inquiry, notice, order, summons, warning, or other written communication
of any, alleged, actual, or potential violation or failure to comply with
any Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which Seller or any of
the Deco Companies had an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Seller, any of the Deco
Companies, or any other Person for whose conduct any of them are liable,
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(d) Neither Seller nor any of the Deco Companies, or any other
Person for whose conduct any of them are liable, has any Environmental,
Health, and Safety Liabilities with respect to
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the Facilities or with respect to any other properties and assets
(whether real, personal, or mixed) in which Seller or any of the Deco
Companies (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) Seller and the Deco Companies have no liability of any kind
(whether known or unknown, matured or unmatured, liquidated or not
liquidated, asserted or not asserted, absolute, contingent or otherwise),
other than any liability associated with day to day compliance matters
(and the Deco Companies are not in violation of any such matters),
associated in any way with Hazardous Materials present on or in the
Environment at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land deposits,
dumps, equipment (whether moveable or fixed) or other containers, either
temporary or permanent, and deposited or located in land, water, sumps,
or any other part of the Facilities or such adjoining property, or
incorporated into any structure therein or thereon. None of Seller, any
of the Deco Companies, any other Person for whose conduct any of them are
liable has permitted or conducted, or is aware of, any Hazardous Activity
conducted in violation of any Governmental Regulation with respect to the
Facilities or any other properties or assets (whether real, personal, or
mixed) in which Seller or any Deco Company has or had an interest.
(f) There has been no Release (other than Releases authorized under
Environmental Law) or, to the Knowledge of Seller and the Deco Companies,
Threat of Release (as defined in Section 10.1) (other than a Threat of
Release authorized under Environmental Law), of any Hazardous Materials
at or from any properties or assets in which Seller or any of the Deco
Companies has an interest (or, in the case of any properties or assets in
which Seller or any of the Deco Companies has had an interest at any time
in the past, any such Release or Threat of Release at any time while
Seller or any of the Deco Companies had such interest). To the Knowledge
of Seller and the Deco Companies, there has been no Release (other than
Releases authorized under Environmental Law) or a Threat of the Release
(other than Threats of Release authorized under Environmental Law) of any
Hazardous Materials from any properties or assets in which Seller or any
of the Deco Companies has or had an interest where any Hazardous
Materials were generated, manufactured, refined, transferred, produced,
imported, used, or processed, or from or by any other properties and
assets (whether real, personal, or mixed) in which Seller or any of the
Deco Companies has or had an interest, or any geologically or
hydrologically adjoining property, whether by Seller, any of the Deco
Companies or any other Person.
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(g) Seller has delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed
or initiated by Seller or any of the Deco Companies pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the
Facilities, or concerning compliance by Seller, any of the Deco
Companies, or any other Person for whose conduct they are liable, with
Environmental Laws.
(h) None of the Deco Companies have, and as of the Closing Date none
of the Deco Companies will have, any liability (whether known or unknown,
matured or unmatured, liquidated or not liquidated, asserted or not
asserted, absolute, contingent or otherwise) as to any then existing
facts, circumstances or conditions under any of the environmental
indemnity or similar provisions of any leases of any of the Facilities.
3.17 Brokers and Finders. None of Seller, any of the Deco Companies or
any of their respective Representatives has employed any investment banker,
broker or finder or incurred any liability for any investment banking fees,
brokerage fees, commissions or finders' fees in connection with any of the
transactions contemplated by this Agreement, except for the fees and expenses
payable to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") for
investment banking services, which will be paid by Seller.
3.18 Conflicts of Interest. Except as set forth in Section 3.18 of the
Disclosure Schedule or specifically identified in the Financial Statements
(including any of the notes thereto), none of Seller, any officer or director
of the Deco Companies, or any entity controlled by any of the foregoing nor any
Related Person:
(a) Owns, directly or indirectly, any interest in (excepting not
more than 2% stockholdings for investment purposes in securities of
publicly-held and traded companies), or is an officer, director, employee
or consultant of, any corporation, firm, association or other business
entity or organization which is, or is engaged in business as, a
competitor, lessor, lessee, franchisee or supplier of any of the Deco
Companies;
(b) Owns, directly or indirectly, in whole or in part, any tangible
or intangible property which any of the Deco Companies uses in the
conduct of its business;
(c) Has any claim or right against any of the Deco Companies;
(d) Is owed any money or is party to any contract or commitment with
any of the Deco Companies; or
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(e) Owes any money to any of the Deco Companies.
3.19 Liabilities. Except as set forth in Sections 3.6, 3.7 (items 1 and
2 only), 3.9 (but only to the extent that any such liabilities or obligations
under the agreements listed in such Section are not past due and do not involve
any breach of such agreements or any violation of Governmental Regulation),
3.11, 3.12, 3.16, 3.19 and 3.29 of the Disclosure Schedule, the Deco Companies
have no liabilities or obligations, whether known or unknown, matured or
unmatured, asserted or not asserted, liquidated or not liquidated, accrued,
absolute, contingent or otherwise, except (a) to the extent reflected or
reserved for on the latest of the Financial Statements or as will otherwise be
reflected or reserved for in the Preliminary Statement or the Final Statement
and (b) current liabilities incurred in the ordinary course of business since
the date of the latest Financial Statements and not required to be reflected on
a balance sheet of the Deco Companies in accordance with GAAP (none of which
involve or will involve any breach of any Contract or any violation of any
Governmental Regulation).
3.20 Suppliers. Section 3.20 of the Disclosure Schedule lists, by dollar
volume, the ten (10) largest suppliers of the Deco Companies as of January 8,
1997. To the Seller's and the Deco Companies' Knowledge, the relationships of
the Deco Companies with such suppliers are good commercial working
relationships and Seller and the Deco Companies have not received any notice
which would reasonably cause Seller or any of the Deco Companies to believe
that any Person listed in Section 3.20 of the Disclosure Schedule has
threatened to cancel or otherwise terminate or materially change the
relationship of such Person with the Deco Companies whether as a result of the
transactions contemplated by this Agreement or otherwise.
3.21 Inventory. All items which comprise inventory of the Deco Companies
set forth in the Financial Statements and to be set forth in the Preliminary
Statement and the Final Statement have been (or will have been in the case of
the Preliminary Statement and the Final Statement) purchased or manufactured in
the ordinary course of business and are (or will be) valued therein in
accordance with GAAP, applied on a consistent basis during the periods involved.
3.22 Accounts Receivable. The accounts receivable of the Deco Companies
reflected in the Financial Statements and to be reflected in the Preliminary
Statement and the Final Statement represent bona fide claims for sales or other
charges arising in the ordinary course of business in accordance with the Deco
Companies' normal credit policies. Unless paid prior to the Closing Date, the
accounts receivable reflected in the Financial Statements and to be reflected
in the Preliminary Statement and the Closing Statement are and will be as of
the Closing Date current and collectible net of the respective reserves shown
thereon (which reserves are and will be adequate and calculated consistent with
past practice). Subject to such reserves, each of the accounts receivable
either
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has been or will be collected in full, without any set-off, after normal
collection practices of the Deco Companies (and without the necessity of the
institution of legal proceedings). There is no contest, claim, or right of
set-off, under any contract with any obligor of an accounts receivable relating
to the amount or validity of such accounts receivable. In the event that Buyer
or any of the Deco Companies make a claim for indemnification against
Seller under this Section 3.22 in respect of any accounts receivable of the
Deco Companies then the related Deco Company will, as a condition to making
such claim and being entitled to indemnification therefor (except to the extent
any provision of such account receivable or the underlying agreement do not
expressly permit transfer), transfer (without recourse) to Seller any such
accounts receivable after Seller has paid to Buyer or the Deco Company, as
applicable, the full amount of the Losses (as defined in Section 10.1) claimed
by them as to such accounts receivable.
3.23 Employee Relations. The Deco Companies have approximately 500
employees. Except as set forth in Section 3.23 of the Disclosure Schedule, no
union or other collective bargaining unit has been certified or recognized by
the Deco Companies as representing any of the Deco Companies' employees and,
except as set forth in Section 3.23 of the Disclosure Schedule, to Seller's and
the Deco Companies' Knowledge, no union organizing efforts with regard to any
of the Deco Companies' employees have been conducted within the last two years
or are now being conducted. To Seller's and the Deco Companies' Knowledge, the
Deco Companies' relationships with their employees are good.
3.24 Certain Payments. No Deco Company or director, officer, agent, or
employee of any Deco Company, or to Seller's and the Deco Companies' Knowledge,
any other Person associated with or acting for or on behalf of any Deco
Company, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of any Deco
Company or Related Person of Seller, (iv) in violation of any Governmental
Regulation, or (v) in violation of any supplier or customer policy as to which
Seller or any of the Deco Companies has Knowledge, or (b) established or
maintained any fund or asset that has not been recorded in the books and
records of the Deco Companies.
3.25 Books and Records. The books of account, minute books, stock record
books, and other records of the Deco Companies, all of which have been made
available to Buyer, are complete and correct in all material respects and have
been maintained in a manner consistent with the requirements of Section
13(b)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")
(regardless of whether or not the Deco Companies are subject to that Section),
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including the maintenance of an adequate system of internal controls.
3.26 Disclosure. No representation or warranty of Seller in this
Agreement and no statement in the Disclosure Schedule omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
3.27 Real Property and Real Property Leases. Section 3.27 of the
Disclosure Schedule contains a true and complete list of (a) all real property
owned by the Deco Companies, (b) all real estate leases to which any of the
Deco Companies is a party, and (c) all other material interests, if any, in
real property owned or claimed by the Deco Companies. The Deco Companies have
all material easements and rights, including parking rights and easements for
power lines, water lines, roadways and other access, necessary to conduct the
businesses they now conduct and enjoy peaceful and undisturbed possession of
all properties occupied by them. Neither the whole nor any portion of any real
property owned, occupied or leased to or by the Deco Companies has been, in the
last six (6) years, rezoned or condemned or otherwise taken by any Governmental
Entity and, to the Knowledge of Seller and the Deco Companies, no such zoning,
condemnation or other taking is threatened or contemplated. None of the real
properties owned, occupied or leased to or by the Deco Companies, or the
occupancy or operation thereof, constitutes a nuisance or violation of any law
or any building, zoning or other ordinance, code or regulation or any private
or public covenant or restriction, and no written notice from any Governmental
Entity or other Person has been received by Seller or the Deco Companies
claiming any outstanding violation of any such law, ordinance, code,
regulation, covenant or restriction, or requiring or calling attention to the
need for any material amount of work, repairs, construction, alterations or
installations on or in connection with any of such properties which has not
been complied with. All leases of real property to which any of the Deco
Companies is a party are valid, binding and in full force and effect, and there
exists no material default thereunder by the Deco Companies or, to the
Knowledge of Seller and the Deco Companies, any other party thereto, nor any
events which with notice or lapse of time, or both, would constitute a material
default by the Deco Companies thereunder, and all rents and other amounts
heretofore payable under such leases have been paid in full. Notwithstanding
anything to the contrary contained in this Section 3.27, Seller makes no
representation or warranty in this Section 3.27 regarding compliance with any
Environmental Law or Occupational Safety and Health Law; such compliance is
addressed in Section 3.16.
3.28 Effect of Transaction. No Person having a material business
relationship with the Deco Companies has informed Seller or any of the Deco
Companies that such Person intends to change in any material respect such
relationship because of the transactions contemplated by this Agreement or
otherwise.
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3.29 Product Warranty and Product Recalls. Except as set forth in Section
3.29 of the Disclosure Schedule, none of the Deco Companies has any liabilities
or obligations of any kind (whether known or unknown, matured or unmatured,
liquidated or not liquidated, asserted or not asserted, absolute, contingent or
otherwise) for any Product Recall or for breach of warranty (express or
implied), negligence, strict liability, failure to warn or any other such
liabilities or obligations under any product liability theory whatsoever with
respect to any products manufactured or sold at any time on or prior to the
Closing Date and there is no basis for any of such liabilities or obligations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Corporate Organization, Etc. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to conduct
its business as it is now being conducted and to own, lease and operate its
property and assets. For purposes of this Agreement, "Buyer Material Adverse
Effect" means with respect to any fact, circumstance, occurrence, event, change
or development that such fact, circumstance, occurrence, event, change or
development either alone or together with other like facts, circumstances,
occurrences, events or developments (a) has, or is reasonably likely to have
(at the time in question or at any time in the future), a material adverse
effect on the business, assets, financial condition or results of operations of
Buyer, or (b) has impaired, hindered or adversely affected, or is reasonably
likely to (at the time in question or at any time in the future) impair, hinder
or adversely affect, the ability of Buyer to execute or deliver this Agreement
or any of the Related Agreements, to perform any of Buyer's material
obligations under this Agreement or any of the Related Agreements, or to
consummate any of the material transactions contemplated by this Agreement or
any of the Related Agreements, or (c) has adversely affected, or is reasonably
likely (at the time in question or at any time in the future) to adversely
affect, the validity or enforceability of any of the material provisions of
this Agreement or any of the Related Agreements against Buyer.
4.2 Authority Relative to this Agreement. Buyer has all requisite power
and authority (corporate and other) to execute and deliver this Agreement and
each of the Related Agreements and to consummate the transactions contemplated
by this Agreement and each of the Related Agreements. The execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated by this Agreement and the Related Agreements by
Buyer have been duly and validly authorized by all required corporate action on
the part of Buyer. This Agreement has
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been (and when executed by Buyer and delivered to Seller at the Closing the
Related Agreements will have been) duly and validly executed and delivered by
Buyer and constitutes (and each of the Related Agreements when executed by
Buyer and delivered to Seller at the Closing will constitute) the legal, valid
and binding agreement of Buyer, enforceable against Buyer in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by general equitable principles (regardless of whether considered in a
proceeding in equity or at law).
4.3 Consents and Approvals; No Violations. Neither the execution and
delivery of this Agreement or any of the Related Agreements by Buyer, nor the
performance of any of Buyer's obligations under this Agreement or any of the
Related Agreements, nor the consummation of any of the transactions
contemplated by this Agreement or any of the Related Agreements by Buyer will:
(a) Violate any provision of the Articles of Incorporation or Bylaws
of Buyer.
(b) Require any Consent of any Governmental Entity or any other
Person (including under any Obligation), except for filings with the FTC
and the DOJ pursuant to the HSR Act.
(c) Result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to
any right of termination or cancellation) under, any of the terms,
conditions or provisions of any Obligation to which Buyer is a party or
by which Buyer or any of its property or assets may be bound.
(d) Violate any Governmental Regulation applicable to Buyer.
4.4 Investment Intent. Buyer is acquiring the Deco Shares for its own
account, for investment purposes and not with a view to, or for sale in
connection with, any resale or other distribution thereof, nor with any present
intention of distributing or selling the Deco Shares. Buyer acknowledges and
agrees that the Deco Shares cannot be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of, and Buyer will not sell,
transfer, offer for sale, pledge, hypothecate or otherwise dispose of any of
the Deco Shares, without registration under the Securities Act of 1933, as
amended, and any applicable state securities laws, except pursuant to an
exemption from such registration under such Act and laws.
4.5 Brokers and Finders. Neither Buyer nor any of its Representatives
has employed any investment banker, broker or finder or incurred any liability
for any investment banking fees, brokerage fees, commissions or finders' fees
in connection with any of the transactions contemplated by this Agreement.
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4.6 Access. On and prior to the date of this Agreement, Seller caused,
and Buyer acknowledges that Seller caused, Representatives of Seller and the
Deco Companies to give Buyer and its Representatives full access to, and to
furnish them with all information and documentation regarding, Seller, the Deco
Companies, the business of the Deco Companies, the Deco Shares, this Agreement
and the transactions contemplated by this Agreement, including all of the
facilities, assets, properties, books, leases, agreements, commitments,
Contracts, records and personnel of the Deco Companies which Buyer considers
necessary or advisable to enable it to make a decision concerning its purchase
of the Deco Shares and all other information as Buyer requested, so that Buyer
had a full opportunity to review the business, financial, accounting and legal
matters relating to all of the foregoing.
4.7 Buyer's Expertise and Investigation.
(a) Buyer is an informed and sophisticated purchaser, possesses such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment under this
Agreement and has engaged legal and other advisors, experienced in the
evaluation and purchase of companies such as the Deco Companies.
(b) Buyer has undertaken such investigation as it deems necessary or
appropriate to enable it to make an informed and intelligent decision
with regard to this Agreement and the transactions contemplated by this
Agreement.
(c) Buyer acknowledges and agrees that, in entering into this
Agreement, in acquiring the Deco Shares and in consummating the other
transactions contemplated by this Agreement:
(i) Buyer has relied and will rely solely upon its own
investigation and analysis and the representations, warranties and
covenants contained in this Agreement (and, without limiting the
generality of the foregoing, not on any of the information learned
or provided in connection with any presentation made by management
or other Representatives of any of the Deco Companies or Seller,
contained in any document provided to it, including the
Confidential Information Memorandum of Spring 1997 (the
"Memorandum"), or otherwise).
(ii) Neither Seller nor any of the Deco Companies (nor any of
their respective Representatives) has made any representation or
warranty except as expressly set forth in Article III of this
Agreement (including in any other document, including the
Memorandum).
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Notwithstanding anything to the contrary contained herein, the representations
and warranties of Buyer in Sections 4.6 and 4.7 shall not modify in any manner
the representations and warranties of Seller in Article III of this Agreement
or Buyer's reliance thereon.
4.8 Litigation. There is no action, suit or proceeding pending or, to
Buyer's Knowledge, threatened against Buyer before any Governmental Entity
which is reasonably likely to have a Buyer Material Adverse Effect.
4.9 MESC Notice. At least two Business Days prior to the date of this
Agreement, Buyer has received from Seller a true and complete copy of MESC Form
1027 entitled "Business Transferor's Notice to Transferee of Unemployment Tax
Liability and Rate".
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Conduct of Business of the Deco Companies. Except as expressly
contemplated by this Agreement, or with the prior written consent of Buyer,
during the period from the date of this Agreement to the Closing Date:
(a) Seller will use reasonable efforts to cause the Deco Companies
to:
(i) Conduct their respective businesses and operations in the
ordinary course of business consistent with past practice.
(ii) Preserve intact their respective properties, assets and
business organizations.
(iii) Keep available the services of their respective officers
and key employees, in each case in the ordinary course of business
consistent with past practice.
(b) Seller will not permit any of the Deco Companies to take any of
the following actions:
(i) Issue, sell, purchase, redeem or pledge, or authorize the
issuance, sale or pledge of (A) additional shares of capital stock,
or securities convertible into any such shares, or any rights,
warrants or options to acquire any such shares or other convertible
securities or (B) any other securities in respect of, in lieu of,
or in substitution for, the capital stock of any of the Deco
Companies outstanding on the date of this Agreement.
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(ii) Except in the ordinary course of business consistent with
past practice, sell, transfer, mortgage, encumber or otherwise
dispose of any of its material properties or assets.
(iii) Enter into other material agreements, commitments or
contracts, except arrangements, commitments or contracts made in
the ordinary course of business consistent with past practice.
(iv) Change any of the accounting principles or practices used
by it (except as required by GAAP).
(v) Knowingly take any action or fail to take any commercially
reasonable action as would reasonably be expected to result in a
material change in the Net Book Value other than in the ordinary
course of business and other than the Permitted Distribution and
the Additional Permitted Distribution.
(vi) Knowingly take any action or fail to take any
commercially reasonable action which would reasonably be expected
to cause any representation or warranty of Seller to cease to be
true or accurate in any material respect as if then being made or
that could prevent performance of any material covenant or
obligation of the parties hereto or the satisfaction of any
condition to the obligation of the parties hereto set forth in
Articles VII or VIII hereof.
(vii) Agree to take any of the foregoing actions.
5.2 Access to Information.
(a) From the date of this Agreement through and including the
Closing Date, upon reasonable notice, Seller will cause the Deco
Companies to (i) give Buyer and its authorized Representatives reasonable
access to all books, records, offices and other facilities and properties
of the Deco Companies, (ii) permit Buyer to make such inspections of the
foregoing as Buyer may reasonably request and (iii) cause its officers to
furnish Buyer with such financial and operating data and other
information with regard to the business and properties of the Deco
Companies as Buyer may from time to time reasonably request. Any such
access will be provided, and all such inspections will be conducted, at
reasonable times and in such a manner as not to interfere unreasonably
with the operations of the business of the Deco Companies. All such
information and access will be subject to the terms and conditions of the
Confidentiality Agreement dated April 16, 1997 (the "Confidentiality
Agreement") between DLJ, as agent of Seller, and Buyer, which will
survive the execution and delivery of this Agreement.
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(b) After the Closing, upon reasonable notice, Buyer will fully
cooperate with Seller and will give or cause to be given to Seller and
its authorized Representatives, full access to Representatives of the
Deco Companies and Buyer and such information (including the right to
make copies or extracts thereof) relating to the Deco Companies or Buyer
(including properties, books, contracts, financial statements, tax
returns, commitments, files and records) as is reasonably requested for
the preparation or filing of any Return, financial statement or report,
in connection with any response or submission to any taxing authority or
which is otherwise reasonably requested. Any such access will be
provided, and all such inspections will be conducted, at reasonable times
and in such a manner as not to interfere unreasonably with the operations
of the business of the Deco Companies. In addition, after the Closing,
upon the reasonable request of Seller, Buyer will use reasonable efforts
to promptly make available, at no cost to Seller, Representatives of the
Deco Companies and/or Buyer to meet with the IRS, other taxing authority
or other Governmental Entity with regard to any tax dispute, audit,
review or other matter applicable to Seller.
(c) Buyer will retain and use reasonable efforts to preserve, and
make available to Seller and its Representatives, all material
information relating to the Deco Companies and the Deco Shares (including
books, contracts, financial statements, Returns, files and records) for a
period of at least eight (8) years after the Closing Date; provided that
Buyer shall not be required to so retain, preserve and make available
such information if it gives written notice (describing the information
in reasonable detail) to Seller of its intent to dispose of such
information at least thirty (30) days prior to the intended disposition
date and offers to deliver such information to Seller.
5.3 Continued Accuracy of Seller's Representations and Warranties.3
Continued Accuracy of Seller's Representations and Warranties. Between the
date of this Agreement and the Closing Date, Seller will from time to time give
written notice to Buyer of any facts, events, conditions, changes,
circumstances or information occurring or arising from the date of this
Agreement through the Closing Date that cause any representation or warranty
set forth in Article III above to become untrue in any material respect as if
such representation or warranty were then being given by Seller (together, the
"New Facts"). This Section 5.3 is not intended to permit Seller to alter or
amend its representations and warranties made herein or the Disclosure Schedule
and any notices provided pursuant to this Section shall not cure the inaccuracy
thereof as of the date of this Agreement or the Closing Date for any purpose
under this Agreement. The parties expressly intend that Seller shall indemnify
and hold harmless Buyer pursuant to Section 5.7 hereof in respect of the
representations and warranties of Seller set forth herein without giving effect
to the disclosure by Seller to Buyer of any New Facts.
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5.4 Consents and Approvals. Without limiting any party's other
obligations under this Agreement, each party will use reasonable efforts to
obtain as promptly as practicable all Consents required in connection with the
consummation of the transactions contemplated by this Agreement.
5.5 Filings; Cooperation; Information. Promptly after the execution of
this Agreement, each party will prepare and make (or cause to be prepared and
made) all required filings, submissions and notifications under the laws of any
domestic or foreign jurisdictions to the extent necessary to consummate the
transactions contemplated by this Agreement. Each party will promptly consult
with the other party with regard to, and provide any necessary information and
reasonable assistance to the other party and copies of, all filings,
submissions and notifications made and other information supplied by such party
with or to any Governmental Entity in connection with this Agreement or any of
the transactions contemplated by this Agreement. Each party will furnish to all
Governmental Entities such necessary information and reasonable assistance as
the Governmental Entity may reasonably request in connection with the foregoing.
5.6 Further Assurances. Without limiting the generality of Section 10.19
below, and in addition to obligations elsewhere in this Agreement, including
obligations under this Article V, each party will use reasonable efforts to
ensure that all conditions to the other party's obligations to consummate the
transactions contemplated by this Agreement have been satisfied (insofar as
such matters are within such party's control) and to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Governmental Regulations to consummate and
make effective the transactions contemplated by this Agreement in a manner
consistent with applicable law, which efforts will include each party using its
reasonable efforts to lift, prevent or reverse any pending or threatened
preliminary or permanent injunction, order or other Governmental Regulation
that would reasonably be expected to adversely affect the ability of any party
to consummate the transactions contemplated by this Agreement, including any
Governmental Regulation relating to or arising under the HSR Act or other
applicable antitrust laws, and, if issued, to appeal any such Governmental
Regulation through the United States Court of Appeals for the relevant circuit.
5.7 Seller Indemnification. If, but only if, the Closing shall occur, but
subject to the limitations contained in Sections 10.13 and 10.14, Seller will
defend, indemnify and hold harmless Buyer, each of the Deco Companies and their
respective Representatives (other than Seller) from and against all Losses
based upon, arising out of or otherwise in respect of any of the following:
(a) Any breach of, or inaccuracy in, any representation or warranty
made by Seller in Article III of this Agreement (whether at the date of
this Agreement or the Closing Date and
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without giving effect to the disclosure of any New Facts by Seller
pursuant to Section 5.3 hereof).
(b) Any breach by Seller of any covenant, agreement or obligation
of Seller in this Agreement.
(c) Any matter described in Exhibit 5.7(c) hereto.
Notwithstanding Section 5.7 to the contrary, Seller shall have no duty to
indemnify, defend or hold harmless Buyer, any of the Deco Companies or any of
their respective Representatives from or against any Loss arising out of or
related to the presence of Hazardous Materials at any location if Buyer has
become aware of the presence of such Hazardous Materials by voluntary
performing any environmental monitoring, sampling, or other testing after the
Closing Date, including any sampling of air, soil or water. Any environmental
monitoring, sampling, or other testing shall be deemed to have been performed
voluntarily unless Buyer's or any Deco Company's sampling, monitoring or other
testing is pursuant to the requirements of any Environmental Law, Occupational
Safety and Health Law, other Governmental Regulation or requirement of any
Contract. The foregoing is intended only to qualify the obligation of Seller
to indemnify under Section 5.7 hereof and is not intended, and shall not be
deemed, to restrict in any fashion the ability of Buyer or any of the Deco
Companies to conduct such environmental investigations as they deem appropriate
in their discretion. Seller shall not have any obligation to indemnify Buyer,
any of the Deco Companies nor any of their Representatives for Losses in
connection with any Response Activities (as defined below) unless such Response
Activities are required under any Environmental Law, Occupational Health and
Safety Law, other Governmental Regulation or Contract (including any existing
lease of any of the Deco Companies). If Seller has any obligation under this
Agreement to indemnify Buyer, any of the Deco Companies or any of their
respective Representatives from or against any Losses in connection with the
performance of any investigation, clean-up, removal, containment or other
remediation or response actions ("Response Activities"), such indemnifiable
Losses as to such Response Activities shall be limited to those Losses incurred
to meet the least stringent standards or requirements that Buyer or any of the
Deco Companies are required to meet under the applicable Environmental Law,
Occupational Health and Safety Law, Governmental Regulation or Contract (taking
into consideration the zoning of the property and the uses of the resources
thereon at the time the Response Activities are performed).
5.8 Buyer Indemnification. If, but only if, the Closing shall occur, but
subject to the limitations contained in Sections 10.13 and 10.14, Buyer will
defend, indemnify and hold harmless Seller from and against all Losses based
upon, arising out of or otherwise in respect of any of the following:
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(a) any breach of, or inaccuracy in, any representation or warranty
made by Buyer in Article IV of this Agreement (whether at the date of
this Agreement or the Closing Date).
(b) any breach by Buyer of any covenant, agreement or obligation of
Buyer in this Agreement.
(c) any final, nonappealable determination by a court of competent
jurisdiction (or settlement approved in writing by Buyer) that the
payment of the purchase price was invalid or illegal under, in violation
of, or can be set aside or give rise to any award of damages, sanctions
or other liability against Seller under applicable bankruptcy, fraudulent
conveyance or transfer or similar law or the Act (as defined in Section
5.11 hereof) or other applicable law of similar effect as a result of the
Closing Date Financing; provided that the Losses shall be limited to the
amount of the purchase price, if any, that Seller shall be so required to
return or disgorge, the out-of-pocket damages, sanctions or other
liability imposed on Seller and the reasonable expenses incurred by
Seller directly related thereto.
(d) any liability of Seller to any Person (other than the Deco
Companies or another Person that is a party to this Agreement or any
Related Person of Seller) as determined by any final, nonappealable
judgment of a court of competent jurisdiction (or settlement approved in
writing by Buyer) arising in connection with the Closing Date Financing
on account of information provided by or on behalf of Seller pursuant to
Section 5.9 hereof, provided that the responsibility of Buyer to Seller
under this subsection shall not relieve Seller of any liability that
Seller would otherwise have to Buyer under this Agreement, if any, on
account of the same conduct that gives rise to Buyer's responsibility
hereunder, and provided further that the Losses shall be limited to the
direct out-of-pocket payments made by Seller to such Person and
reasonable expenses incurred by Seller directly related thereto. As an
example of the foregoing, if (i) Seller's liability to such Person is
$300,000, (ii) Seller's liability to such Person also constitutes a
violation of Seller's obligations to Buyer hereunder, (iii) the Seller
Total Threshold (as defined in Section 10.14(i)(iii) below) would apply
to such violation, and (iv) Seller has not otherwise breached this
Agreement, Buyer shall indemnify Seller for the entire $300,000 and such
indemnification shall count against the Seller Total Threshold; but if,
in the same circumstances, Seller's liability si $700,000, Buyer shall
indemnify Seller for only $500,000 of such liability, Seller shall pay
the remaining $200,000 and the Seller Total Threshold shall be exhausted.
If, in the situation described in the preceding sentence, Seller's
liability to such Person does not constitute a violation of Seller's
obligations to Buyer hereunder, Buyer shall indemnify Seller for the
entire $300,000 and $700,000,
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respectively, and no such indemnification shall count against the Seller
Total Threshold.
5.9 Information for Buyer's Statements, Reports, Applications and SEC
Filings.
(a) Seller shall, and shall cause the Deco Companies to, and shall use
reasonable efforts to cause the employees, accountants and attorneys of Seller
and the Deco Companies (collectively with Seller and the Deco Companies, the
"Seller Group") to, cooperate in all reasonable respects with Buyer and its
employees, accountants and attorneys by furnishing Buyer with all information
concerning Seller and the Deco Companies which is reasonably available to
Seller or the Deco Companies at no additional expense (unless Buyer agrees to
pay or reimburse Seller or the Deco Companies such expense as applicable)
necessary or reasonably deemed desirable by Buyer (including, without
limitation, all requisite financial statements and schedules which are
reasonably available to Seller or the Deco Companies at no additional expense
unless Buyer agrees to pay or reimburse Seller or the Deco Companies such
expense, as applicable) for inclusion in (i) any statements, reports and
applications to be filed with any Governmental Entity, (ii) the SEC Filings (as
defined in Section 10.1) and (iii) the Debt Offering Documents (as defined in
Section 10.1), in each case, made by Buyer in connection with this Agreement or
the Closing Date Financing (as defined in Section 10.1).
(b) Seller shall, and shall cause the Deco Companies to, and shall use
reasonable efforts to cause the other members of the Seller Group to, comply,
and/or furnish Buyer, its accountants and/or the underwriters for the Closing
Date Financing, with the items reflected on Exhibit 5.9(b) hereto in respect of
the Closing Date Financing.
5.10 Acquisition Proposal. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Article IX hereof, Seller shall not sell, transfer, hypothecate or grant any
other Encumbrance upon any of the Deco Shares or agree to do so. In addition,
between the date of this Agreement and the earlier of the Closing Date or the
termination of this Agreement pursuant to Article IX hereof, Seller will not,
and will not authorize or permit any of the Deco Companies or any of the
officers or directors of any of the Deco Companies to, and will not authorize
and will use Seller's reasonable efforts to not permit any investment banker,
financial advisor, attorney, accountant, employee or other representative or
agent retained by Seller or any of the Deco Companies to solicit or encourage
the making of, or agree to or endorse any Acquisition Proposal (as defined
below), or participate in any discussions or negotiations, or provide any other
Person with any nonpublic information, relating to any such proposal, except
that Seller may advise any Person making any such proposal that Seller cannot
discuss the proposal due to the pendency of the transactions contemplated
herein (but without disclosing any of the terms of
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such transactions contemplated herein or the identity of Buyer). Seller will
promptly advise Buyer orally and in writing of any such proposals. Seller
shall, and shall cause the Deco Companies and the officers and directors of the
Deco Companies to, and shall use Seller's reasonable efforts to cause all
investment bankers, financial advisors, attorneys, accountants, employees and
other representatives and agents retained by Seller or any of the Deco
Companies to, immediately cease any existing discussions relating to any
Acquisition Proposals and shall not release any other Person from or waive any
provision of any confidentiality or standstill agreement which relates to any
Acquisition Proposal. As used in this Agreement, "Acquisition Proposal" shall
mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination, liquidation or dissolution involving any of the
Deco Companies or any proposal or offer to acquire in any manner any equity
interest in, or any material portion of the assets (other than in the ordinary
course of business consistent with past practice) of, any of the Deco Companies
other than the transactions contemplated or permitted by this Agreement.
5.11 Indemnification of Seller for Business Decisions As An Officer or
Director of the Deco Companies.
(a) If, but only if, the Closing shall occur, each of the Deco Companies
shall indemnify Stephen Grand, individually ("Grand"), to the fullest extent
permitted under Section 561 and related provisions of the Michigan Business
Corporation Act (the "Act") against expenses, including attorneys fees,
judgments, penalties, fines, and amounts paid in settlement (provided such
settlement is approved in writing by the applicable Deco Company) actually and
reasonably incurred by Grand in connection with any threatened, pending or
completed action, suit or proceeding commenced against Grand by a Person, other
than any of the Deco Companies, a party to this Agreement or any Person falling
within clause (a), (b), (c) or (d) of the definition of Related Person of Grand
(provided that in the case of clause (d) of such definition excluding Persons
as to which Grand or members of his Family serve solely as officers or
directors if Grand or any members of his Family do not otherwise control such
Person) (each, an "Associated Person"), to the extent that the claim(s) in such
action, suit or proceeding constitute Indemnifiable Claims as defined below.
The provisions of Sections 10.13 and 10.14 shall apply to any such
Indemnifiable Claim.
(b) If, but only if, the Closing shall occur, Buyer shall guarantee
payment of any amounts payable by any of the Deco Companies under Section
5.11(a) above to the extent that the applicable Deco Company fails to promptly
pay any such amount or is otherwise unable to pay such amount.
(c) For the purposes of this Agreement, an "Indemnifiable Claim" means a
claim by a Person other than any of the Deco Companies, a party to this
Agreement or any Associated Person of Grand that meets all of the following
conditions: (i) the claim
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occurs in connection with the fact that Grand was a director or officer of the
Deco Companies but only to the extent that the claim is against Grand for
business decisions (and not for personal actions) made as an officer or
director of the Deco Companies; (ii) Grand establishes that he has satisfied
the standard of conduct required under Section 561 of the Act as a condition to
such indemnification; and (iii) the claim either (x) does not also constitute a
breach of, or inaccuracy in, any representation or warranty of Seller in
Article III hereof or arise from facts or circumstances that constitute a
breach, or inaccuracy in, any such representation or warranty, or (y) the claim
is first made or threatened (and Grand first obtains Knowledge of such claim),
after the expiration of the Applicable Time Period (as defined in Section
10.13), if any, applicable to the representation or warranty in question.
5.12 Environmental Assessments.
(a) Buyer may conduct, or cause to be conducted, at Buyer's expense,
environmental investigations and assessments of the Deco Companies as Buyer may
determine advisable (the "Environmental Assessments"). Buyer shall be granted
access to the Deco Companies current operating facilities at reasonable and
mutually agreeable times, and in performing the Environmental Assessments,
Buyer shall minimize any interference with the use of, or access by any Person
to, the Deco Companies' current operating facilities.
(b) Buyer agrees to restore all areas disturbed by such Environmental
Assessments to a condition at least as good as their previous existing
condition and to indemnify, defend, and hold harmless Seller from any Losses
arising out of or related to the performance of the Environmental Assessments
or the disclosure by Buyer or any of Buyer's Advisors (as defined below) to any
Person of the contents of the Environmental Assessments or any information or
data obtained in the performance of the Environmental Assessments (collectively
"Environmental Assessment Information"), unless such disclosure is authorized
under this Section 5.12(b). Unless the Closing shall occur, Buyer will not
disclose to any Person, other than Buyer's legal and financial advisors,
environmental consultants, officers, directors and employees ("Buyer's
Advisors"), the Environmental Assessment Information unless Buyer is required
by Governmental Regulation to do so, except, however, that, upon request by
Seller, Buyer shall also disclose and provide a copy of the Environmental
Assessment Information to Seller. Buyer shall instruct Buyer's Advisors not to
disclose to any Person other than to others of Buyer's Advisors the
Environmental Assessment Information unless Buyer's Advisors are required to do
so by Governmental Regulation.
ARTICLE VI
TAX MATTERS
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6.1 Certain Tax Matters.
(a) Section 338 Election. Seller and Buyer shall join in an
election to have the provisions of Code Section 338(h)(10) and similar
provisions of federal, state, local or foreign law (where permissible)
("Section 338(h)(10) Elections") apply to the acquisition of the shares
of each of the Deco Companies whereby (i) each of the Deco Companies will
be treated as having sold all of its assets in a single transaction as of
the Closing Date while still an S corporation, (ii) the Deco Companies
will be treated as having distributed the proceeds of such sale to Seller
in complete liquidation and (iii) Seller shall personally report his/its
allocable share of gain from the deemed sale of assets by the Deco
Companies. After the date of this Agreement, neither the Buyer nor
Seller shall take, or fail to take, any action which may cause the
acquisition of the Deco Companies to not be S corporations on the Closing
Date or not be eligible for the Section 338(h)(10) Elections.
(b) Buyer shall be responsible for, and control, the preparation and
filing of any 338(h)(10) Elections. The allocation of purchase price
among the assets of the Deco Companies shall be made in accordance with
Exhibit 6.1 attached hereto. Seller shall execute and return to Buyer
such documents or forms (including Section 338 Forms (as defined below))
as Buyer shall reasonably request or as are required by applicable law
for effective 338(h)(10) Elections. Seller shall execute complete Powers
of Attorney authorizing Buyer to take any and all necessary action to
effectuate the Section 338(h)(10) Elections for each of the Deco
Companies. As used in this Agreement, "Section 338 Forms" shall mean all
returns, documents, statements, and other forms that are required to be
submitted to any federal, state, county or other local taxing authority
in connection with a 338(h)(10) Election, including, without limitation,
any "statement of Section 338 election" and IRS Form 8023 (together with
any schedules or attachments thereto) that are required pursuant to
Treasury Regulations.
6.2 Tax Matters and Post-Closing Cooperation.
(a) Seller shall be responsible for and shall pay any income,
single business, franchise and all other Taxes arising as a result of the
deemed sale of assets of the Deco Companies pursuant to any Section
338(h)(10) Election or any comparable or resulting election under state
or foreign law filed by Buyer and/or Seller as well as any additional Tax
or any Losses incurred or suffered by any of the Deco Companies or Buyer
in connection with the acceleration or trigger of income or deductions of
the Deco Companies as a result of termination of the status of any of the
Deco Companies as S corporations, but only to the extent that the amount
of such Taxes exceeds the amount of such Taxes reserved for as a
liability on the
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Final Statement and that have not been paid to Seller pursuant to Section
6.7.
(b) Seller shall be solely liable and shall pay all Taxes with
respect to the income or operations of the Deco Companies for any tax
period ending on or prior to the Closing Date, including the period
ending on the Closing Date (which includes the gain and corresponding tax
liability resulting from the deemed sale) in accordance with the rules of
Code Section 338(h)(10) and the Treasury Regulations promulgated
thereunder, but only to the extent that the amount of such Taxes exceed
the amount of such Taxes reserved for as a liability on the Final
Statement and that have not been paid to Seller pursuant to Section 6.7.
(c) Seller shall be solely liable for and shall pay all Taxes for
any taxable year or taxable period ending on or before the Closing Date
(including all Taxes treated under Section 6.2(d) as attributable to tax
periods ending on or before the Closing Date) due and payable by any of
the Deco Companies ("Pre-Closing Taxes"), but only to the extent that the
amount of such Taxes exceeds the amount of such Taxes accrued as a
liability on the Final Statement and that have not been paid to Seller
pursuant to Section 6.7.
(d) For purposes of apportioning any Tax (other than a real or
personal property tax) for any period that overlaps (i.e., begins before
and ends after) the Closing Date (a "Straddle Period"), the parties shall
treat the Closing Date as the last day of the period which includes the
Closing Date (i.e. the parties hereto shall "close the books" on such
date"), and the parties hereto will, to the extent permitted by
applicable law, elect with the relevant taxing authorities to treat such
period for all purposes as a taxable period of the Deco Companies, and
such period shall be treated as a "Short Period" for purposes of this
Agreement. In the case of real and personal property Taxes, the parties
shall apportion such Taxes to the relevant periods based on Seller's past
practice in accruing for such items. In any case where applicable law
does not permit the Deco Companies to treat the Closing Date as the last
day of a Short Period, then for purposes of this Agreement, the portion
of such Taxes that is attributable to the operations of the Deco
Companies for such Interim Period (as defined below) shall be (i) in the
case of Taxes that are not based on income or gross receipts, the total
amount of such Taxes attributable to the period in question multiplied by
a fraction, the numerator of which is the number of days in the Interim
Period, and the denominator of which is the total number of days in the
entire period in question, and (ii) in the case of Taxes that are based
on income or gross receipts, the Taxes that would be due with respect to
the Interim Period, if such Interim Period were a Short Period. "Interim
Period" means with respect to any Taxes imposed with respect to the
operations of any of the
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Deco Companies on a periodic basis for which the Closing Date is not the
last day of a Short Period, the period of time beginning on the first day
of the actual taxable period that includes (but does not end on) the
Closing Date and ending on and including the Closing Date.
6.3 Clearance Certificate. As a condition precedent to the consummation
of the transactions contemplated by this Agreement, Seller shall provide Buyer
with a clearance certificate or similar document(s) that may be required by any
state taxing authority in order to relieve Buyer of any obligation to withhold
any portion of the Purchase Price or shall agree in writing to the withholding
of such portion.
6.4 Nonforeign Affidavit. Seller shall furnish Buyer an affidavit,
stating, under penalty of perjury (i) the Sellers' United States taxpayer
identification number and (ii) a sworn statement that Seller is not a foreign
person, pursuant to Section 1445(b)(2) of the Code and as set forth in Treasury
Regulation Section 1.1445-2(b).
6.5 Transfer Taxes. Seller and Buyer shall each bear and pay 50% of
sales, use, transfer, and documentary Taxes and recording and filing fees, if
any, applicable to the transactions effectuated pursuant to the terms of this
Agreement.
6.6 Access to Records Following Closing. Buyer and Seller agree that so
long as any books, records and files retained by Seller relating to the
business of the Deco Companies, or the books, records and files delivered to
the control of Buyer pursuant to this Agreement to the extent they relate to
the operations of the Deco Companies prior to the Closing Date, remain in
existence and available, each party (at its expense) shall have the right upon
prior notice to inspect and to make copies of the same at any time during
business hours for any proper purpose. Buyer and Seller shall use reasonable
efforts not to destroy or allow the destruction of any such books, records and
files without first offering in writing to deliver them to the other.
6.7 Filing of Tax Returns. Seller shall timely prepare and file all
Returns with respect to Pre-Closing Taxes, except Returns for Taxes due or
payable with respect to a Straddle Period. Buyer shall cause the Deco
Companies to timely prepare and file all Returns for Taxes due or payable with
respect to a Straddle Period and to provide Seller copies of any such Tax
Return and a statement certifying the amount of Taxes shown on such Tax Return
that are Pre-Closing Taxes (a "Tax Statement") no later than fifteen (15) days
before the due date for the filing of such Return. Seller and its authorized
representatives shall have the right to review such Returns and Tax Statement.
To the extent that the amount shown as Pre-Closing Taxes on the Tax Statement
exceeds the amount of Pre-Closing Taxes reserved for as a liability on the
Final Statement, Seller shall pay the difference to Buyer within fifteen (15)
days of the end of the above-referenced fifteen (15) day
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period, unless Seller disputes such amount. To the extent that the amount
shown as Pre-Closing Taxes on the Tax Statement is exceeded by the Pre-Closing
Taxes reserved for as a liability on the Final Statement, Buyer shall pay the
difference to Seller within fifteen (15) days. If Seller disputes the amount
shown as Pre-Closing Taxes on the Tax Statement prepared by Buyer, then Seller
and Buyer shall resolve such dispute in the manner set forth in Section 10.21.
6.8 Refunds or Credits. Any Tax refunds or credits with respect to
Pre-Closing Taxes shall be for the account of Seller and any refunds or credits
with respect to other Taxes shall be for the account of Buyer. Buyer shall
cause the Deco Companies promptly to forward to Seller or reimburse Seller for
any such refunds or credits due Seller after receipt thereof by Buyer or the
applicable Deco Company, and Seller shall promptly forward to Buyer or
reimburse Buyer for any refunds or credits due Buyer after receipt thereof by
Seller.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions contemplated by
this Agreement will be subject to the fulfillment, or written waiver by Seller,
at or prior to the Closing, of each of the following conditions:
7.1 Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement are true and correct as of the
date of this Agreement and at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date, except
to the extent that representations and warranties were made as of a specified
date, including as of the date of this Agreement (and as to such
representations and warranties the same continue on the Closing Date to have
been true as of the specified date). Notwithstanding anything to the contrary
in this Agreement, this Section 7.1 will be deemed to have been satisfied for
all purposes under this Agreement (including Sections 9.1 and 9.4) even if such
representations or warranties are not true and correct unless the failure of
any of the representations or warranties to be so true and correct,
individually or in the aggregate, has or constitutes, or is reasonably likely
to have or constitute, a Buyer Material Adverse Effect.
7.2 Performance. Buyer has performed and complied with all agreements,
obligations and covenants required by this Agreement to be performed or
complied with by it at or prior to the Closing. Notwithstanding anything to
the contrary in this Agreement, this Section 7.2 will be deemed to have been
satisfied for all purposes under this Agreement (including Sections 9.1 and
9.4) even if such agreements, obligations and covenants have not been so
performed or complied with unless the failure to have been performed or
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complied with, individually or in the aggregate, has or constitutes, or is
reasonably likely to have or constitute, a Buyer Material Adverse Effect.
7.3 No Injunction or Proceeding. Except with regard to the HSR Act which
will be governed by Section 7.5 below, no Governmental Regulation (including
any injunction or other court order) has been enacted, entered, promulgated or
enforced which remains in effect and which prohibits, restricts or enjoins the
consummation of the transactions contemplated by this Agreement; provided that
upon the reversal, lifting or other successful appeal or resolution of such
Governmental Regulation, the condition set forth in this Section will be
deemed fulfilled.
7.4 Consents. Except with regard to the HSR Act which will be governed
by Section 7.5 below, all Consents of Governmental Entities or other Persons
necessary for consummation of the transactions contemplated by this Agreement
have been obtained, other than those which, if not obtained, would not have or
constitute, and would not reasonably be expected to have or constitute, a Buyer
Material Adverse Effect.
7.5 HSR Act. All required waiting periods applicable to this
Agreement and the transactions contemplated by this Agreement under the HSR Act
have expired or been terminated without there being in effect a Governmental
Regulation enjoining or restraining consummation of such transactions; provided
that upon the reversal, lifting or other successful appeal or resolution of
such Governmental Regulation, the condition set forth in this Section will be
deemed fulfilled.
7.6 Documents and Certificates. Buyer has furnished Seller with a
certificate of Buyer to evidence satisfaction of the conditions set forth in
Sections 7.1, 7.2, 7.3 and 7.4 hereof in the form attached hereto as Exhibit
7.6.
7.7 Counsel Opinion. Buyer shall have furnished to Seller an opinion of
Miller, Canfield, Paddock and Stone, P.L.C., counsel to Buyer, in substantially
the form attached hereto as Exhibit 7.7.
7.8 Closing Documents. Buyer shall have delivered to Seller the other
certificates, instruments and documents contemplated by Section 2.3(b)-(d)
hereof.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions contemplated by
this Agreement will be subject to the fulfillment, or written waiver by Buyer,
at or prior to the Closing, of each of the following conditions:
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8.1 Representations and Warranties True. The representations and
warranties of Seller contained in this Agreement are true and correct as of the
date of this Agreement and at and as of the Closing Date (without giving
effect to the disclosure by Seller of any New Facts) as though such
representations and warranties were made at and as of the Closing Date, except
to the extent that representations and warranties were made as of a specified
date, including as of the date of this Agreement (and as to such
representations and warranties the same continue on the Closing Date to have
been true as of the specified date). Notwithstanding anything to the contrary
in this Agreement, this Section 8.1 will be deemed to have been satisfied for
all purposes under this Agreement (including Sections 9.1 and 9.3) even if such
representations or warranties (other than those relating to the ownership of
all of the issued and outstanding capital stock of the Deco Companies by Seller
and the ownership thereof by Buyer after the Closing free and clear of all
Encumbrances and other than the absence of any other outstanding securities
that are convertible into or exchangeable for, or other rights to acquire, any
capital stock of the Deco Companies) are not true and correct unless the
failure of any of such representations or warranties (other than those relating
to the ownership of all of the issued and outstanding capital stock of the Deco
Companies by Seller and the ownership thereof by Buyer after the Closing free
and clear of all Encumbrances and other than the absence of any other
outstanding securities that are convertible into or exchangeable for, or other
rights to acquire, any capital stock of the Deco Companies) to be so true and
correct, individually or in the aggregate, has or constitutes, or would
reasonably be likely to have or constitute, a Seller Material Adverse Effect;
provided, however, that the parties acknowledge and agree that any breach of,
or inaccuracy in, any representation or warranty of Seller in Article III of
this Agreement (whether at the date of this Agreement or the Closing Date and
without giving effect to the disclosure by Seller of any New Facts) shall be
subject to the indemnification provisions of Section 5.7 hereof.
8.2 Performance. Seller has performed and complied with all agreements,
obligations, and covenants required by this Agreement to be performed or
complied with by it at or prior to the Closing. Notwithstanding anything to
the contrary in this Agreement, this Section 8.2 will be deemed to have been
satisfied for all purposes under this Agreement (including Sections 9.1 and
9.3) even if any such agreements, obligations, and covenants have not been so
performed or complied with unless the failure to have been performed or
complied with, individually or in the aggregate, has or constitutes, or is
reasonably likely to have or constitute, a Seller Material Adverse Effect;
provided, however, that the parties acknowledge and agree that any breach of
any such agreements, obligations or covenants shall be subject to the
indemnification provisions of Section 5.7 hereof.
8.3 No Injunction or Proceeding. Except with regard to the HSR Act
which will be governed by Section 8.5 below, no
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Governmental Regulation (including any injunction or other court order) has
been enacted, entered, promulgated or enforced which remains in effect and
which prohibits, restricts or enjoins the consummation of the transactions
contemplated by this Agreement; provided that upon the reversal, lifting or
other successful appeal or resolution of such Governmental Regulation, the
condition set forth in this Section will be deemed fulfilled.
8.4 Consents. Except with regard to the HSR Act which will
be governed by Section 8.5 below, all Consents of Governmental Entities or
other Persons necessary for consummation of the transactions contemplated by
this Agreement have been obtained, other than those which, if not obtained,
would not have or constitute, and would not reasonably be expected to have or
constitute, a Seller Material Adverse Effect.
8.5 HSR Act. All required waiting periods applicable to this
Agreement and the transactions contemplated by this Agreement under the HSR Act
have expired or been terminated without there being in effect a Governmental
Regulation enjoining or restraining consummation of such transactions; provided
that upon the reversal, lifting or other successful appeal or resolution of
such Governmental Regulation, the condition set forth in this Section will be
deemed fulfilled.
8.6 Closing Certificates. Seller has furnished Buyer with a certificate
of Seller (duly executed by Seller) to evidence satisfaction of the conditions
set forth in Sections 8.1, 8.2, 8.3, 8.4, 8.11, 8.12 and 8.13 hereof in the
form attached hereto as Exhibit 8.6.
8.7 General Release. Seller shall have executed and delivered to Buyer
the General Release.
8.8 Noncompetition Agreement. Seller shall have executed and delivered
to Buyer the Noncompetition Agreement.
8.9 Indemnity Escrow Agreement. Seller shall have executed and delivered
to Buyer the Indemnity Escrow Agreement.
8.10 Counsel Opinion. Seller shall have furnished to Buyer an opinion of
Honigman, Miller, Schwartz and Cohn, counsel to Seller, in substantially the
form attached hereto as Exhibit 8.10.
8.11 Permitted Distribution. Subject to the exclusion of cash, cash
equivalents and marketable securities pursuant to Section 1.2 hereof, the
Permitted Distribution and the Additional Permitted Distribution shall have
been completed.
8.12 No Litigation. No Proceeding shall have been instituted by any
Person (other than Buyer or a Related Person to Buyer) before any
Governmental Entity, or instituted by any Governmental Entity, to restrain or
prevent the carrying out of the transactions contemplated by this Agreement or
which would reasonably be
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expected to affect the right of Buyer to own, operate or control the Deco
Shares or materially adversely affect the businesses or assets of the Deco
Companies after the Closing Date or which would reasonably be expected to
result in damages in connection therewith of $1,000,000 or more.
8.13 No Material Adverse Change. There shall not have occurred after
the date of this Agreement (whether or not a New Fact) any fact,
circumstance, event, development, change or occurrence which, individually or
in the aggregate with all other facts, circumstances, events, developments,
changes and occurrences, which has or constitutes, or is reasonably expected to
have or constitute, a Seller Material Adverse Effect.
8.14 Financing. The Closing Date Financing shall have been consummated
on terms and conditions satisfactory to Buyer.
8.15 Closing Documents. Seller shall have delivered to Buyer the other
certificates, instruments and documents contemplated by Section 2.2(a) - (e)
hereof.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior
to the Closing in accordance with any one or more of the following:
(a) By mutual written consent of Seller and Buyer.
(b) By Seller or Buyer at any time after the Deadline if, through no
fault of the party seeking termination, the Closing has not occurred.
(c) By Seller or Buyer, if any Governmental Entity has issued an
order, decree, ruling or Governmental Regulation or taken other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling,
Governmental Regulation or other action has become final and
nonappealable.
(d) By Buyer, if there has been a breach by Seller of any agreement,
covenant or obligation contained in this Agreement or any breach of, or
inaccuracy in, any representation or warranty of Seller contained in
Article III of this Agreement, in all cases which (i) is not curable or
is not cured within thirty (30) days after receipt of written notice
thereof by Seller (provided that in such case the Deadline shall be
extended up to the end of such thirty (30) day period if and as requested
by Seller), and (ii) individually or in the aggregate with all other
breaches of, or inaccuracies in, agreements, covenants, obligations,
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representations and warranties of Seller contained in this Agreement and
all New Facts, has or constitutes, or is reasonably likely to have or
constitute, a Seller Material Adverse Effect.
(e) By Buyer, if Seller gives notice to Buyer of any New Facts in
accordance with the provisions of Section 5.3, or Buyer otherwise becomes
aware of any New Facts, and such New Facts, individually or in the
aggregate with all other New Facts and all breaches of, and inaccuracies
in, agreements, covenants, obligations, representations and warranties of
Seller contained in this Agreement, have or constitute, or are reasonably
likely to have or constitute, a Seller Material Adverse Effect.
(f) By Seller, if there has been a breach by Buyer of any agreement,
covenant or obligation contained in this Agreement or any breach of, or
inaccuracy in any representation or warranty of Buyer contained in
Article IV of this Agreement, in all cases which (i) is not curable or is
not cured within thirty (30) days after receipt of written notice thereof
by Buyer (provided that the Deadline shall be extended up to the end of
such thirty (30) day period if and as requested by Buyer), and (ii)
individually or in the aggregate with all other breaches of, or
inaccuracies in, agreements, covenants, obligations, representations and
warranties of Buyer contained in this Agreement, has or constitutes, or
is reasonably likely to have or constitute, a Buyer Material Adverse
Effect.
9.2 Procedure and Effect of Termination.2 Procedure and Effect of
Termination. If this Agreement and the transactions contemplated by this
Agreement are terminated pursuant to Section 9.1 above, written notice of such
termination will forthwith be given to the other party and this Agreement
(other than Sections 5.12(b), 9.2, 9.3, 9.4 and 9.5 and Article X, which will
continue notwithstanding any such termination) will terminate and the
transactions contemplated by this Agreement will be abandoned, without further
action by the parties. If this Agreement is terminated as provided in this
Section:
(a) All information received by Buyer in connection with this
Agreement, the businesses of the Deco Companies, the Deco Companies, the
Deco Shares or any of the transactions contemplated by this Agreement
will be held subject to and in accordance with the terms of the
Confidentiality Agreement, which agreement will continue notwithstanding
the termination of this Agreement.
(b) All filings, applications and other submissions made pursuant to
Section 5.5 above will, to the extent practicable, be withdrawn from the
Governmental Entity or other Person to which made.
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(c) No party (or any such party's Representatives, affiliates, any
trustee of any party in his or her capacity as trustee and any
beneficiary or trustee of any party in his or her individual capacity or
any of such party's directors, officers, employees, shareholders,
affiliates, successors or permitted assigns) will have any liability or
obligation to any other party under this Agreement, except (i) pursuant
to the Confidentiality Agreement and (ii) as provided in Sections 9.3,
9.4 and 9.5 below, as applicable.
9.3 Disbursement of Deposit. In the event that all of the following are
true:
(a) the Closing shall not occur on or prior to the Deadline; and
(b) there shall not have occurred any of the circumstances that give rise
to the right of Buyer to terminate this Agreement under Sections 9.1(c), 9.1(d)
or 9.1(e) hereof whether or not Buyer has exercised such right on or prior to
the Deadline; and
(c) each of the conditions to Buyer's obligations to close the
transactions contemplated hereby set forth in Article VIII, other than Sections
8.11 and 8.14, shall have been satisfied (which in the case of Sections 8.6,
8.10 and 8.15 shall be satisfied by the tender of the required items to Buyer)
on or prior to the Deadline;
(d) if the condition to Buyer's obligations to close the transactions
contemplated hereby set forth in Section 8.11 shall not have been satisfied on
or prior to the Deadline, and Seller shall have provided Buyer with reasonable
evidence to the effect that the Permitted Distribution and the Additional
Distribution would have been completed not later than immediately prior to the
consummation of the Closing; and
(e) if the condition to Buyer's obligations to close the transactions
contemplated hereby set forth in Section 8.14 shall either (i) have been
satisfied on or prior to the Deadline or (2) have not been satisfied on or
prior to the Deadline, and the breach by Seller, if any, of its covenants in
Section 5.9(b) shall not be a substantial factor in such failure of such
condition;
then and only then Seller shall be entitled to the Deposit as a termination fee
and liquidated damages and Seller and Buyer shall jointly instruct the Deposit
Escrow Agent to disburse the Deposit to Seller.
9.4 Payment of Seller Payment by Seller to Buyer. In the event that all
of the following are true:
(a) the Closing shall not occur on or prior to the Deadline;
(b) any of the following shall be true: (i) Seller shall refuse or fail to
participate in the scheduled Closing
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notwithstanding that the conditions to Seller's obligations to close the
transactions contemplated hereby set forth in Article VII, other than the
obligation of Buyer to deliver the Estimated Purchase Price, shall have been
satisfied (which in the case of Sections 7.6, 7.7, or 7.8 shall be satisfied by
the tender of the required items to Seller); (ii) Seller shall have willfully
failed to deliver the Preliminary Statement as contemplated in Section 1.2(b);
(iii) Seller shall have breached Sections 1.4, 2.2(a), (h), (i) or (j); or (iv)
Seller shall have willfully breached Sections 5.2(a) or 5.9(b) of this
Agreement and shall not have cured any such breach within thirty (30) days
after receipt of notice thereof (and the Deadline shall be extended up to the
end of such thirty (30) day period if and as requested by Seller); and
(c) Buyer shall provide Seller a letter from the managing underwriter,
principal lender or principal note holder associated with the Closing Date
Financing, or shall provide other reasonable evidence, to the effect that the
Closing Date Financing would have been consummated (with net proceeds in an
amount sufficient to pay the Estimated Purchase Price), or Buyer otherwise
would have had sufficient funding to pay the Estimated Purchase Price, in each
case except for the existence of a Seller Material Adverse Effect or any of the
matters referred to in clause (b) above;
then and only then Seller shall pay to Buyer upon demand the sum of $5,000,000
(the "Seller Payment") as a termination fee and liquidated damages. Any
payment by Seller pursuant to this Section shall be made in immediately
available funds by wire transfer to an account or accounts designated by Buyer.
Buyer shall also be entitled to a return of the Deposit and Seller and Buyer
shall jointly instruct the Deposit Escrow Agent to disburse the Deposit to
Buyer.
9.5 Waiver of Other Remedies.
(a) In the event that the Closing does not occur for any reason other than
as specified in Sections 9.3 or 9.4, then neither party shall have any
liability to any other party except that Buyer shall be entitled to the return
of the Deposit and upon termination of this Agreement Buyer and Seller shall
thereupon jointly instruct the Escrow Agent to disburse the Deposit to Buyer.
(b) The remedy and recourse of Seller to the Deposit as provided in
Section 9.3, the remedy and recourse of Buyer to the Seller Payment and the
return of the Deposit as provided in Section 9.4, and the return of the Deposit
to Buyer as contemplated in Section 9.5 in all other events that the Closing
does not occur, shall in each such case be the sole and exclusive remedy and
recourse by the parties against each other in the event that the Closing shall
not occur for any reason, whether for any breach of this Agreement or
otherwise, and each of the parties hereby expressly waives any and all other
rights and remedies that they may otherwise have under this Agreement or
applicable law, except for claims based on Section 5.12(b), fraud and under the
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Confidentiality Agreement. By way of clarification, the provisions of Sections
5.7 and 5.8 shall in no event apply in the event that the Closing does not
occur for any reason.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Certain Definitions.
(a) As used in this Agreement, the "Representatives" of any Person
will mean, as appropriate, the affiliates, subsidiaries, officers,
directors, employees, consultants, shareholders, representatives,
counsel, accountants, agents, trustees, beneficiaries, successors and
assigns of such Person.
(b) As used in this Agreement, the Deco Companies will be deemed to
have received "notice" of a fact or circumstance if Stephen Grand or any
officer, director or general manager of any of the Deco Companies, has
received a written communication stating such fact or circumstance.
(c) As used in this Agreement, the term "including" means including,
without limitation.
(d) As used in this Agreement, the phrase "transactions contemplated
in this Agreement" and similar phrases do not include the Closing Date
Financing.
(e) As used in this Agreement, the following terms shall have
the following respective meanings:
"Agreement" means this Stock Purchase Agreement and the Disclosure
Schedule.
"Business Day" means a day that is not a Saturday, Sunday or
national holiday upon which banks in the State of Michigan are generally
open to conduct a commercial banking business.
"Closing Date Financing" means certain debt financing contemplated
by the Buyer, a portion of the proceeds of which will be used to pay the
purchase price of the Deco Shares.
"Debt Offering Documents" means each offering circular or memorandum
and registration statement (including any preliminary or final prospects
contained therein) relating to the Closing Date Financing.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
mortgage, right of first refusal, proxy, voting agreement or trust, or
restriction of any kind,
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including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds,
drainage basins, and wetlands), groundwaters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost,
damages, expense, liability, regulatory noncompliance responsibility or
any Loss arising from a violation or failure to perform a Response
Activity under Environmental Law or Occupational Safety and Health Law
and consisting of or relating to:
(a) any environmental or occupational health and safety matters or
conditions (including, but not limited to, on-site or off-site
contamination and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including
any investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law and for any natural resource damages;
or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and
Health Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA").
"Environmental Law" means any Governmental Regulation that requires
or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits that could have significant
impact on the Environment;
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(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
(d) protecting resources, species, or ecological amenities;
(e) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(f) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(g) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment for
contamination, or permitting self-appointed representatives of the public
interest to recover for injuries done to the Environment.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by any of the Deco Companies and
any buildings, plants, structures, or equipment (including motor
vehicles, tank cars, and rolling stock) currently or formerly owned or
operated by any of the Deco Companies.
"Governmental Authorization" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental
Entity or pursuant to any Governmental Regulation.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including
any withdrawal or other use of groundwater) of Hazardous Materials in,
on, under, about, or from the Facilities or any part thereof into the
Environment.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to
be, hazardous, radioactive, or toxic or a pollutant or a contaminant
under or pursuant to any Environmental Law, including any admixture or
solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.
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"Knowledge" means, in the case of an individual, that such an
individual will be deemed to have "Knowledge" of a particular fact or
other matter if:
(a) such individual is actually aware of such fact or other matter;
or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other
matter.
The Deco Companies will be deemed to have "Knowledge" of a
particular fact or other matter if Stephen Grand, Keith Hale or Ken
Meskin has Knowledge of such fact or other matter and Seller will be
deemed to have "Knowledge" of a particular fact or other matter if
Stephen Grand has Knowledge of such fact or matter.
Buyer will be deemed to have "Knowledge" of a particular fact or
other matter if John Weinhardt or John Garber has Knowledge of such fact
or other matter.
"Losses" means all liabilities, damages (compensatory,
consequential, incidental, natural resource and other, but excluding
punitive and exemplary damages except to the extent the same are an
element of damages awarded to a third party for which the party seeking
indemnification is otherwise responsible), losses, penalties, fines,
deficiency, forfeitures, assessments, claims, suits, proceedings,
investigations, actions, demands, judgments, awards, settlements,
arbitrations, diminution in value, response costs, costs of cleanup,
containment and remediation, and other costs and expenses, including
amounts paid in settlement, court costs, reasonable attorneys' fees, and
consultants' and experts' fees; provided, however, that "Losses" shall
not include any multiplier to be used to reflect the methodology used to
establish the purchase price. For purposes of clarity, the parties
acknowledge that the term "Losses" is not limited to matters asserted by
third parties, but also include Losses incurred or sustained in the
absence of third party claims.
"Occupational Safety and Health Law" means any Government Regulation
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Entity.
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"Proceeding" means any claim, action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought,
conducted, or heard by or before, or otherwise involving, any
Governmental Entity or arbitrator; provided, that investigations and
informal Proceedings shall not constitute Proceedings unless Seller or
any of the Deco Companies has Knowledge of such Proceedings.
"Product Recall" means any systematic effort by Buyer, any of the
Deco Companies, a customer or a Governmental Entity (provided, that in
the case of Buyer, any of the Deco Companies or a customer such effort is
pursuant to any Governmental Regulation or in connection with any
arrangement with or involving a Governmental Entity) to remedy a breach
of warranty of any of the Deco Companies or as required in order to
comply with any Governmental Regulations.
"Related Agreement" means the General Release, the Escrow Agreement,
the Noncompetition Agreement and, in the case of Seller, also includes
the stock certificates and stock powers executed and delivered by Seller
pursuant to Section 2.2 hereof.
"Related Person" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(i) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(ii) any Person that holds a Material Interest in such specified
Person;
(iii) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
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(iv) any Person in which such specified Person holds a Material
Interest;
(v) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity); and
(vi) any Related Person of any individual described in clause (ii)
or (iii).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any
other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who
resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing
at least 50% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 50% of the
outstanding equity securities or equity interests in a Person.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, injecting, discharging, depositing, escaping, leaching,
dumping, or other releasing into the Environment, whether intentional or
unintentional.
"SEC Filing" means any statement or report filed or to be filed by
Buyer with the Securities and Exchange Commission (the "SEC") under the
Exchange Act and the rules and regulations of the SEC thereunder relating
to this Agreement, the Closing Date Financing and/or the transactions
contemplated hereby and/or thereby.
"Threat of Release" means a condition or event giving rise to a
substantial likelihood of a Release and with respect to which condition
or event there exists a duty under any Environmental Law to take action
in order to prevent or mitigate damage to the Environment that may result
from such Release.
10.2 Amendment and Modification. No amendment or modification or
addition to this Agreement will be valid or effective unless the same
is in writing, expressly refers to this Agreement and is signed by the party
against which it is to be enforced.
10.3 Extension; Waiver. The party entitled to the benefit of any
respective term or provision of this Agreement may, by written
instrument signed by such party which expressly refers to this Agreement (and
such extension and waiver), (a) extend the time for the performance of any of
the obligations or other acts of the other party to this Agreement, (b) waive
any inaccuracies in the
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representations and warranties contained in this Agreement or (c) waive
compliance with any obligation, covenant, agreement or condition contained in
this Agreement. Any agreement on the part of any party to any such extension
or waiver will be valid only if set forth in an instrument in writing signed on
behalf of the party agreeing to such extended or waived term or provision. A
waiver or failure to enforce any of the terms or conditions of this Agreement
will not in any way affect, limit or waive any party's rights to enforce strict
compliance thereafter with every other term and condition of this
Agreement.
10.4 Entire Agreement; Assignment. This Agreement and the Related
Agreements constitute the exclusive, final and entire agreement between the
parties with regard to the subject matter of this Agreement and supersede all
other contemporaneous and prior agreements, understandings and information,
whether written or oral, express or implied, between the parties with regard to
the subject matter of this Agreement, including all information contained in
the Memorandum; provided that this Agreement does not supersede the
Confidentiality Agreement, which remains in full force and effect until
consummation of the Closing. Prior to Closing, neither this Agreement nor any
of the rights, interests or obligations under this Agreement may be assigned by
any party without the prior written consent of the other party, except that the
death of Stephen Grand shall not cause this Agreement to terminate. After the
Closing, any party may assign all or any portion of this Agreement or its
rights, interests or obligations hereunder to any other Person except that no
such assignment shall relieve such party of its obligations hereunder. This
Agreement will be binding upon and inure to the benefit of the parties named in
this Agreement and their respective successors and permitted assigns.
10.5 Severability. The provisions of this Agreement will be deemed
severable, and if any provision of this Agreement is determined to be illegal
or invalid under applicable Governmental Regulation, such provision may be
changed to the extent reasonably necessary to make the provision, as so
changed, legal, valid and binding. If any provision of this Agreement is
determined to be illegal or invalid in its entirety, such illegality or
invalidity will have no effect on the other provisions of this Agreement, which
will remain valid, operative and enforceable.
10.6 Notices.6 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be sufficient if it is in
writing and delivered personally, telecopied or mailed, certified, registered
or first-class mail, or recognized overnight courier, postage prepaid, and will
be deemed given when so delivered personally or telecopied, or, if mailed by
certified, registered or first-class mail, three days after the date of
mailing, or, if mailed by recognized overnight courier, one day after the date
of mailing, as follows (or as otherwise specified by any party by notice to the
other party in accordance with this
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Section, provided that change of address notices will be effective only upon
receipt thereof):
(a) If to Seller on or before the Closing Date, to:
Stephen Grand
4850 Coolidge Highway
Royal Oak, Michigan 48073
Telecopy: (248) 435-3646
If to Seller after the Closing Date, to:
Stephen Grand
5060 Pon Valley
Bloomfield Hills, Michigan 48302
Telecopy: (313) 962-0176
in each case with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Telecopy: (313) 962-0176
Attention: Alan Stuart Schwartz, Esq.
(b) If to Buyer, to;
Newcor, Inc.
1825 S. Woodward Avenue, Suite 240
Bloomfield Hills, Michigan 48302-0574
Telecopy: (248) 253-2410
Attention: President and Chief Executive Officer
with a copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson, Suite 2500
Detroit, Michigan 48226
Telecopy: (313) 496-8452
Attention: David D. Joswick, Esq.
10.7 7 Governing Law. The laws of the State of Michigan will govern
this Agreement, its construction and the determination of any rights, duties or
remedies of the parties arising out of or relating to this Agreement,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws of such State.
10.8 Publicity.
(a) Seller will not make, before or after the Closing, any public
statement or announcement with regard to this Agreement or the
transactions contemplated by this Agreement without the approval of
Buyer.
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(b) Without limiting Buyer's obligations under the Confidentiality
Agreement, which will remain in full force and effect until the
consummation of the Closing, Buyer will not make, prior to the Closing,
any public statement or announcement with regard to this Agreement or the
transactions contemplated by this Agreement without the approval of
Seller except in connection with the Debt Offering Documents and SEC
Filings and except as Buyer in good faith determines to be required under
any Governmental Regulation or the rules of any national stock exchange
or automated quotation system where any of Buyer's securities may be
listed or admitted for quotation. Before making any public statement or
announcement after the Closing, Buyer will use good faith efforts to
consult with Seller with regard to any such statement or announcement,
but, Buyer will be free to make any statement or announcement, as it
deems appropriate. Buyer will not make any public statement or
announcement at any time which indicates the amount of the consideration
paid for the Deco Shares or any other economic term relating to any of
the transactions contemplated by this Agreement or any agreement or
document executed or delivered in connection with this Agreement except
in connection with the Debt Offering Documents and SEC Filings and except
as Buyer in good faith determines to be required under any Governmental
Regulation or the rules of any national stock exchange or automated
quotation system where any of Buyer's securities may be listed or
admitted for quotation.
(c) Notwithstanding anything to the contrary in this Agreement and
without limiting the generality of the Confidentiality Agreement, which
remains in full force and effect until consummation of the Closing, Buyer
will keep confidential for the benefit of Seller, before and after the
Closing, all books, records, data and other information provided to or
obtained by Buyer in connection with this Agreement to the extent that
such information relates to Seller or any of Seller's Representatives and
not to any of the Deco Companies or the Business and will not disclose
any such information without Seller's prior written consent except in
connection with the Debt Offering Documents and SEC Filings, except as
Buyer in good faith determines to be required under any Governmental
Regulation or the rules of any national stock exchange or automated
quotation system where any of Buyer's securities may be listed or
admitted for quotation, and except as required in connection with the
resolution of any dispute between the parties.
10.9 Table of Contents and Headings. The table of contents and headings
in this Agreement are inserted for convenience of reference only and are not
intended to be part, or to affect the meaning or interpretation, of this
Agreement.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original,
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and all of which together will constitute one and the same instrument.
10.11 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, except as provided in this Agreement, each party
will pay its own expenses in connection with the negotiation, execution and
performance of this Agreement, the transactions contemplated by this Agreement
and all things required to be done in connection with this Agreement, including
attorneys' fees, brokerage or financial advisor fees, filing fees and
accounting fees. Seller agrees that the Deco Companies shall not pay any
costs, expenses or compensation to DLJ or the attorneys or accountants of the
Deco Companies in connection with the transactions contemplated hereby (and
instead all such expenses, costs and compensation shall be distributed to
Seller as part of the Additional Permitted Distribution and shall be paid and
borne by Seller). The Deco Companies may bear and pay other costs and expenses
of the transactions contemplated hereby, provided such costs and expenses are
not capitalized by the Deco Companies and to the extent not paid prior to the
Closing are accrued as liabilities on the Final Statement (and otherwise Seller
shall bear and pay such costs and expenses).
10.12 Exclusion of Warranties and Acknowledgment of Buyer.
Notwithstanding anything to the contrary in this Agreement, but subject to the
last sentence in Section 10.15, Buyer acknowledges and agrees that Seller makes
no representation or warranty express or implied, oral or written, and will not
be responsible to Buyer, any of the Deco Companies or any of their respective
Representatives for any inaccuracy in or breach of any such representation or
warranty express or implied, oral or written, other than those representations
and warranties expressly set forth in Article III, and Buyer, on behalf of
itself, the Deco Companies and their respective Representatives, acknowledges
that it has not and will not rely on any representation or warranty other than
those expressly set forth in Article III above.
10.13 Limited Survival.
(a) All representations, warranties, covenants and agreements of the
parties contained in this Agreement will survive the execution and
delivery of this Agreement and the Closing and shall be fully effective
and enforceable for the Applicable Time Period. For purposes of this
Agreement, the "Applicable Time Period" shall mean the period ending as
follows:
(i) Except as provided below in this Section 10.13(a) and in Section
10.13(b), all representations, warranties, covenants, agreements and
obligations of Seller or Buyer in this Agreement (and the related
indemnification provisions in Sections 5.7 and 5.8) will survive until
the date that is 24 months after the Closing Date.
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(ii) Article X, the indemnification obligations in Sections 5.7(c)
with respect to items listed in paragraphs 1, 2, 3, 4, 5 and 8 of Exhibit
5.7(c), 5.8(c), 5.8(d) and 5.11, the representations and warranties
contained in Sections 3.1, 3.2, 3.4, 3.5(a), 3.13, 4.1, 4.2, 4.3(a), 4.4,
and 4.7 and the related indemnification provisions in Sections 5.7 and
5.8, will survive the Closing for an unlimited period of time.
(iii) Except as provided in Section 10.13(b), the representations
and warranties contained in Sections 3.11 and 3.12, and the covenants in
Article VI shall survive the Closing until the expiration of the statute
of limitations relating to any possible claim by any other Person
(including, but not limited to any Tax authority) that would constitute a
breach of, or inaccuracy in, any such representation, warranty or
covenant (it being the intention of the parties that such
representations, warranties and covenants (and the related
indemnification provisions in Sections 5.7 and 5.8) survive the Closing
until such time as no Loss can be suffered by any of the Deco Companies,
Buyer or their respective Representatives or Seller, as applicable, for
any breach thereof or inaccuracy therein).
(iv) Except as provided in Section 10.13(b), the representations and
warranties contained in Section 3.16 (and the related indemnification
provisions in Section 5.7) and the indemnity obligations of Seller in
Section 5.7(c) as to items listed in paragraphs 6 and 7 of Exhibit 5.7(c)
shall survive the Closing until the date that is 36 months after the
Closing Date.
(b) Any claim for indemnification under this Agreement made pursuant to
Section 10.14(a) below on or prior to the expiration of the Applicable Time
Period shall survive until resolved or finally determined pursuant to this
Agreement.
(c) The rights of indemnification and other remedies based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired), at any time, whether before or after execution and
delivery of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with any such representations, warranties,
covenants and obligations. All such representations and warranties are
contractual provisions, entitling the party suffering Losses based on the
breach thereof, or inaccuracy therein, to indemnification in accordance with
the terms of this Agreement without necessity of reliance thereon. The waiver
of any condition based on the accuracy of any representation or warranty, or on
the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification or other remedy based on such
representations, warranties, covenants and obligations.
10.14 Indemnification Procedures and Limitations.
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(a) The parties acknowledge that the only indemnification obligations that
will exist in connection with this Agreement or any of the transactions
contemplated by this Agreement will be the obligations in Sections 5.7, 5.8 and
5.11 of this Agreement. Whenever any claim is made for indemnification under
Section 5.7, 5.8 or 5.11 of this Agreement, the Person claiming such
indemnification (the "Indemnified Party") will give written notice to the party
against whom indemnification is sought (the "Indemnitor") (each an "Indemnified
Claim"); provided that if the Indemnified Party receives a complaint, petition
or any other pleading in connection with an Indemnified Claim which requires
the filing of an answer or other responsive pleading, it will furnish the
Indemnitor with a copy of such pleading as soon as reasonably practicable after
receipt and determination by the Indemnified Party that it will seek
indemnification in respect thereof, but the failure to do so shall not affect
the Indemnitor's obligations hereunder except to the extent of prejudice. Such
notice will describe the Indemnified Claim in reasonable detail and will
indicate the amount (to the extent feasible) of the Loss that has been or may
be suffered by the Indemnified Party, which estimate will not be binding.
(b) The parties will cooperate with each other in all reasonable respects
in the defense (or settlement) of Indemnified Claims under this Agreement. The
Indemnitor shall be entitled to participate in the defense of any Indemnified
Claim involving any third party (each a "Third-Party Claim") and, if it so
elects, to assume the defense of the Third-Party Claim, with counsel reasonably
satisfactory to the Indemnified Party. After written notice from the
Indemnitor to the Indemnified Party of such election to assume the defense, the
Indemnitor will not, so long as the Indemnitor diligently conducts such
defense, be liable to the Indemnified Party for any other expenses subsequently
incurred by the Indemnified Party in connection with the defense of the
Third-Party Claim other than costs and expenses of the Indemnified Party
incurred at the request of the Indemnitor. The assumption of the defense of
such Third-Party Claim will be deemed an admission by the Indemnitor that it is
liable to the Indemnified Party for indemnification in respect of such
Third-Party Claim. If the Indemnitor chooses to assume the defense of any
Third-Party Claim, the Indemnified Party will make available to the Indemnitor
any books, records or other documents within its control that are reasonable or
appropriate for such defense. The parties will cooperate with each other in
all reasonable respects to determine as soon as reasonably practicable whether
and to the extent a claim is indemnifiable hereunder. Notwithstanding anything
to the contrary contained in this Agreement, in the case of a Third-Party
Claim, (i) the Indemnitor shall be entitled to participate in (but not control)
the defense of such claim irrespective of whether it elects to assume the
defense thereof as provided above, (ii) the Indemnified Party agrees (and, in
the case where the Buyer is the Indemnified Party, to cause the Deco Companies)
to make available to the Indemnitor any books, records or other documents
within its control as the Indemnitor shall reasonably request and (iii) the
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Indemnitor shall have the right at any time if it so elects to assume the
defense of the Third-Party Claim.
(c) The Indemnitor may, at its election and following its admission that
it is liable for such Third-Party Claim and its assumption of the defense
thereof, settle or compromise any Third-Party Claim but the Indemnitor may not
settle or compromise such Third Party Claim without the prior written consent
of the Indemnified Party (which consent shall not be unreasonably withheld)
unless (i) the sole relief provided is the payment of monetary damages and the
Indemnitor pays such monetary damages in full, (ii) there is no finding or
admission of any violation of any Governmental Regulation or any violation of
the rights of any Person and no effect on any other claims that may be made
against the Indemnified Party and (iii) the settlement or compromise includes
the unconditional release of the Indemnified Party from such Third Party Claim.
(d) The Indemnified Party may not settle or compromise any Third-Party
Claim without the prior written consent of the Indemnitor (which consent may
not be unreasonably withheld), unless the Indemnitor has elected not to assume
the defense of the Third-Party Claim, has failed to notify the Indemnified
Party within 30 days after receiving written notice of such Third-Party Claim
(or sooner if the nature of the asserted liability so requires) of its election
to assume the defense of such Third-Party Claim, or has failed or refused to
assist the Indemnified Party in the defense of such Third-Party Claim.
Notwithstanding anything to the contrary contained in this Agreement, any
settlement or compromise of any Third-Party Claim by an Indemnified Party
without the prior written consent of the Indemnitor shall not be binding upon
the Indemnitor as to whether the Indemnitor is required to provide
indemnification under this Agreement or as to the amount thereof.
(e) Notwithstanding anything to the contrary contained in this Agreement,
if (i) any Third-Party Claim is reasonably likely to result in an injunction or
other equitable remedies against Buyer, or any of the Deco Companies that is
reasonably likely to have significant consequences to the Deco Companies taken
as a whole or to Buyer, (ii) any Third-Party Claim is reasonably likely to
result in Losses which, taken with other Indemnified Claims by Buyer any of the
Deco Companies or their Representatives, would not be fully indemnified
hereunder as a result of Seller's financial condition or the Cap (as defined in
Section 10.14(i)(v) below), (iii) with respect to such Third-Party Claim there
exists any material conflict of interest between Seller and Buyer or there are
material defenses available to Buyer, a Deco Company or any of their
Representatives (other than Seller), as applicable, that are not available to
Seller or may not be asserted by Seller on such Person's behalf, (iv) any Third
Party Claim is reasonably likely to have a material adverse effect on the
operations, assets, properties, prospects, financial condition or results of
operations of Buyer and the Deco Companies taken as a whole, (v) such Third-
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Party Claim relates to Taxes (unless the claim relates to Taxes for
any period other than a Straddle Period and the resolution of the claim will
not affect Taxes for any other period), or (vi) Seller fails, either before or
after assuming the defense of the Third Party Claim, to diligently defend such
Third-Party Claim, then in any such event, at Buyer's election (which election
shall be made by Buyer as promptly as practicable under the circumstances),
Seller shall not have the right to assume or control the defense of any such
Third-Party Claim.
(f) Notwithstanding anything to the contrary contained herein, Buyer
and/or a Deco Company (at the election of Buyer), shall have the sole right, at
the election of Buyer (which election shall be made by Buyer as promptly as
practicable under the circumstances), to control the defense of any Third-Party
Claim against Buyer, any of the Deco Companies or any of their respective
Representatives (other than Seller) relating to any claim that would constitute
any breach of, or inaccuracy in, any of the representations and warranties of
Seller contained in Section 3.16, any disclosures contained in Section 3.16 of
the Disclosure Schedule, any matter revealed in any of the Environmental
Assessments, or any New Facts related to any of the foregoing, and, without
limiting the generality of the foregoing, to control any Response Activities.
(g) Intentionally omitted.
(h) The parties will use reasonable, good faith efforts to agree on
whether indemnifiable Losses exist and, if so, the amount. Any amounts
determined to be owed will be paid within 30 days of such determination.
(i) Notwithstanding anything to the contrary in this Agreement, the
following limitations will apply with regard to Losses for which Seller or
Buyer would otherwise have indemnification obligations under this Agreement:
(i) Seller will not have any liability, obligation or responsibility
to the extent that the aggregate of all Losses (other than Environmental
Losses (as defined in Section 10.14(i)(ii) below)) of Buyer, the Deco
Companies and their respective Representatives (other than Seller) is
less than or equal to (x) Five Hundred Thousand Dollars ($500,000) less
(y) the amount of Environmental Losses that are subject to Environmental
Loss Threshold(s) (the "Seller General Threshold").
(ii) Seller will not have any liability, obligation or
responsibility to the extent that the aggregate of all Environmental
Losses of Buyer, the Deco Companies and their respective Representatives
(other than Seller) attributable to a single occurrence is less than or
equal to $100,000 (the "Seller Environmental Threshold"); provided that
Seller shall not be entitled to apply more than one (1) Seller
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Environmental Threshold to Environmental Losses attributable to any
single occurrence or more than five (5) Seller Environmental Thresholds
to all Environmental Losses. For purposes of determining Environmental
Losses against which Environmental Thresholds are to be applied,
Environmental Losses shall be determined in the order that Buyer first
becomes aware of the existence of the occurrence giving rise to the
Environmental Loss. For purposes of this Agreement, "Environmental
Losses" means Losses based upon, arising out of, or otherwise in respect
of any breach of, or inaccuracy in, any of the representations or
warranties of Seller in Section 3.16 hereof or any of the items listed in
paragraphs 6 or 7 of Exhibit 5.7(c). All Environmental Losses shall be
deemed for all purposes to be attributable to a single occurrence unless
they are the result of separate nonrecurring sets of facts, circumstances
or conditions.
(iii) Notwithstanding anything to the contrary in Sections
10.14(i)(i) and (ii) above, Seller shall not be entitled to apply any
Losses to any Seller Environmental Threshold or Seller General Threshold
to the extent that the aggregate of all Losses to be applied against such
thresholds exceeds Five Hundred Thousand Dollars ($500,000) (the "Seller
Total Threshold"). For purposes of determining the amount of Losses to
be applied against the Seller Total Threshold, Losses shall first be
applied against the Seller General Threshold.
For example, if Buyer has non-Environmental Losses of $250,000 and
Environmental Losses of $120,000, $200,000 and $50,000 attributable to
three (3) separate occurrences then the entire $250,000 of the
non-Environmental Losses and $100,000 of each of the first two (2)
Environmental Losses and the entire $50,000 of the third Environmental
Loss would be applied against the Seller General Threshold (thereby
exhausting it and the Seller Total Threshold) and Seller would pay to
Buyer the balance of the $20,000 and $100,000 of the first two (2)
Environmental Losses since they exceed the separate Environmental
Thresholds applicable to those Losses. The Environmental Thresholds
would likewise then be exhausted because the Seller Total Threshold is
exhausted.
(iv) Buyer will not have any liability, obligation or responsibility
to the extent that the aggregate of all Losses of Seller is less than or
equal to Five Hundred Thousand Dollars ($500,000) (the "Buyer
Threshold").
(v) Neither Seller nor Buyer (nor Buyer and the Deco Companies in
the case of Section 5.11) will have any liability, obligation or
responsibility for Losses of the other party, to the extent that the
aggregate of all Losses exceeds Ten Million Dollars ($10,000,000) (the
"Cap").
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(j) Notwithstanding anything to the contrary contained in this Agreement,
none of the Seller General Threshold, the Seller Environmental Threshold(s),
the Seller Total Threshold, the Buyer Threshold or the Cap shall apply to any
of the Excluded Items. For purposes hereof, "Excluded Items" means:
(i) In the case of Seller, the obligations of Seller to pay to Buyer
any adjustment to the purchase price pursuant to Section 1.3 hereof, the
obligations of Seller to indemnify Buyer, the Deco Companies and their
Representatives under Sections 5.7(a) or 5.7(b) for breach of, or
inaccuracy in, Section 3.11 or Article VI hereof, and the obligations of
Seller to indemnify Buyer, the Deco Companies and their Representatives
under Section 5.7(c) for the items listed in paragraphs 1, 2, 3, 4, 5 and
8 of Exhibit 5.7(c) hereof;
(ii) In the case of Buyer, the obligations of Buyer to pay the
Estimated Purchase Price at Closing pursuant to Section 1.2 or any
adjustment pursuant to Section 1.3 hereof, the obligations of Buyer to
indemnify Seller under Section 5.8(b) for breach by Buyer of Article VI,
and the obligations of Buyer to indemnify Seller under Sections 5.8(c)
and 5.8(d); and
(iii) In the case of Buyer or Seller, claims based on fraud.
(k) Notwithstanding anything to the contrary contained in this Agreement,
the Buyer Threshold shall not apply to Buyer's or any of the Deco Companies'
obligations in Section 5.11 but the Cap (applied in the aggregate
together with all other Losses that Buyer and/or the Deco Companies may be
responsible for) shall apply to such obligations.
(l) All amounts paid by Buyer or Seller, as the case may be, under Section
5.7 or 5.8 hereof, shall be treated, to the extent permitted by Tax law, as
adjustments to the Purchase Price for all Tax purposes.
10.15 Exclusive Remedies. To the fullest extent permitted by applicable
law, the indemnification provisions provided for in Sections 5.7 and 5.8 will
be the exclusive remedy for any inaccuracy in, or any breach of, any
representation, warranty, covenant or agreement contained in this Agreement
except for claims based on fraud. For purposes of clarification, nothing in
this Agreement is intended nor shall be construed as limiting in any fashion
any rights or remedies of any party hereto for breach by another party of any
of the Related Agreements.
10.16 Incorporation of Exhibits and Schedules. All Exhibits referred to
in this Agreement are specifically incorporated into this Agreement by
reference. Capitalized terms not otherwise defined in the Exhibits to this
Agreement will have the meanings given to them in this Agreement.
Notwithstanding anything to the
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contrary in this Agreement, matters reflected in any Exhibit to this Agreement
or in the Disclosure Schedule are not necessarily limited to matters required
to be reflected in any such Exhibit or Disclosure Schedule, any such additional
matters are set forth for informational purposes and do not necessarily include
other matters of a similar nature and inclusion of any matter in any Exhibit or
Schedule to this Agreement will not be considered an admission that such matter
is or may be "material" for purposes of this Agreement or otherwise.
10.17 Parties. With the exception of the parties to this Agreement and
their respective successors and permitted assigns and other Persons expressly
stated to be receiving the benefit of any indemnification provision of this
Agreement, there will exist no right of any Person to claim a beneficial
interest in this Agreement or any rights or remedies occurring by virtue of
this Agreement.
10.18 No Construction Against Drafter. This Agreement is being entered
into between competent Persons who are experienced in business and represented
by counsel, and has been reviewed by the parties and their counsel. Therefore,
any ambiguous language in this Agreement will not necessarily be construed
against any particular party as the drafter of such language.
10.19 Further Assurances. From time to time after the date of this
Agreement, without further consideration, the parties will cooperate with each
other and will execute and deliver such documents to the other party as such
other party may reasonably request to carry out the transactions contemplated
by this Agreement.
10.20 Relationship of the Parties. Nothing in this Agreement will be
deemed to create a partnership, joint venture or employment relationship
between the parties.
10.21 Dispute Resolution.
10.21.1 Arbitration. All disputes and controversies of every kind and
nature between the parties hereto arising out of or in connection with this
Agreement (including, without limitation, Sections 5.7, 5.8 and 5.11) shall be
submitted to arbitration pursuant to the following procedures:
(i) Except as modified hereby, the arbitration shall be
governed by the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") including the Supplementary Procedures for Large
Complex Disputes. After a dispute or controversy arises, any party may,
in a written notice delivered to the other party, demand such
arbitration. Such notice shall designate the name of the arbitrator (who
shall be an impartial person) appointed by such party demanding
arbitration, together with a statement of the matter in controversy in
reasonable detail.
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(ii) Within thirty (30) days after receipt of such demand, the other
party shall, in a written notice delivered to the other party, name such
party's arbitrator (who shall be an impartial person). If such party
fails to name an arbitrator, then the second arbitrator shall be named by
the AAA. The two arbitrators so selected shall name a third arbitrator
(who shall be an impartial person) within thirty (30) days, or in lieu of
such agreement on a third arbitrator by the two arbitrators so appointed,
the third arbitrator shall be appointed by the AAA. If any arbitrator
appointed hereunder shall die, resign, refuse, or become unable to act
before an arbitration decision is rendered, then the vacancy shall be
filled by the methods set forth in this Section for the original
appointment of such arbitrator.
(iii) Except as provided in Section 10.21.2, each party shall bear
its own arbitration costs and expenses. The arbitration hearing shall be
held in Oakland County, Michigan at a location designated by a majority
of the arbitrators. The substantive laws of the State of Michigan
(excluding conflict of laws provisions) and the Federal Arbitration Act
shall apply.
(iv) An award rendered by a majority of the arbitrators appointed
pursuant hereto shall be final and binding on all parties to the
Proceeding, shall resolve the question of costs of the arbitrators, legal
fees and expenses and all related matters, and judgment on such award may
be entered and enforced by either party in any court of competent
jurisdiction.
(v) The arbitrators may by an interim or final award grant
injunctive relief.
(vi) Except as provided in Section 10.21.2, the parties stipulate
that the provisions of this Section shall be a complete defense to any
Proceeding instituted in any federal, state or local court or before any
administrative tribunal with respect to any controversy or dispute
arising out of this Agreement. The arbitration provisions hereof shall,
with respect to such controversy or dispute, survive the termination or
expiration of this Agreement.
The parties hereto and the arbitrators may not disclose the existence or
results of any arbitration hereunder without the prior written consent of the
other party; nor will any party hereto disclose to any third party any
confidential information disclosed by any other party hereto in the course of
an arbitration hereunder without the prior written consent of such other party.
Notwithstanding the foregoing, a party may disclose the existence or results
of an arbitration hereunder, and any such confidential information (a) to their
respective counsel and other advisors with a need to know such information in
connection with such arbitration proceedings, (b) as required to be disclosed
by deposition,
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subpoena or other court or governmental action, (c) in connection with their
respective obligations under the Exchange Act and the rules and regulations
promulgated thereunder, (d) in connection with registration of offerings of
securities under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, or (e) otherwise required to be disclosed
under applicable law.
10.21.2 Emergency Relief. Notwithstanding anything in this Section
10.21 to the contrary and subject to the provisions of Section 10.22, any party
may seek from a court any provisional remedy or injunctive relief that may be
necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of
the controversy.
10.22 Exclusive Jurisdiction.
(a) Subject to Section 10.21, each party hereto hereby irrevocably
submits to the jurisdiction of the United States District Court for the
Eastern District of Michigan and, if such court does not have
jurisdiction, of the courts of the State of Michigan in Oakland County,
for the purposes of any action arising out of this Agreement, or the
subject matter hereof or thereof, brought by any other party.
(b) Subject to Section 10.21, to the extent permitted by applicable
law, each party hereby waives and agrees not to assert, by way of motion,
as a defense or otherwise in any such action, any claim (i) that it is
not subject to the jurisdiction of the above-named courts, (ii) that the
action is brought in an inconvenient forum, (iii) that it is immune from
any legal process with respect to itself or its property, (iv) that the
venue of the suit, action or proceeding is improper or (v) that this
Agreement or the subject matter hereof or thereof may not be enforced in
or by such courts.
10.23 Time of the Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
10.24 Disclosures in the Disclosure Schedule. The disclosures in the
Disclosure Schedule relate only to the particular representation and warranty
in the section or subsection of this Agreement to which they expressly relate
and not to any other representation or warranty in this Agreement. In the
event of any inconsistency between the statements in the body of this Agreement
and those in the Disclosure Schedule (other than an exception expressly set
forth as such in the Disclosure Schedule with respect to a specifically
identified representation and warranty) the statements in the body of this
Agreement will control.
-70-
<PAGE> 76
10.25 Additional Termination Rights. Notwithstanding anything to the
contrary in this Agreement, in the event the Deposit is not paid by Buyer to
the Deposit Escrow Agent by 5:00 p.m., Eastern Standard Time, on December 10,
1997, this Agreement and the Deposit Escrow Agreement shall, effective
immediately upon written notice from Seller to Buyer, be null and void ab
initio.
[Remainder of Page Intentionally Left Blank]
-71-
<PAGE> 77
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered on the date first above written.
SELLER:
/s/ Stephen Grand
----------------------------------
Stephen Grand, individually and as
Trustee of the Stephen Grand
Revocable Trust dated July 5, 1979
and the Stephen M. Grand Property
Trust dated January 22, 1992
BUYER:
NEWCOR, INC.
By: /s/ W. John Weinhardt
-------------------------------
Its: President
-------------------------------
For purposes of Section 5.11 only:
GRAND MACHINING CO.
By: /s/ Stephen Grand
----------------------------
Its: President
-----------------------
DECO TECHNOLOGIES, INC.
By: /s/ Stephen Grand
----------------------------
Its: President
-----------------------
DECO INTERNATIONAL, INC.
By: /s/ Stephen Grand
-----------------------------
Its: President
-----------------------
-72-
<PAGE> 1
EXHIBIT 10(m)
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
EACH OF THE SHAREHOLDERS OF
TURN-MATIC, INC.
AND
NEWCOR, INC.
================================================================================
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE 1. SALE OF THE TURN-MATIC SHARES................................ 1
1.1 The Sale..................................................... 1
1.2 Purchase Price............................................... 1
1.3 Payment of Purchase Price.................................... 2
1.4 Post-Closing Adjustments to Base Purchase Price Based on
Changes in Net Worth......................................... 2
1.5 Earn-Out Payments............................................ 4
ARTICLE 2. THE CLOSING.................................................. 5
2.1 Time and Place of Closing.................................... 5
2.2 Closing Deliveries........................................... 6
ARTICLE 3. REPRESENTATIONS AND WARRANTIES............................... 6
3.1 Corporate Organization and Standing.......................... 6
3.2 Capitalization of Turn-Matic................................. 7
3.3 Authority Relative to this Agreement......................... 7
3.4 No Conflict.................................................. 8
3.5 Financial Statements......................................... 8
3.6 Undisclosed Liabilities...................................... 8
3.7 Absence of Certain Changes................................... 8
3.8 Insurance.................................................... 9
3.9 Litigation...................................................10
3.10 Compliance with Laws; Licenses and Permits...................10
3.11 Tax Matters..................................................10
3.12 Brokers......................................................12
3.13 Real Property; Leased Premises...............................12
3.14 Material Contracts...........................................13
3.15 Intellectual Property and Intellectual Property Rights.......15
3.16 Environmental Compliance.....................................15
3.17 No Third-Party Approvals.....................................18
3.18 Employee Matters.............................................18
3.19 Personal Property............................................21
3.20 Accounts Receivable..........................................22
3.21 Guaranties...................................................22
3.22 Non-Foreign Status...........................................22
3.23 Full Disclosure..............................................22
3.24 Definition of "Sellers' Best Knowledge"......................22
3.25 Memorandum: Disclaimer or Projections........................23
3.26 Title to Properties..........................................23
3.27 Books and Records............................................23
3.28 Effect of Transaction........................................23
3.29 Product Warranty and Product Recalls.........................23
3.30 Conflicts of Interest........................................24
3.31 Suppliers....................................................24
3.32 Inventory....................................................24
3.33 Certain Payments.............................................24
(i)
<PAGE> 3
Table of Contents (Continued) Page
----
3.34 No Redistribution.......................................25
3.35 Unregistered Securities.................................25
3.36 Informed Decision.......................................25
3.37 Subsidiaries............................................25
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER.................26
4.1 Organization and Standing...............................26
4.2 Authority Relative to this Agreement....................26
4.3 No Conflict; Required Filings and Consents..............26
4.4 Closing Date Financing..................................27
4.5 Environmental Activities................................27
ARTICLE 5. COVENANTS AND AGREEMENTS................................27
5.1 Executive Employment Agreements.........................27
5.2 Reasonable Best Efforts to Close; Consent; Approvals....27
5.3 Disclosures.............................................28
5.4 Access to Information: Confidentiality..................28
5.5 Notification of Certain Matters.........................28
5.6 Information for Buyer's Statements, Reports,
Applications and SEC Filings............................29
5.7 Acquisition Proposal....................................29
5.8 H-S-R Act Filing........................................30
ARTICLE 6. CONDUCT OF BUSINESS PENDING CLOSING.....................30
6.1 Distributions...........................................30
6.2 Stock Issuance..........................................30
6.3 Stock Redemption........................................30
6.4 Acquisitions............................................31
6.5 Contracts Outside the Ordinary Course of Business.......31
6.6 Additional Debt.........................................31
6.7 Debt Paydowns...........................................31
6.8 Compensation............................................31
6.9 Employee Benefit Programs...............................31
6.10 Capital Expenditures....................................31
6.11 Change Accounting Practices.............................31
6.12 No Material Change In Net Worth.........................31
6.13 No Changes in Representations and Warranties............31
6.14 Certain Events..........................................32
6.15 No Agreements to Take Actions...........................32
ARTICLE 7. CONDITIONS TO THE SALE..................................32
7.1 Conditions to the Obligations of Each Party.............32
7.1.1 No Injunctive Proceedings........................32
7.1.2 H-S-R Waiting Period.............................32
7.1.3 Governmental Actions.............................32
7.2 Additional Conditions to Obligations of Buyer...........32
7.2.1 Representations and Warranties....................32
7.2.2 Performance of Agreements........................33
7.2.3 Compliance Certificate...........................33
(ii)
<PAGE> 4
Table of Contents (Continued) Page
----
7.2.4 Material Adverse Effect..........................33
7.2.5 Opinion of Counsel...............................33
7.2.6 Consents, etc....................................33
7.2.7 Financing........................................33
7.2.8 Real Property Leases.............................33
7.2.9 Customer Assurances.............................33
7.3 Additional Conditions to the Obligations of Sellers.....34
7.3.1 Representations and Warranties...................34
7.3.2 Performance of Agreements........................34
7.3.3 Compliance Certificate...........................34
7.3.4 Opinion of Counsel...............................34
7.3.5 Consents, etc....................................34
7.4 Non-Compliance with and Termination of this Agreement...34
ARTICLE 8. CLOSING DOCUMENTS.......................................35
8.1 Sellers' Obligations....................................35
8.1.1 Turn-Matic Shares................................35
8.1.2 Resignations.....................................36
8.1.3 Compliance Certificate...........................36
8.1.4 Opinion of Counsel...............................36
8.1.5 Turn-Matic Encumbrances..........................36
8.1.6 Employment Agreements............................36
8.1.7 Certain Records..................................36
8.1.8 Certified Articles of Incorporation..............36
8.1.9 Certified Bylaws.................................36
8.1.10 Noncompetition Agreements.......................36
8.1.11 General Releases................................37
8.1.12 Escrow Agreement................................37
8.1.13 Release of Guarantees...........................37
8.1.14 Repayment of Obligations Owed by Sellers to
Turn-Matic......................................37
8.1.15 Other Documents.................................37
8.2 Buyer's Obligations.....................................37
8.2.1 Base Purchase Price..............................37
8.2.2 Resolutions......................................37
8.2.3 Compliance Certificate...........................37
8.2.4 Opinion of Counsel...............................37
8.2.5 Escrow Agreement.................................37
8.2.6 Noncompetition Agreement.........................37
8.2.7 Additional Documents.............................37
ARTICLE 9. INDEMNIFICATION.........................................38
9.1 Indemnification by the Sellers..........................38
9.2 Indemnification by Buyer................................38
9.3 Limited Survival........................................39
9.4 Notice and Opportunity to Defend........................40
ARTICLE 10. MISCELLANEOUS...........................................41
10.1 Expenses................................................41
(iii)
<PAGE> 5
Table of Contents (Continued) Page
----
10.2 Notices.................................................42
10.3 Counterparts............................................42
10.4 Entire Agreement........................................43
10.5 Headings................................................43
10.6 Assignment; Amendment of Agreement......................43
10.7 Governing Law...........................................43
10.8 Failure to Close........................................43
10.9 Further Assurances......................................43
10.10 Parties in Interest.....................................43
10.11 Non-Waiver..............................................44
10.12 Severability............................................44
10.13 Incorporation of Schedules..............................44
10.14 No Construction Against Drafter.........................44
10.15 Relationship of the Parties.............................44
10.16 Dispute Resolution......................................44
10.16.1 Arbitration....................................44
10.16.2 Emergency Relief...............................46
10.17 Exclusive Jurisdiction..................................46
10.18 Time of the Essence.....................................46
10.19 Certain Definitions.....................................46
10.20 Disclosures in Schedules................................51
10.21 Sellers' Agent; Power of Attorney.......................52
(iv)
<PAGE> 6
Index of Definitions
Term Section
- ---- -------
Acquisition Proposal 5.7
Adjustment Amount 1.4(c)
Agreement 10.19
Annual Period 1.5(a)
Applicable Time Period 9.3(a)
Base Purchase Price 1.2(a)
best knowledge 3.24
Business Day 10.19
Buyer Preamble
Cap 9.3(e)
Closing 2.1
Closing Date 2.1
Closing Date Financing 10.19
Closing Balance Sheet 1.4(a)
Code 3.11(a)
Deadline 2.1
Debt Offering Documents 10.19
Earn-Out Payment 1.5(a)
Encumbrance 10.19
Environment 10.19
Environmental Liabilities 10.19
Environmental Law 10.19
Escrow Agreement 1.3(b)
Escrow Agent 1.3(b)
Excluded Items 9.3(f)
Facilities 10.19
First Threshold 9.3(e)
GAAP 1.4(a)
General Release 8.1.11
General Increase 3.7.4
Governmental Entity 3.9
Governmental Authorization 10.19
H-S-R Act 5.8
Hazardous Materials 10.19
Hazardous Activity 10.19
Indemnitee 9.4
Indemnitor 9.4
Independent Accounting Firm 1.4(b)
Intellectual Property Rights 3.15
Lease Premises 3.13
Losses 10.19
Material Contracts 3.14
Net Worth 1.4(d)
(v)
<PAGE> 7
Index of Definitions (Continued)
Term Section
- ---- -------
Noncompetition Agreement 8.1.10
Obligation 3.4
Occupational Safety and Health Law 10.19
Pension Plan and Trust 3.18
Person 10.19
Personal Property Leases 3.19
Plans 3.18
Pro Rata Percentage 1.3(a)
Proceeding 10.19
Product Recall 10.19
Purchase Price 1.2
Real Property Leases 3.13
Related Agreement 10.19
Related Person 10.19
Related Company 3.18
Release 10.19
Representatives 10.19
Return or Returns 3.11(a)
SEC Filing 10.19
Seller or Sellers Preamble
Seller Group 5.6
Seller Material Adverse Effect 3.1
Subsidiary 3.37
Tax or Taxes 3.11(a)
Threat of Release 10.19
Trade Secrets 3.15
Turn-Matic Preamble
Turn-Matic EBIT Exhibit 6
Turn-Matic Shares Recitals
Index of Exhibits
1 List of Sellers and Numbers of Turn-Matic Shares Owned
2 Form of Escrow Agreement
3 Agreed-Upon Procedures for Closing Balance Sheet
4 Standards for Turn-Matic EBIT
5 Form of General Release
6 Form of Sellers' Counsel Opinion
(vi)
<PAGE> 8
Index of Exhibits (Continued)
7 Form of Buyer's Counsel Opinion
8 Form of Noncompetition Agreement
(vii)
<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of January 16, 1998, by and
among Newcor, Inc., a Delaware corporation ("Buyer"), and each of the persons
identified on the signature pages hereto as a "Seller" (individually a "Seller",
and jointly and severally in any one or more combinations, the "Sellers").
RECITALS
A. Sellers own all of the issued and outstanding shares of, and all of
the issued and outstanding securities that are convertible into or exchangeable
for, and all rights to acquire, capital stock ("Turn-Matic Shares") of
Turn-Matic, Inc., a Michigan corporation ("Turn-Matic"), as more fully set forth
on Exhibit 1 hereto.
B. Each of the Sellers desires to sell to Buyer, and Buyer desires to
purchase from Sellers, all of the Turn-Matic Shares, upon the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE 1. SALE OF THE TURN-MATIC SHARES
1.1 The Sale. Upon the terms and conditions set forth in this
Agreement, at the Closing (as defined in Section 2.1 below), Sellers will sell,
assign and deliver to Buyer the Turn-Matic Shares free, clear and discharged of
and from all Encumbrances and, in reliance upon the representations, warranties
and covenants of Sellers set forth herein, Buyer will purchase and accept the
Turn-Matic Shares.
1.2 Purchase Price. The purchase price (the "Purchase Price") for the
Turn-Matic Shares and consideration for the Noncompetition Agreements (as
hereinafter defined) shall be an amount equal to the following:
(a) $17,000,000, subject to adjustment after the Closing as
provided in Section 1.4 below (the "Base Purchase Price"); plus
(b) any Earn-Out Payments that may be paid solely to Raymond
B. Dorris, Sr. and Marie E. Dorris (the "Majority Shareholders") pursuant to
Section 1.5 hereof.
Of said total Purchase Price, all parties agree that the sum of $200,000 shall
be allocated from the Base Purchase Price as
<PAGE> 10
consideration paid by Buyer to Majority Shareholders for the Noncompetition
Agreement, and all parties agree to make all filings of tax returns in
accordance with said agreed upon allocation and to take no action nor assert any
position contrary with said agreed upon allocation.
1.3 Payment of Purchase Price.
(a) Upon the terms and subject to the conditions of this
Agreement, at the Closing, Buyer shall pay (i) $200,000 of the Base Purchase
Price to the Majority Shareholders as consideration for the Noncompetition
Agreement; and (ii) to each Seller such Seller's Pro Rata Percentage (as defined
below) (rounded to the nearest $.01) of the remaining $16,800,000 of the Base
Purchase Price, less the amount to be deposited in escrow pursuant to Section
1.3(b) below. Payment shall be made by Buyer of the amount due under this
Section to each Seller, respectively, by check payable to said Seller or by wire
transfer to an account designated by said Seller. For purposes of this
Agreement, "Pro Rata Percentage" in the case of a particular Seller shall mean
that percentage shown opposite said Seller's name, respectively, in the table
below:
Name of Seller Pro Rata Percentage
-------------- -------------------
Raymond B. Dorris, Sr. 35.28%
Marie E. Dorris 35.28%
Raymond B. Dorris, Jr. 9.89%
James B. Dorris 6.66%
Richard H. Dorris 3.22%
Anthony P. Doris 3.22%
Patrick C. Dorris 2.67%
Jeffrey W. Dorris 2.67%
Louella Sabel 1.11%
-------
Total 100.00%
(b) An amount equal to $1,000,000 of the Base Purchase Price
otherwise payable to Sellers shall be deposited in escrow with First of America
Bank-Michigan, N.A. (the "Escrow Agent") to be held, administered and disbursed
in accordance with the terms of the Escrow Agreement in the form attached hereto
as Exhibit 2 (the "Escrow Agreement").
(c) Any Earn-Out Payments shall be paid solely to Majority
Shareholders at the time after the Closing and in the manner set forth in
Section 1.5 hereof.
(d) Any adjustment in the Base Purchase Price to be paid by
Buyer to Sellers, or by Sellers to Buyer, as the case may be, pursuant to
Section 1.4(a)-(d) hereof will be paid at the time and in the manner set forth
in Section 1.4(c) hereof.
1.4 Post-Closing Adjustments to Base Purchase Price Based on
Changes in Net Worth.
-2-
<PAGE> 11
(a) Buyer shall cause Turn-Matic to prepare a balance sheet of
Turn-Matic as of the Closing Date (as adjusted as provided below, the "Closing
Balance Sheet") as promptly as practicable after the Closing Date. In connection
with the preparation of the Closing Balance Sheet, Turn-Matic shall take a
complete physical inventory as of the Closing Date. A copy of such inventory
shall be delivered to Buyer and Sellers' Agent, acting on behalf of each and all
of the Sellers, with the Closing Balance Sheet. Turn-Matic shall follow the
procedures set forth in Exhibit 3 annexed hereto in the preparation of the
Closing Balance Sheet. Buyer and Sellers' Agent, acting on behalf of each and
all of the Sellers, shall be entitled to appoint representatives, which in the
case of Buyer may be members of the internal accounting staff of Buyer or any of
its Affiliates, to participate in the preparation of the Closing Balance Sheet
and to observe the taking of such inventory. The Closing Balance Sheet (1) shall
contain the line items in the Turn-Matic balance sheet dated September 30, 1997
(a true and complete copy of which has been delivered to Buyer), (2) shall be
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis with historical practices of Turn-Matic
("GAAP"), and (3) shall be accompanied by a calculation of Net Worth.
(b) Buyer shall use commercially reasonable efforts to cause
Turn-Matic to complete the Closing Balance Sheet not later than twenty-five (25)
Business Days after the Closing Date, and the Closing Balance Sheet shall be
delivered to Buyer and Sellers immediately upon completion thereof, together
with a calculation of the Net Worth. Sellers' Agent, acting on behalf of each
and all of the Sellers, and Buyer shall have fifteen (15) Business Days after
receipt by them of the Closing Balance Sheet and the calculation of the Net
Worth to deliver a written notice to the other(s) of any objections to the
Closing Balance Sheet and the calculation of the Net Worth. Any such notice of
objections shall be in writing and shall state, in reasonable detail, the basis
for each objection and the amount of adjustment which the party giving the
notice believes is required in respect thereto. In the event that Buyer and
Sellers' Agent, acting on behalf of each and all of the Sellers, cannot agree
with respect to the Closing Balance Sheet or the calculation of the Net Worth
within fifteen (15) Business Days after the delivery of a notice of objections
or such later date as may be agreed upon by Buyer and Sellers' Agent, acting on
behalf of each and all of the Sellers, the dispute shall be resolved by
arbitration by the Southfield, Michigan office of Plante & Moran, L.L.P, or such
other independent accounting firm as may be mutually agreed upon by Sellers'
Agent, acting on behalf of each and all of the Sellers, and Buyer (the
"Independent Accounting Firm"). Any items not in dispute shall be deemed
stipulated by Buyer and Sellers' Agent, acting on behalf of each and all of the
Sellers, and shall not be determined by the Independent Accounting Firm (and, in
such event, to the extent such items not in dispute would constitute an
"Adjustment Amount" that would be due and owing under Section 1.4(c)
notwithstanding that there remain other items in dispute, then the amount of
such items not in dispute constituting
-3-
<PAGE> 12
such an "Adjustment Amount" shall be paid in accordance with the terms of
Section 1.4(c) within five (5) Business Days of being stipulated amounts). The
determination of the Independent Accounting Firm shall be binding and conclusive
upon the matters determined thereby and may be entered as a judgment by any
court of competent jurisdiction. All costs and expenses relating to the services
provided by the Independent Accounting Firm shall be one half (1/2) by Buyer,
and one-half (1/2) jointly and severally by Sellers, unless the Independent
Accounting Firm shall have determined that the disputed amounts of the Net
Worth, as reflected in the Closing Balance Sheet and submitted to the
Independent Accounting Firm for final resolution, vary, on a dollar-for-dollar
basis, more than twenty-five percent (25%) from the disputed amounts of the Net
Worth, as determined by Turn-Matic, then all such costs and expenses shall be
paid (A) by Sellers (jointly and severally) if such variance runs in favor of
Buyer, or (B) by Buyer if such variance runs in favor of Sellers.
(c) In the event the Net Worth reflected in the Closing
Balance Sheet or as determined by the Independent Accounting Firm, in the event
of a dispute concerning the Closing Balance Sheet, is less or more than
$7,000,000, then the amount of such difference (the "Adjustment Amount") shall
be paid by Buyer to Sellers, or by Sellers, jointly and severally, to Buyer, as
appropriate, within five (5) Business Days of final determination thereof. Any
payment by Buyer to Sellers shall be made by check payable to the Person
entitled thereto or by wire transfer to an account designated by such Person.
Each Seller shall be entitled to payment of such Seller's Pro Rata Percentage
(rounded to the nearest $0.01) of the aggregate payment to be made by Buyer.
(d) The term "Net Worth" shall mean an amount equal to the
difference between the total assets of Turn-Matic and the total liabilities of
Turn-Matic as reflected on the Closing Balance Sheet or by determination of the
Independent Accounting Firm, as applicable.
1.5 Earn-Out Payments.
(a) If, but only if, Turn-Matic shall achieve (i) Turn-Matic EBIT
(determined as provided in Exhibit 4 annexed hereto) equal to or exceeding
$5,000,000 in any of the five (5) Annual Periods immediately following the
Closing Date, Buyer shall pay to Majority Shareholders, at the time and in the
manner set forth in Section 1.5(b) below, the sum of $500,000 for such Annual
Period in which Turn-Matic EBIT equals or exceeds such amount, and (ii)
Turn-Matic EBIT, on a cumulative basis, for the period from the commencement of
the first Annual Period to the end of the fifth Annual Period after the Closing
Date, equal to or exceeding $25,000,000, then Buyer shall pay to Majority
Shareholders, at the time and in the manner set forth in Section 1.5(b) below,
the additional sum of $1,000,000. For purposes of this Agreement, the term
"Annual Period" means, in the case of the first period after the Closing Date,
the 12-month period commencing on the first day of the first
-4-
<PAGE> 13
month commencing on or after the Closing Date, and in the case of subsequent
periods, the 12-month period commencing on the day after the end of the
preceding Annual Period (as applicable), and "Earn-Out Payment" shall mean any
of the payments required to be made to Majority Shareholders, under this Section
1.5.
(b) Payment of any Earn-Out Payment by Buyer to Majority Shareholders
shall be made within five (5) Business Days after final determination of
Turn-Matic EBIT as provided in Exhibit 4 annexed hereto for the period in
question by check or by wire transfer to an account designated by Majority
Shareholders.
(c) Notwithstanding anything to the contrary contained in this
Agreement or otherwise, Majority Shareholders may not sell, assign, convey,
hypothecate or otherwise dispose of any interest in any Earn-Out Payment, except
pursuant to the laws of descent and distribution.
(d) Buyer shall have the right to offset, for the duration of survival
after the Closing Date of any respective claim for indemnification as provided
in Section 9.3(a)(i) or 9.3(a)(ii), as the case may be, of this Agreement,
against any Earn-Out Payments and any payment to be made pursuant to Section
1.4(c) hereof the amount of any claim Buyer may have against the Sellers, either
individually or collectively, whether pursuant to any term or provision
contained in this Agreement, the Related Agreements, under applicable law or
otherwise. The right and remedy contained in this Section shall be in addition
to, and not in lieu of, any other right and remedy available to Buyer under this
Agreement or applicable law.
ARTICLE 2. THE CLOSING
2.1 Time and Place of Closing. Upon the terms and subject to the
conditions set forth in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Miller, Canfield, Paddock and Stone, P.L.C., Bloomfield Hills, Michigan at
10:00 a.m. (local time) on a Business Day that is designated by Buyer so that
the Closing will occur contemporaneously with the closing of the Closing Date
Financing but such date (a) shall not be a date later than the earlier to occur
of (i) April 30, 1998, or (ii) ten (10) days following the consummation by Buyer
of the Closing Date Financing (the "Deadline"), and (b) shall be a date after
(i) execution or early termination of the "waiting period" and any extensions
thereof under the H-S-R Act, if applicable, and (ii) if an injunction, court
order or other Governmental Regulation enjoining or restraining consummation of
the transactions contemplated by this Agreement has been obtained, the reversal,
lifting or other successful appeal or resolution of such injunction, order or
Governmental Regulation, or at such other place and at such other date as the
parties may mutually agree in writing. The consummation of the transactions
contemplated by this Agreement and
-5-
<PAGE> 14
the Closing will be deemed to take place at 11:59 p.m. (local time) on the date
on which the Closing actually occurs, and such date will be referred to as the
"Closing Date" under this Agreement.
2.2 Closing Deliveries. At the Closing, the parties shall deliver the
agreements, documents, certificates and instruments described in Article 8
hereof.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
To induce Buyer to execute and deliver this Agreement and to consummate
the transactions contemplated hereby, each of the Sellers, jointly and severally
(except that (i) the representations and warranties provided in the second and
fourth sentences of Section 3.2 shall be deemed to be made by each of the
Sellers severally and not jointly, and only as to the shares of capital stock of
Turn-Matic represented to be owned by each of the Sellers, respectively, as set
forth on Schedule 3.2 of the Disclosure Schedule, and (ii) the representations
and warranties provided in Sections 3.34, 3.35 and 3.36 shall be deemed to be
made jointly and severally only by Majority Shareholders), hereby represents and
warrants to Buyer as follows as of the date of this Agreement and as of the
Closing Date, each such representation and warranty being independently
material:
3.1 Corporate Organization and Standing. Turn-Matic is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan, and has all requisite power and authority (corporate and
other) to own, operate and lease the properties it purports to own, operate or
lease and to carry on its business as presently conducted. Section 3.1 of the
disclosure schedule of Sellers delivered to Buyer on the date hereof (the
"Disclosure Schedule") contains a complete and correct copy of the Articles of
Incorporation and By-Laws of Turn-Matic. Turn-Matic is duly qualified to do
business, and is in good standing in each of the jurisdictions in which the
nature of the business as now being conducted by it or the property owned or
leased by it makes such qualification necessary, except where the failure to be
so duly qualified and in good standing would not reasonably be expected to have
a Seller Material Adverse Effect. As used in this Agreement, "Seller Material
Adverse Effect" means with respect to any fact, change, effect, circumstance,
occurrence, event or development that such fact, change, effect, circumstance,
occurrence, event or development, individually or when taken together with all
other like facts, changes, effects, circumstances, occurrences, events or
developments, (a) has had, or is reasonably likely to have (at the time in
question or at any time in the future), a material adverse effect on the
business, assets, financial condition or results of operations of Turn-Matic or
(b) has impaired, hindered or adversely affected, or is reasonably likely to (at
the time in question or at any time in the future) impair, hinder or adversely
affect, in a material respect, the ability of Sellers (or any of them) to
perform any of their obligations under this Agreement or any of the
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Related Agreements or to consummate any of the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) has adversely affected, or is
reasonably likely to (at the time in question or at any time in the future)
adversely affect, in a material respect, the validity or enforceability of this
Agreement or any of the Related Agreements against any of the Sellers, or (d)
adversely affected, or is reasonably likely to (at the time in question or at
any time in the future) adversely affect any of the material benefits to Buyer
of the transactions contemplated by this Agreement or any of the Related
Agreements. Except as set forth in Section 3.1 of the Disclosure Schedule,
Turn-Matic has not, during the past six (6) years, used or assumed any other
names in connection with its business or otherwise.
3.2 Capitalization of Turn-Matic.
(a) The authorized capital stock of Turn-Matic consists solely
of 50,000 shares of common stock, $1.00 par value. There is a total of 30,000
shares of common stock, $1.00 par value, of Turn-Matic that has been duly
authorized and is validly issued, and said 30,000 shares are fully paid and
non-assessable and owned (of record and beneficially) by the Sellers,
respectively, as set forth in Section 3.2 of the Disclosure Schedule, free and
clear of all Encumbrances. There are no preemptive or similar rights applicable
to any securities of Turn-Matic. Upon delivery to Buyer at the Closing, Buyer
will obtain good title to the Turn-Matic Shares free and clear of all
Encumbrances except those created by Buyer.
(b) There are no options, warrants, conversion or other
rights, agreements or commitments of any kind obligating Turn-Matic to issue any
securities of any kind nor are there any of the foregoing relating to any of the
Turn-Matic Shares.
3.3 Authority Relative to this Agreement. Each of the Sellers has all
necessary power, authority and capacity to execute and deliver this Agreement
and the Related Agreements, to perform their respective obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and each of the Related
Agreements by each of the Sellers and the consummation by each of the Sellers of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action, and no other proceedings or actions on the
part of any of the Sellers or Turn-Matic are necessary to authorize this
Agreement or any of the Related Agreements or to consummate the transactions so
contemplated hereby and thereby. This Agreement has been (and when the Related
Agreements have been executed by Sellers and delivered to Buyer at the Closing
each of the Related Agreements will have been) duly and validly executed and
delivered by each of the Sellers. This Agreement constitutes (and when the
Related Agreements are executed by Sellers and delivered to Buyer at the Closing
each of the Related Agreements will be) a legal, valid and binding agreement of
each of the Sellers, enforceable against each of the Sellers in accordance with
its terms, except as may be
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limited by applicable bankruptcy, insolvency, reorganization, or similar laws
affecting creditors rights generally and by general equitable principles
(regardless of whether considered in a proceeding at law or in equity).
3.4 No Conflict. The execution and delivery of this Agreement and each
of the Related Agreements by each of the Sellers do not, and the performance of
this Agreement and each of the Related Agreements by each of the Sellers will
not (i) conflict with or violate the Articles of Incorporation or By-Laws of
Turn-Matic, (ii) conflict with or violate any Governmental Regulation or Order
applicable to Turn-Matic or any of the Sellers or by which any of its or their
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default), or impair Turn-Matic's rights or alter the rights or obligations of
any other Person under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance
on, any of the properties or assets of Turn-Matic pursuant to, any indenture,
mortgage, note, bond, financing commitment, loan agreement, Encumbrance,
license, guarantee, Governmental Authorization, Contract, lease, or other
instrument (each an "Obligation") to which Turn-Matic or any of the Sellers is a
party or by which Turn-Matic or any of the Sellers or any of their respective
properties is bound or affected or give rise to any Encumbrance upon the
Turn-Matic Shares.
3.5 Financial Statements. The reviewed annual financial statements of
Turn-Matic for the periods ending September 30, 1995 and 1996 and the reviewed
interim financial statements as of March 31, 1997 and September 30, 1997,
prepared by Walter A. Walas, CPA, previously delivered by Sellers to Buyer, were
taken from its management accounts, and fairly present Turn-Matic's financial
position, results of operations and changes in shareholders' equity and cash
flows as of the dates and for the periods presented. All such financial
statements were prepared in accordance with GAAP applied on a consistent basis.
3.6 Undisclosed Liabilities. Turn-Matic has no liabilities or
obligations of a material nature, whether known or unknown, matured or
unmatured, asserted or not asserted, liquidated or not liquidated, accrued,
absolute, contingent or otherwise except (a) to the extent reflected or reserved
for on the financial statements referred to in Section 3.5, (b) disclosed in
Section 3.6 of the Disclosure Schedule, (c) liabilities or obligations incurred
in connection with this Agreement and (d) current liabilities incurred in the
ordinary course of business of Turn-Matic since the date of the latest of the
financial statements referred to in Section 3.5 (none of which involves the
breach of any Obligation or any violation of any Governmental Regulation or
Order).
3.7 Absence of Certain Changes. Since September 30, 1997, except as set
forth in Section 3.7 of the Disclosure Schedule, Turn-Matic has conducted its
business only in the ordinary course,
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and there has not occurred with respect to Turn-Matic any of the following:
3.7.1 Any facts, changes, effects, circumstances, occurrences,
events or developments which, individually or in the aggregate, have had or are
reasonably likely to have any Seller Material Adverse Effect.
3.7.2 Any sale, lease, transfer, assignment, distribution or
other disposition of any material assets, except in the ordinary course of
business.
3.7.3 Any material obligation or liability.
3.7.4 Any increase in the compensation or rate of compensation
or commission payable or to become payable by Turn-Matic to any of its
directors, officers, salaried employees earning more than $30,000 per annum,
salesmen or agents or any General Increase in the compensation or rate of
compensation payable or to become payable to any of their hourly employees or
salaried employees earning $30,000 per annum or less ("General Increase" for
purposes hereof shall mean any increase applicable to a class or group of
employees and does not include increases granted to individual employees for
merit, length of service, change in position or responsibility or other reasons
applicable to specific employees and not generally to a class or group thereof),
or any aggregate increase in compensation to any directors, officers or salaried
employees, of more than $5,000, or any termination of any key employee or any
employee whose compensation was in excess of $30,000 per annum.
3.7.5 Any one capital expenditure or any series of related
capital expenditures (other than emergency repairs and replacements), the amount
or aggregate amount of which (as the case may be) is in excess of $100,000.
3.7.6 Any change in any method of accounting or keeping its
books of account or its accounting practices.
3.8 Insurance.
(a) Section 3.8 of the Disclosure Schedule sets forth a
description of the policies of insurance currently in effect covering the assets
and operations of Turn-Matic. Except as set forth in Section 3.8 of the
Disclosure Schedule, there are no claims pending under any of the policies, all
premiums due and payable have been paid and all such policies are in full force
and effect and Turn-Matic is not in default under any such policies.
(b) Section 3.8(b) of the Disclosure Schedule describes:
(i) any material self-insurance arrangement by
or affecting Turn-Matic, including any reserves established
thereunder; and
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(ii) all material obligations of Turn-Matic to
other Persons with respect to insurance (including such
obligations under leases and service agreements) and
identifies the policy under which such coverage is provided.
(c) Except as set forth on Section 3.8(c) of the Disclosure
Schedule, all policies of insurance to which Turn-Matic is a party or that
provide coverage to Sellers, or any director or officer of Turn-Matic: (A) are
valid, outstanding, and enforceable; (B) are sufficient for compliance in all
material respects with all Governmental Regulations and Contracts to which
Turn-Matic is a party or by which it is bound; (C) will continue in full force
and effect immediately following the consummation of the transactions
contemplated in this Agreement unless Buyer (or Turn-Matic after the Closing)
takes some action to discontinue such policies; and (D) do not provide for any
retrospective premium adjustment or other experienced-based liability on the
part of Turn-Matic.
3.9 Litigation. There are no Proceedings pending or, to the Sellers'
best knowledge, threatened against Turn-Matic, or any properties or rights of
Turn-Matic, before any arbitrator or any foreign, federal, state, local or other
court, administrative, governmental or regulatory authority (each, a
"Governmental Entity") and, to the best knowledge of Sellers, there is no
reasonable basis for any such Proceeding. Turn-Matic is not subject to any
outstanding Order of any Governmental Entity that restricts, or is likely to
restrict, in any material respect the conduct of business by Turn-Matic as such
business as been conducted by Turn-Matic.
3.10 Compliance with Laws; Licenses and Permits. Turn-Matic is not now
and has not been at any time in the past which has had or may have or result in
any Material Adverse Effect in conflict with, or in default or violation of, its
Articles of Incorporation or Bylaws or any Governmental Regulation applicable to
it or by which its properties are bound or affected. No event has occurred or
circumstance exists that (with or without notice or lapse of time or both) may
constitute or result in a violation in any material respect by Turn-Matic of any
Governmental Regulation. Turn-Matic possesses all Governmental Authorizations
required to carry on and conduct its business and operations as presently
conducted, except for such Governmental Authorizations, the absence of which,
individually or in the aggregate, would not have a Seller Material Adverse
Effect. Turn-Matic is not in violation of or default under any Governmental
Authorizations and each is in full force and effect.
3.11 Tax Matters.
(a) For purposes of this Agreement:
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(i) The term "Taxes" means all federal, state,
local, foreign, and other net income, gross income, gross receipts,
profits, goods and services, social security, sales, use, ad valorem,
single business, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, franchise,
business license, occupation, severance, stamp, occupation, premium,
property, windfall profits, customs, duties, or other taxes, fees,
assessments, alternative minimum, windfall and capital taxes, and all
other obligations of the same or a similar nature to any of the
foregoing, together with any interest and any penalties, additions to
tax, or additional amounts with respect thereto, and the term "Tax"
means any one of the foregoing Taxes;
(ii) The term "Return" means all returns,
declarations, reports, statements, schedules, notices, forms or other
documents or information required to be filed in respect of the
determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of
any legal requirement relating to any Tax, and the term "Return" means
any one of the foregoing Returns;
(iii) The term "Code" means the Internal
Revenue Code of 1986, as amended. All citations to the Code or to the
regulations promulgated thereunder shall include any amendments or any
substitute successor provisions thereto.
(b) Except as otherwise set forth in Section 3.11 of the
Disclosure Schedule:
(i) There have been properly completed and
filed on a timely basis and in correct form all Returns required to be
filed by Turn-Matic on or prior to the date hereof. As of the time of
filing, all such Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status, or other
matters of Turn-Matic or any other information required to be shown
thereon. An extension of time within which to file any Return of
Turn-Matic that has not been filed has not been requested or granted.
(ii) With respect to all amounts in respect of
Taxes imposed with respect to the income or operations of Turn-Matic
for which Turn-Matic is or could be liable, whether to taxing
authorities (as, for example, under Governmental Regulation) or to
other Persons (as, for example, under tax allocation agreements), with
respect to all taxable periods or portions of periods ending on or
before the Closing Date, all applicable tax laws and agreements have
been fully complied with, and all such amounts of Taxes required to be
paid to taxing authorities or others on or before the date hereof (and
the Closing Date) have and will have been paid.
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(iii) The charges, accruals, and reserves with
respect to Taxes on the books of Turn-Matic are adequate (determined in
accordance with GAAP). There exists no proposed Tax assessment against
Turn-Matic; provided, that without limitation as to any other matter,
Sellers, jointly and severally, shall indemnify Buyer for all costs,
liabilities, additional taxes, penalties and interest arising with
respect to any determination of excess or unreasonable compensation
disallowed as a deduction to Turn-Matic for compensation paid at any
time on or prior to the Closing Date. All Taxes that Turn-Matic is or
was legally required to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Entity or other Person.
(iv) There are no Encumbrances for Taxes (other
than for current Taxes not yet due and payable) on any of the assets or
properties of Turn-Matic.
(v) There is no Tax sharing agreement that will
require any payment by Turn-Matic.
(vi) The transaction contemplated herein is not
subject to the tax withholding provisions of Section 3406 of the Code,
or of Subchapter A of Chapter 3 of the Code or of any other provision
of Governmental Regulation.
(vii) Turn-Matic has withheld and paid all
Taxes required to have been withheld and paid in connection with any
amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other Person whatsoever.
(viii) None of the Sellers is a Person other
than a United States Person within the meaning of the Code and
Turn-Matic is not a United States real property holding corporation (as
defined in Code Section 897(c)(2)) during the applicable period
specified in Code Section 897(c)(1)(A)(ii).
3.12 Brokers. Other than Roney & Co., none of the Sellers or Turn-Matic
has retained any broker, investment banker or finder nor incurred liability for
investment banking fees, commissions or finders fees in connection with the
transactions contemplated. The fees and expenses of Roney & Co. (other than
those as disclosed to Buyer that have been paid by Turn-Matic prior to the date
of this Agreement) shall be paid by the Sellers.
3.13 Real Property; Leased Premises. Turn-Matic does not have any
ownership interests in any real property. Section 3.13 of the Disclosure
Schedule sets forth a list of all leases (the "Real Property Leases") pursuant
to which Turn-Matic leases real property as lessee ("Leased Premises").
Turn-Matic has or will have at the Closing Date valid leasehold interests in,
and the beneficial right to use and occupy, all Leased Premises, in each case
free and clear of all Encumbrances on its leasehold interests except (i) those
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listed in Section 3.13 of the Disclosure Schedule, (ii) liens for current taxes,
assessments or governmental charges not yet due and delinquent, (iii) liens of
mechanics and other similar statutory liens arising in the ordinary course of
business which are not yet due or payable, and (iv) zoning and other land use
and environmental regulations by Governmental Entities, none of which
individually or in the aggregate materially infer with its use of the Leased
Premises. Turn-Matic enjoys peaceful and undisturbed possession under all Real
Property Leases. Turn-Matic is not in violation of or in noncompliance with any
covenant, condition, restriction, order, easement, zoning or other land use and
environmental regulations affecting the Leased Premises where such violation or
noncompliance would reasonably be expected to have a Material Adverse Effect.
Each of the buildings, improvements and structures located upon the Leased
Premises and their operating systems are in reasonably good repair and operating
condition so as to be adequate for the operation of Turn-Matic's business.
Turn-Matic has all material leasehold rights, including parking rights and
access to utilities, roadways and other access, necessary to conduct the
businesses it now conducts. Neither the whole nor any portion of the Leased
Premises has been, in the last six (6) years, rezoned or condemned or otherwise
taken by any Governmental Entity and, to the best knowledge of the Sellers, no
such zoning, condemnation or other taking is threatened or contemplated. None of
the Leased Premises, or the occupancy or operation thereof, constitutes a
nuisance or violation in any material respect of any law or any building, zoning
or other ordinance, code or regulation or any private or public covenant or
restriction, and no written notice from any Governmental Entity or other Person
has been received by any of the Sellers or Turn-Matic claiming any outstanding
violation in any material respect of any such law, ordinance, code, regulation,
covenant or restriction, or requiring or calling attention to the need for any
material amount of work, repairs, construction, alterations or installations on
or in connection with any of such properties which has not been complied with in
any material respect. All Real Property Leases are valid, binding and in full
force and effect, and there exists no default thereunder by Turn-Matic, or, to
the best knowledge of Sellers, any other party thereto, nor any events which
with notice or lapse of time, or both, would constitute a default by Turn-Matic
or any such other party thereunder, and all rents and other amounts heretofore
payable under such leases have been paid in full.
3.14 Material Contracts. Section 3.14 of the Disclosure Schedule sets
forth a list of all of the Material Contracts to which Turn-Matic is a party or
by which it or its property is bound. As used in this Agreement, "Material
Contracts" means each and every one of the following Contracts:
(a) all leases (other than Real Property Leases);
(b) all Contracts under which Turn-Matic is lessee of, or
holds, any tangible personal property owned by another Person and used in the
business of Turn-Matic;
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(c) all Contracts to which Turn-Matic is a party and which are
(i) with consultants, advisors, salesmen or sales representatives or Agents of
Turn-Matic other than Contracts which by their terms are cancelable by
Turn-Matic with notice of not more than thirty (30) days and without
cancellation penalties or severance payments in excess of $25,000 in the
aggregate for all such Contracts, (ii) profit-sharing, bonus, retirement or
employee benefit plans or other similar plans or arrangements of Turn-Matic;
(d) all mortgages, security agreements, pledges, notes, loan
agreements, indentures or guarantees relating to Turn-Matic;
(e) all customer or vendor Contracts relating to the business
of Turn-Matic which involve purchases or payments in an amount in excess of
$25,000;
(f) employment, severance or termination agreements and any
post-retirement plans or supplemental executive retirement plans;
(g) collective bargaining Contracts;
(h) Contracts which provide for aggregate future payments by
or to Turn-Matic of more than $25,000 per year which are not terminable by
Turn-Matic on less than thirty (30) or fewer days notice without penalty;
(i) Contracts containing covenants limiting the freedom of
Turn-Matic to compete with any Person in any line of business or in any area or
territory;
(j) each licensing Contract with respect to patents,
trademarks, copyrights, or other Intellectual Property Rights, including
(without limitation) Contracts with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Rights;
(k) each joint venture, partnership, and other Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
Turn-Matic with any other Person;
(l) each warranty (other than the standard form of warranty
given by Turn-Matic to Ford Motor Company, and its affiliates, a copy of the
terms of which has been provided by Sellers to Buyer), guaranty, and/or other
similar undertaking or Contract with respect to contractual performance extended
by Turn-Matic; and
(m) each Contract with any Related Person of any of the
Sellers or Turn-Matic.
Sellers have furnished to Buyer true and complete copies of all
Material Contracts (or summaries of the terms thereof in the case of oral
Material Contracts). All Material Contracts to which
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Turn-Matic is a party or by which it or any of its properties is bound are
legal, valid and binding obligations of Turn-Matic enforceable in accordance
with their terms (except as enforcement may be limited by equitable principles
limiting the right to obtain specific performance or other equitable remedies or
by applicable bankruptcy or insolvency laws and similar laws affecting
creditors' rights generally) against Turn-Matic and, to the Sellers' best
knowledge, against the other parties thereto in accordance with their respective
terms, and are not subject to any restriction with respect to any change of
control of Turn-Matic without the consent of any other Person, except as listed
on Section 3.14 of the Disclosure Schedule. To the Sellers' best knowledge,
there are no defaults or state of facts which, with notice or lapse of time or
both, would constitute a default on the part of Turn-Matic or any other Person
that is a party thereto in the performance of any obligation to be performed or
paid by Turn-Matic or any such other Person under any of the Material Contracts,
Turn-Matic has not received or given notice of any default or claimed or
purported or alleged default or state of facts which, with notice or lapse of
time or both, would constitute a default on the part of Turn-Matic or any such
other Person in the performance or payments under any of the Material Contracts.
3.15 Intellectual Property and Intellectual Property Rights. Turn-Matic
solely owns all registered and unregistered patents, patent applications,
trademarks, trade names, the name Turn-Matic, Inc., service marks, logos,
copyrights and Trade Secrets (collectively, "Intellectual Property Rights")
owned or used by it in the conduct of its business. As used in this Agreement,
"Trade Secrets" means and includes know how, confidential information, customer
lists, software, technical information, inventions, discoveries, data, process
technology, plans, drawings and blue prints and other trade secrets. Section
3.15 of the Disclosure Schedule sets forth a complete list of all such
Intellectual Property Rights (including whether such rights are the subject of a
license) other than Trade Secrets. There is no claim or demand of any Person
pertaining to, or any Proceeding pending or, to the Sellers' best knowledge,
threatened, which challenges the rights of Turn-Matic in respect of any of the
Intellectual Property Rights. To the best knowledge of Sellers, none of the
Intellectual Property Rights are being infringed upon by others or used by
others, whether or not such use constitutes infringement, or has been the
subject of dispute, whether or not resulting in litigation. The Intellectual
Property Rights are all those necessary for the operation of the business of
Turn-Matic as currently conducted. Turn-Matic is the owner of all right, title,
and interest in and to each of the Intellectual Property Rights, free and clear
of all Encumbrances and has the right to use without payment to any other Person
all of the Intellectual Property Rights.
3.16 Environmental Compliance. Except as set forth in Section 3.16
of the Disclosure Schedule:
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(a) Turn-Matic is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under
(whether any such violation or liability is known or unknown, matured or
unmatured, liquidated or not liquidated, asserted or not asserted, absolute,
contingent or otherwise), any Environmental Law. None of the Sellers nor
Turn-Matic has any basis to expect that there exists any, nor has any of them or
any other Person for whose conduct any of them are or may now or as of the
Closing Date be held to be responsible received, any actual or threatened order,
notice, or other communication from (i) any Governmental Entity or private
citizen, or (ii) the current or prior owner or operator of any Facilities of,
any actual or potential violation or failure to comply with any Environmental
Law, or of any actual or threatened obligation to undertake or bear the cost of
any Environmental Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Turn-Matic has
had an ownership or leasehold interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by any of the Sellers,
Turn-Matic or any other Person for whose conduct they are or may now or as of
the Closing Date be held responsible, or from which Hazardous Materials have
been transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or, to the best knowledge of Sellers,
threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any of the properties and assets
(whether real, personal, or mixed) in which Turn-Matic has or had an ownership
or leasehold interest.
(c) None of Sellers nor Turn-Matic has any basis to expect
that there exists any, nor has any of them or any other Person for whose conduct
any of them are or may be held responsible received any citation, directive,
inquiry, notice, order, summons, warning, or other communication of any,
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental Liabilities with respect to any
of the Facilities or any other properties or assets (whether real, personal, or
mixed) in which Turn-Matic had an ownership or leasehold interest, or with
respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by any of
Sellers, Turn-Matic, or any other Person for whose conduct any of them are or
may now or as of the Closing Date be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or received. None of
the Sellers nor Turn-Matic nor any other Person for whose conduct any of them
are or may now or as of the Closing Date be responsible has received any
citation, directive, inquiry, notice, order, summons, warning or
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other communication as to Hazardous Materials or Hazardous Activity.
(d) None of Sellers nor Turn-Matic, or any other Person for
whose conduct any of them are or may now or as of the Closing Date be held
responsible, has any Environmental Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which Turn-Matic (or any predecessor), has or had an ownership or
leasehold interest, or at any property geologically or hydrologically adjoining
the Facilities or any such other property or assets.
(e) There are no Hazardous Material at actionable levels
present on or in the Environment at the Facilities or, to the best knowledge of
Sellers, at any geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located in land,
water, sumps, or any other part of the Facilities or such adjoining property, or
incorporated into any structure therein or thereon. None of the Sellers,
Turn-Matic, any other Person for whose conduct any of them are or may now or as
of the Closing Date be held responsible, or any other Person, has permitted or
conducted, or is aware of, any Hazardous Activity conducted with respect to the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which Turn-Matic has or had an ownership or leasehold interest.
(f) There has been no Release or, to the best knowledge of
Sellers, Threat of Release (as defined in Section 10.19), of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which any
of the Sellers or Turn-Matic has or had an ownership or leasehold interest, or,
to the best knowledge of Sellers, any geologically or hydrologically adjoining
property, whether by any of the Sellers, or Turn-Matic, or any other Person.
(g) Sellers have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any of the Sellers or Turn-Matic pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by any of the Sellers, Turn-Matic, or any other Person for whose
conduct they are or may now or as of the Closing Date be held responsible, with
Environmental Laws.
(h) Turn-Matic does not have, and as of the Closing Date will
not have, any liability (whether known or unknown, matured or unmatured,
liquidated or not liquidated, asserted or not asserted, absolute, contingent or
otherwise) as to any then existing facts,
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circumstances or conditions under any of the environmental indemnity or similar
provisions of any leases of any of the Real Property Leases.
3.17 No Third-Party Approvals. Other than the H-S-R Act filing, no
consent, approval, authorization, order, filing, registration or qualification
of or with any Governmental Entity or any other Person is required to be made or
obtained by Turn-Matic or any of the Sellers in connection with this Agreement
or any of the Related Agreements or the consummation by any of them of the
transactions contemplated hereby or thereby, and the funded indebtedness of
Turn-Matic as stated on the Closing Balance Sheet is and will be payable at the
option of Turn-Matic at any time on or after the Closing Date without prepayment
fee or penalty. Furthermore, Sellers shall cause any contingent liability of
Turn-Matic under any and all guarantees of indebtedness owed by Sellers, or any
one or more of them, or any trust or other entity for the benefit of any one or
more of them, to be released as of the Closing Date.
3.18 Employee Matters.
3.18.1 There are no collective bargaining agreements
applicable to Persons employed by Turn-Matic, and to the Sellers' best
knowledge, there are no activities or proceedings of any labor union to organize
any such employees nor have there been any such activities during the past two
(2) years.
3.18.2 Turn-Matic is not in violation in any material respect
of any applicable Governmental Regulations respecting employment, employment
practices, terms and conditions of employment or wages and hours applicable to
it.
3.18.3 (i)Section 3.18.3(i) of the Disclosure Schedule
contains an accurate and complete list of all plans, contracts,
programs and arrangements, including, but not limited to, collective
bargaining agreements, pensions, bonuses, deferred compensation,
retirement, severance, hospitalization, insurance, salary continuation,
and other employee benefit plans, programs or arrangements, maintained
currently or at any time within the previous five (5) years by
Turn-Matic or any company related by ownership to Turn-Matic within the
meaning of Code Section 414 (b), (c) or (m) ("Related Company") or
under which Turn-Matic or any Related Company has had any obligations
with respect to an employee of Turn-Matic or of a Related Company (the
"Plans").
(ii) Neither Turn-Matic nor any Related Company has
ever contributed to or has ever had any obligation to contribute to any
"multiemployer plans" within the meaning of 3(37) of ERISA or multiple
employer plan within the meaning of Section 413(c) of the Code
("Multiemployer Plans").
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3.18.4 Sellers have delivered to Buyer the following to the
extent applicable:
(i) all documents that set forth the terms of
each Plan and of any related trust, including all amendments, plan
descriptions and/or summary plan descriptions, whether required to be
prepared and distributed to plan participants under ERISA;
(ii) all collective bargaining agreements
pursuant to which contributions have or are being made or obligations
incurred for pension and/or welfare benefits by Turn-Matic or any
Related Company;
(iii) all registration statements filed with
respect to any Plan;
(iv) all insurance policies purchased to
provide benefits under any Plan;
(v) all contracts with third party
administrators, actuaries, investment managers, consultants, and other
independent contracts that relate or related to any Plan;
(vi) all notifications to employees of their
rights under ERISA Section 601 et seq. and Code Section 4980B;
(vii) the Form 5500 filed for the three most
recent plan years with respect to each Plan, including all schedules
thereto and the opinions of independent accountants;
(viii) all notices that were given by
Turn-matic a Related Company or any Plan to the IRS, the PBGC or the
U.S. Department of Labor, pursuant to Governmental Regulation, within
the four (4) years preceding the date of this Agreement, and all such
notices that were required to be given by such agencies to Turn-Matic,
any Related Company or any Plan, within such time period;
(ix) the most recent determination letter
issued to any Plan which is intended to be tax-qualified under Code
Section 401(a); and
(x) the Form PBGC-1 for the three most recent
plan years with respect to each Plan that is subject to Title IV of
ERISA.
3.18.5 Except as specifically set forth in Section 3.18.5 of
the Disclosure Schedule:
(i) each Plan which is an "employee pension
benefit plan," within the meaning of Section 3(2) of ERISA, and its
related trust ("Pension Plan and Trust") which is
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intended to be tax qualified met, as of the date of the last
determination letter issued by the IRS with respect thereto, the
requirements for qualification under Sections 401(a) and 401(k) of the
Code and has, as of the date of the last determination letter issued by
the IRS with respect thereto, been, exempt from taxation under Section
501(a) of the Code, and since the date of the last favorable
determination letter issued by the IRS for each Plan, respectively, all
amendments to each Plan as required by applicable law have been made
and put into effect and each Plan has been operated in all material
respects in compliance with applicable law and the terms of said Plan
and in a manner to maintain said qualification and exemption. The IRS
has issued a current favorable determination letter with respect to the
qualified status of each Pension Plan and Trust and has not taken any
action to revoke such letter;
(ii) Turn-Matic has performed all obligations
required to be performed by it under the Plans (including, but not
limited to, the making of all contributions), and has made appropriate
entries in its financial records and statements for all obligations and
liabilities under such plans that have accrued but are not due.
(iii) Each of the Plans has been operated in
compliance in all material respects with the requirements of all
Governmental Regulations applicable to such Plans, including but not
limited to ERISA and the Code;
(iv) Neither Turn-Matic, nor, to the Sellers'
best knowledge, any other "disqualified person" or "party in interest,"
within the meanings of Section 4975 of the Code or Section 3(14) of
ERISA, respectively, has engaged in any "prohibited transaction," as
such term is defined in Section 4975 of the Code or Section 406 of
ERISA, which could, following the Closing Date, subject any Plan (or
its related trust), Buyer, Turn-Matic, or any officer, director or
employee of any of them, to any Tax or penalty imposed under the Code
or ERISA;
(v) there are no Proceedings pending (other
than routine claims for benefits) or, to the Sellers' best knowledge,
threatened against any Plan or against the assets of any Plan;
(vi) each "plan official," within the meaning
of Section 412 of ERISA, of each Plan is bonded to the extent required
by said Section 412;
(vii) no statement, either written or oral, has
been made by Turn-Matic to any Person with regard to any Plan that was
not in all material respects in accordance with the Plan and that could
have an adverse economic consequence to
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Turn-Matic or Buyer and each Plan can be terminated within sixty (60)
days;
(viii) no Proceeding has been initiated to
terminate any Plan and any such termination will not subject Turn-Matic
or Buyer to liability to any Person;
(ix) Turn-Matic has no material liability to
the IRS with respect to any Plan, including any liability imposed by
Chapter 43 of the Code;
(x) no retiree benefits are payable under any
"employee welfare benefit plan," within the meaning of Section 3(1) of
ERISA ("Welfare Plan");
(xi) each Welfare Plan which is a group health
plan within the meaning of Section 5000 of the Code in all material
respects complies and in each case has complied with the applicable
requirements of Sections 601 through 608 of ERISA and Sections 162(k)
and 4980B of the Code, as applicable;
(xii) no payment that is owed or may become due
to any director, officer, employee or agent of Turn-Matic will be
non-deductible to Turn-Matic or subject to Tax under Sections 280G or
4999 of the Code, nor will Turn-Matic be required to "gross up" or
otherwise compensate any such Person because of the imposition of any
excise tax on a payment to such Person; and
(xiii) the completion of the transactions
contemplated in this Agreement will not result in the payment (other
than with respect to benefits vested prior to the Closing that may be
or become payable to employees discharged, retiring or otherwise
terminating employment prior to the Closing), nor the vesting or
acceleration of any benefit.
3.18.6 Turn-Matic (including any Related Company) does not
maintain and has never maintained, has never been a participant in or
contributor to, and has not withdrawn from, any Plan that is subject to Part 3
of Title I of ERISA, Section 412 of the Code or Title IV of ERISA, and, to
Seller's best knowledge, no facts or circumstances exist that may give rise to
any liability of Turn-Matic or Buyer under Title IV of ERISA.
3.19 Personal Property. Section 3.19 of the Disclosure
Schedule sets forth a list of any lease (the "Personal Property
Leases") pursuant to which Turn-Matic leases personal property. Except
as set forth in Section 3.19 of the Disclosure Schedule, Turn-Matic has
or will have at the Closing Date (a) good title to all of its personal
property as owned by it, and (b) valid leasehold interests in all
personal property leased under the Personal Property Leases, in each
case free and clear of all Encumbrances which are known to
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Turn-Matic, other than (i) those listed in Section 3.19 of the
Disclosure Schedule, (ii) liens for current taxes not yet due and
delinquent, and (iii) mechanics, materialmen's and other similar
statutory encumbrances which has arisen in the ordinary course of
business.
3.20 Accounts Receivable. The accounts receivable of Turn-Matic as
reflected in the latest of the financial statements referred to in Section 3.5
hereof and the accounts receivable to be reflected on the Closing Balance Sheet
are and will be valid and bona fide claims for sales arising in the ordinary
course of business, and represent monies due, and Turn-Matic has and will have
made reserves considered reasonably adequate for receivables not collectible in
the ordinary course of business, and all such accounts receivable are subject to
no refunds or other adjustments or conditions. All of such accounts receivable
will be collected in full (net of any reserve therefor) within one hundred
twenty (120) days after the Closing Date (and without the necessity of the
institution of legal proceedings). In the event that Buyer or Turn-Matic makes a
claim for indemnification against Sellers under this Section 3.20 in respect of
the uncollectibility of any of the accounts receivable of Turn-Matic, then
Turn-Matic will, to the extent it may do so, transfer (without recourse) to
Sellers any such accounts receivable after Sellers has paid to Buyer or
Turn-Matic, as applicable, the full amount of the Losses claimed by them as to
such accounts receivable.
3.21 Guaranties. Except as set forth on Schedule 3.21 of the Disclosure
Schedule, Turn-Matic is not a guarantor for any liability or obligation of any
other Person. Sellers agree to cause each said guarantee to be released and
terminated effective on or prior to the Closing Date.
3.22 Non-Foreign Status. None of the Sellers is a foreign person within
the meaning of Section 1445(f) of the Code.
3.23 Full Disclosure. No statement contained in any certificate or
schedule (including the Disclosure Schedule) furnished by or on behalf of
Sellers, in, or pursuant to the provisions of, this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in the light of the circumstances under which it
was made, to make the statements herein or therein not misleading. No
representation or warranty contained in this Agreement omits to state a material
fact necessary to make the statements herein, in light of the circumstances in
which they were made, not misleading.
3.24 Definition of "Sellers' Best Knowledge". For purposes of this
Agreement, the term "to the Sellers' best knowledge" or other term of similar
import means as to any fact or other matter (a) that any of the Sellers or any
directors or officer of Turn-Matic is actually aware of such fact or other
matter; or (b) that any of Sellers or any directors or officer of Turn-Matic
could be
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expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonable investigation concerning the existence of
such fact or other matter.
3.25 Memorandum: Disclaimer or Projections. No representation or
warranty is made with respect to (a) the information set forth in the
Confidential Offering Memorandum distributed by Roney & Co. or (b) any forward
looking statement or financial projection or forecast relating to Turn-Matic.
With respect to such, Buyer acknowledges that there are uncertainties inherent
in attempting to make such projections and forecasts, Buyer is familiar with
such uncertainties, Buyer is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all such projections and forecasts,
and Buyer shall have no claim against Sellers with respect thereto.
3.26 Title to Properties. Turn-Matic has good title to all assets which
it purports to own including those which are reflected on the balance sheet of
Turn-Matic as of September 30, 1997 included in the financial statements
referred to in Section 3.5 (except for assets and properties sold, consumed or
otherwise disposed of by Turn-Matic in the ordinary course of business since
such date) and all assets acquired by Turn-Matic since the such date (except for
any such assets sold, consumed or otherwise disposed of by Turn-Matic in the
ordinary course of business). Such assets and properties are owned free and
clear of all Encumbrances, except for (a) Encumbrances listed in Section 3.26 of
the Disclosure Schedule, (b) liens for current taxes not yet due and payable,
and (c) mechanic's, materialmen's and other similar statutory Encumbrances which
have arisen in the ordinary course of business.
3.27 Books and Records. The books of account, minute books, stock
record books, and other records of Turn-Matic, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices.
3.28 Effect of Transaction. No Person having a material business
relationship with Turn-Matic has informed any of Sellers or Turn-Matic that such
Person intends to change in any material respect such relationship because of
the transactions contemplated by this Agreement or otherwise.
3.29 Product Warranty and Product Recalls. Except as set forth in
Section 3.29 of the Disclosure Schedule, Turn-Matic does not have any
liabilities or obligations of any kind (whether known or unknown, matured or
unmatured, liquidated or not liquidated, asserted or not asserted, absolute,
contingent or otherwise) for any Product Recall or for breach of warranty
(express or implied), negligence, strict liability, failure to warn or any other
such liabilities or obligations under any product liability theory whatsoever
with respect to any products manufactured or sold at any time on or prior to the
Closing Date and there is no basis for any of such liabilities or obligations.
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3.30 Conflicts of Interest. Except as set forth in Section 3.30 of the
Disclosure Schedule or specifically identified in the financial statements
referred to in Section 3.5 hereof (including any of the notes thereto), none of
the Sellers, any officer or director of Turn-Matic, or any entity controlled by
any of the foregoing, nor any Related Person:
(a) Owns, directly or indirectly, any interest in (excepting
not more than 2% stockholdings for investment purposes in securities of
publicly-held and traded companies), or is an officer, director, employee or
consultant of, any Person which is, or is engaged in business as, a competitor,
lessor, lessee, franchisee or supplier of Turn-Matic;
(b) Owns, directly or indirectly, in whole or in part, any
tangible or intangible property which Turn-Matic uses in the conduct of its
business;
(c) Has any claim or right against Turn-Matic;
(d) Is owed any money or is party to any contract or
commitment with Turn-Matic; or
(e) Owes any money to Turn-Matic.
3.31 Suppliers. Section 3.31 of the Disclosure Schedule lists
separately, by dollar volume, the ten (10) largest suppliers of Turn-Matic as of
January 1, 1997 and for the period from January 1, 1997 to September 30, 1997.
To the Sellers' best knowledge, the relationships of Turn-Matic with such
suppliers are good commercial working relationships and none of the Sellers nor
Turn-Matic have received any notice which would reasonably cause any of them to
believe that any Person listed in Section 3.31 of the Disclosure Schedule has
threatened to cancel or otherwise terminate or materially change the
relationship of such Person with Turn-Matic whether as a result of the
transactions contemplated by this Agreement or otherwise.
3.32 Inventory. All items which comprise inventory of Turn-Matic set
forth in the latest of the financial statements referred to in Section 3.5 and
to be set forth in the Closing Balance Sheet have been (or will have been in the
case of the Closing Balance Sheet) purchased or manufactured in the ordinary
course of business and are (or will be) valued therein in accordance with GAAP,
applied on a consistent basis during the periods involved.
3.33 Certain Payments. None of Turn-Matic, nor any director, officer,
agent, or employee of Turn-Matic, nor to Sellers' best knowledge, any other
Person associated with or acting for or on behalf of Turn-Matic, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for
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favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of Turn-Matic,
Sellers or any Related Person, (iv) in violation in any material respect of any
Governmental Regulation, or (v) in violation in any material respect of any
supplier or customer policy, or (b) established or maintained any fund or asset
that has not been recorded in the books and records of the Turn-Matic.
3.34 No Redistribution. Majority Shareholders are acquiring their
interest in the Earn-Out Payments for Majority Shareholders' own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended.
3.35 Unregistered Securities. Majority Shareholders, jointly and
severally, represent, understand and agree that (a) none of the Earn-Out
Payments nor any interest therein have been registered under the Securities Act
of 1933, the Michigan Uniform Securities Act or the securities laws of any other
state by reason of a specific exemption therefrom, (b) the Earn-Out Payments and
interests therein have not been offered or sold to Majority Shareholders by
means of any general advertising or general solicitation, (c) Majority
Shareholders must hold the Earn-Out Payments and interests therein, and
indefinitely bear the economic risk of an investment in Earn-Out Payments and
interests therein, and (d) hereby agree to not sell, transfer, assign,
hypothecate or otherwise dispose of the Earn-Out Payments or any interest
therein, except pursuant to the laws of descent and distribution. Majority
Shareholders qualify as "accredited investors" within the meaning of the term in
Regulation D promulgated by the Securities and Exchange Commission.
3.36 Informed Decision. Majority Shareholders have been furnished with
such materials and has been given access to such information relating to Buyer
as Majority Shareholders have requested and Majority Shareholders have been
afforded the opportunity to ask questions of and receive answers from Buyer and
its officers and directors with respect to Earn-Out Payments and interests
therein and any aspect of Buyer and Buyer's business which may affect the value
of the Earn-Out Payments all as Majority Shareholders have found necessary to
make an informed decision. Majority Shareholders have such knowledge and
experience in financial and business matters that Majority Shareholders are
capable of evaluating the merits and risks of holding Earn-Out Payments and
interests therein.
3.37 Subsidiaries. Turn-Matic does not have any Subsidiaries (as
defined in the next sentence). As used in this Agreement, a "Subsidiary" of any
entity means any other entity in which (other than directors' qualifying shares
required by applicable Governmental Regulation) at least a majority of the
securities or other ownership interests of each class having ordinary voting
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power or analogous right (other than securities or other ownership interests
which have such power or right only by reason of the happening of a contingency)
are owned, beneficially and of record, by such entity or by one or more of the
other Subsidiaries of such entity or by any combination thereof.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Sellers as
of the date of this Agreement and as of the Closing Date:
4.1 Organization and Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority necessary to carry on its
business as it is now being conducted.
4.2 Authority Relative to this Agreement. Buyer has all necessary
corporate power and authority to execute and deliver this Agreement and the
Related Agreements and to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Related Agreements by Buyer and the
consummation by it of the transactions contemplated have been duly and validly
authorized by all necessary corporate action on the part of Buyer, and no other
corporate proceedings are necessary to authorize this Agreement or any of the
Related Agreements or to consummate the transactions contemplated hereby and
thereby. This Agreement has been (and when the Related Agreements have been
executed by Buyer and delivered to Sellers at the Closing, each of the Related
Agreements will be) duly executed and delivered by Buyer and constitutes (and
will constitute) a legal, valid and binding agreement of Buyer, enforceable
against Buyer in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, or similar laws affecting
creditors rights generally and by general equitable principles (regardless of
whether considered in a proceeding at law or in equity).
4.3 No Conflict; Required Filings and Consents.
4.3.1 The execution and delivery of this Agreement and the
Related Agreements by Buyer does not, and the performance of this Agreement and
the Related Agreements by it will not, (i) conflict with or violate the Articles
of Incorporation or Bylaws of Buyer, (ii) conflict with or violate any
Governmental Regulation or Order applicable to Buyer or by which its properties
are bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or impair either of their rights or alter the rights or obligations of
any third other Person or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an Encumbrance on
any
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<PAGE> 35
of their properties or assets pursuant to any Obligation to which Buyer is a
party or by which its properties are bound or affected or give rise to an
Encumbrance upon any of its Assets.
4.3.2 The execution and delivery of this Agreement by Buyer
does not, and the performance of this Agreement by it will not require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity except as required under the H-S-R Act.
4.4 Closing Date Financing. Buyer has provided to Sellers a copy of the
letter of Buyer's firm of investment bankers engaged to assist Buyer in
arranging and placing with investors the Closing Date Financing that said firm
is "highly confident" that the Closing Date Financing can be arranged and placed
prior to the Deadline on terms satisfactory to Buyer. The final offering
memorandum relating to the Closing Date Financing, as of its date and if amended
or supplemented, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
4.5 Environmental Activities. Based upon the summary received by Buyer
from its firm of environmental consultants, NTH Consultants, Ltd., by its letter
dated December 29, 1997, a copy of which is has been delivered by Buyer to
Sellers, following the Closing Date, Buyer does not plan to initiate any
particular activity to remediate any recognized environmental conditions at
either of the facilities being the subject of the Real Property Leases.
Notwithstanding the foregoing, Buyer reserves the right to take action with
respect to any matter in order to respond to any inquiry, request or demand of
any Governmental Authority or other third party having a legitimate interest, or
to deal with any subsequently disclosed matter.
ARTICLE 5. COVENANTS AND AGREEMENTS
5.1 Executive Employment Agreements. Sellers shall use their best
efforts to cause those employees of Turn-Matic designated by Buyer to execute
employment agreements with Turn-Matic, to become effective on and following the
Closing Date, on terms and conditions satisfactory to Buyer.
5.2 Reasonable Best Efforts to Close; Consent; Approvals. Buyer and
each of the Sellers shall, and each of the Sellers shall cause Turn-Matic to:
5.2.1 Use their reasonable best efforts to obtain all
consents, waivers, approvals, authorizations or orders (including, without
limitation, all United States regulatory rulings and approvals).
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<PAGE> 36
5.2.2 Make all filings (including, without limitation, all
filings with United States or regulatory agencies) required in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the transactions contemplated.
5.2.3 Comply promptly with all requests or requirements which
governmental officials may impose on them with respect to the transactions which
are the subject of this Agreement.
5.2.4 The reasonable best efforts of Buyer and each of the
Sellers shall include, without limitation, good faith response (and Sellers
shall cause Turn-Matic to make a good faith response if appropriate), in
cooperation with each other, to all requests for information, documentary or
otherwise, by any governmental agency.
5.3 Disclosures. Except (a) as the disclosing party determines in good
faith to be required by Governmental Regulation or the rules or regulations of
any national stock exchange or automated quotation system where any of the
disclosing party's securities are listed or admitted for quotation, (b) in the
Debt Offering Documents, or (c) after the Closing Date, none of the parties
shall, and Sellers shall cause Turn-Matic to not, without the prior written
consent of Turn-Matic and Buyer, make any press release or any similar public
announcement concerning the transactions contemplated. If disclosure is
permitted pursuant to clause (a) above, the disclosing party, to the extent
practicable, shall consult in advance with the other party (Turn-Matic or Buyer
as applicable) and attempt in good faith to reflect such other party's concerns
in the required disclosure.
5.4 Access to Information: Confidentiality. Upon reasonable notice,
Sellers shall, and shall cause Turn-Matic and its officers, directors and
employees to, afford to Buyer and its Representatives reasonable access, during
the period prior to the Closing Date, to all its properties, books, records and
Contracts, and furnish promptly to Buyer all information concerning its
businesses, properties and personnel as Buyer may reasonably request. Sellers
shall and shall cause Turn-Matic and its officers, directors and employees to
make available the appropriate individuals (including, but not limited to,
attorneys, accountants and other professionals) for discussion of the business,
properties, personnel and such other matters relating to Turn-Matic as Buyer may
reasonably request.
5.5 Notification of Certain Matters. Sellers shall, and shall cause
Turn-Matic to, give prompt written notice to Buyer, and Buyer shall give prompt
written notice to Turn-Matic, of (i) the occurrence or nonoccurrence of any
event which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate (as if such representation or warranty
were then being made by the relevant party), or (ii) any failure of such
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<PAGE> 37
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such hereunder; provided, however, that the
delivery of any notice shall not limit or otherwise affect the remedies
available to the party receiving such notice.
5.6 Information for Buyer's Statements, Reports, Applications and SEC
Filings. Each of the Sellers shall, and shall cause Turn-Matic and the
employees, accountants and attorneys of Sellers and Turn-Matic (collectively the
"Seller Group") to, cooperate with Buyer and its employees, accountants and
attorneys by furnishing Buyer with all information concerning Sellers and
Turn-Matic necessary or reasonably deemed desirable by Buyer (including, without
limitation, all requisite financial statements and schedules) for inclusion in
(i) any statements, reports and applications to be filed with any Governmental
Entity, (ii) the SEC Filings and (iii) the Debt Offering Documents, in each
case, made by Buyer in connection with this Agreement, the Closing Date
Financing and the transactions contemplated hereby and thereby.
5.7 Acquisition Proposal. Between the date of this Agreement and the
Closing Date, each of the Sellers shall not sell, transfer, hypothecate or grant
any other Encumbrance upon any of the Turn-Matic Shares or agree to do so. In
addition, between the date of this Agreement and the Closing Date each of the
Sellers will not, and will not authorize or permit any of the officers,
directors, employees, investment bankers, financial advisors, attorneys,
accountants or other representatives or agents retained by Sellers or Turn-Matic
to, solicit or encourage the making of, or agree to or endorse any Acquisition
Proposal (as defined below), or participate in any discussions or negotiations,
or provide any other Person with any nonpublic information, relating to any such
proposal, except that Sellers or Turn-Matic may advise any Person making any
such proposal that Sellers cannot discuss the proposal due to the pendency of
the transactions contemplated herein (but without disclosing any of the terms of
such transactions contemplated herein or the identity of Buyer). The Sellers
will promptly advise Buyer orally and in writing of any such proposals. Each of
the Sellers shall, and shall cause Turn-Matic and any investment banker,
financial advisor, attorney, accountant or other representative or agent
retained by any of them to, immediately cease any existing discussions relating
to any Acquisition Proposals and shall not release any other Person from or
waive any provision of any confidentiality or standstill agreement which relates
to any Acquisition Proposal. As used in this Agreement, "Acquisition Proposal"
shall mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination, liquidation or dissolution involving Turn-Matic or
any proposal or offer to acquire in any manner any equity interest in, or any
portion of the assets (other than in the ordinary course of business consistent
with past practice) of, Turn-Matic, other than the transactions contemplated or
permitted by this Agreement. Notwithstanding the foregoing, (i) Majority
Shareholders may make gifts of Turn-Matic Shares solely to those persons who are
other
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Sellers, and (ii) Sellers may make transfers of Turn-Matic Shares to trusts for
the benefit of the respective transferor Seller or Sellers, in each case under
clause (i) and (ii) being subject to and expressly conditioned upon a
prospective transferor having first (a) provided full and complete details and
copies of documentation of such proposed transfer to Buyer, (b) ensured delivery
of all Turn-Matic Shares affected to Buyer in accordance with the terms and
conditions of this Agreement, and (c) caused the transferor and any transferee
to confirm in writing to Buyer their acknowledgement and agreement to be and
remain fully and primarily responsible and liable for all representations,
warranties, covenants, obligations, indemnifications and liabilities as a Seller
and, if applicable, a Majority Shareholder under this Agreement.
5.8 H-S-R Act Filing. Promptly after the date of this Agreement,
Sellers and Buyer will cause to be filed with the U.S. Federal Trade Commission
and the Anti-Trust Division of the U.S. Department of Justice pursuant to the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the "H-S-R
Act"), all requisite documents and notification in connection with the
transaction contemplated by this Agreement. Buyer agrees to pay all filing fees
payable with respect to H-S-R Act filings by Buyer, as well as Sellers, with
respect to the transaction contemplated by this Agreement, none of which shall
be charged against the Turn-Matic EBIT for determination of any Earn-Out
Payments.
ARTICLE 6. CONDUCT OF BUSINESS PENDING CLOSING
Each of the Sellers shall use reasonable, good faith efforts to cause
Turn-Matic, at all times from the date of this Agreement to the Closing Date, to
conduct its business only in the ordinary course consistent with past practices,
preserve intact the properties, assets and business organization of Turn-Matic,
and keep available the services of its respective officers and key employees,
and to not engage in any transactions out of the ordinary course of business.
Furthermore, each of the Sellers shall cause Turn-Matic, at all times from the
date of this Agreement to the Closing Date, to not do any of the following
without the prior consent of Buyer (which consent shall not be unreasonably
withheld):
6.1 Distributions. Declare or pay any dividends on, or make any other
distributions in respect of, any of its capital stock.
6.2 Stock Issuance. Issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock or that are convertible into, or exchangeable for, capital stock
of Turn-Matic.
6.3 Stock Redemption. Purchase, redeem or otherwise acquire any shares
of capital stock of Turn-Matic, except in accordance with the terms and
conditions of the Buy-Sell Agreement between
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Sellers and Turn-Matic, which shall not impair, restrict or hinder consummation
of the transactions contemplated by this Agreement; provided, Sellers and
Turn-Matic shall cancel and terminate said Stock Redemption Agreement effective
on or prior to the Closing Date.
6.4 Acquisitions. Acquire or agree to acquire a substantial portion of
the assets of or equity in any other Person.
6.5 Contracts Outside the Ordinary Course of Business. Make any
Contract except in the ordinary course of business or make any Contracts with
any Related Person.
6.6 Additional Debt. Incur any indebtedness except in the ordinary
course of business.
6.7 Debt Paydowns. Pay, discharge or satisfy any liabilities other than
in the ordinary course of business.
6.8 Compensation. Increase the compensation payable or to become
payable to any of the employees of Turn-Matic, or otherwise enter into or alter
any employment, consulting, or service Contract.
6.9 Employee Benefit Programs. Enter into, or alter any profit sharing,
deferred compensation, bonus, retirement, or incentive plan or any fringe
benefit plan for employees of Turn-Matic; provided, Turn-Matic may transfer its
interest in the life insurance policy insuring Raymond B. Dorris, Sr. to
Majority Shareholder on condition that Majority Shareholders pay to Turn-Matic a
sum equal to the current cash surrender value of such policy.
6.10 Capital Expenditures. Make or commit to any unbudgeted capital
expenditure in excess of $25,000 or make or commit to such expenditures which
would, in the aggregate, exceed $50,000.
6.11 Change Accounting Practices. Change any of the accounting
principles or practices used by it (except as required by GAAP).
6.12 No Material Change In Net Worth. Take any action or fail to take
any commercially reasonable action as would reasonably be expected to result in
a material change in Net Worth, or in the relative amounts or short-term or
long-term nature of the various asset and liability components of said Net
Worth, other than in the ordinary course of business.
6.13 No Changes in Representations and Warranties. Take any action or
fail to take any commercially reasonable action which could cause any
representation or warranty of Sellers to cease to be true or accurate in any
material respect (as if then being made) or that would reasonably be expected to
prevent performance of any
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covenant or obligation of the parties hereto or the
satisfaction of any condition to the obligation of the parties hereto.
6.14 Certain Events. Take any action, or fail to take any commercially
reasonable action, as a result of which any of the changes or events listed in
Section 3.7 shall occur or be likely to occur.
6.15 No Agreements to Take Actions. Agree to take any of the foregoing
actions.
ARTICLE 7. CONDITIONS TO THE SALE
7.1 Conditions to the Obligations of Each Party. The respective
obligations of each party to consummate the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
7.1.1 No Injunctive Proceedings. No injunction or other order
of any Governmental Entity or other legal restraint or prohibition which
prevents the consummation of the transactions contemplated hereby shall have
been issued and remain in effect, nor shall any proceedings brought by or before
any Governmental Entity seeking damages in connection with such transactions.
7.1.2 H-S-R Waiting Period. All applicable waiting periods
under the H-S-R Act shall have expired or the U.S. Federal Trade Commission or
U.S. Department of Justice shall have granted early termination or otherwise
approved the transactions contemplated by this Agreement.
7.1.3 Governmental Actions. There shall not have been
instituted, or be pending or threatened, any Proceeding before or by any
Governmental Entity, nor shall there be in effect any judgment, decree or order
of any Governmental Entity seeking to prohibit or limit Buyer from exercising
all material rights and privileges pertaining to the ownership or operation of
all or a material portion of the business or assets of Turn-Matic, or seeking to
compel Buyer to dispose of or hold separate all or any material portion of the
business or assets of Buyer, as a result of the transactions contemplated by
this Agreement.
7.2 Additional Conditions to Obligations of Buyer. The obligations of
Buyer to consummate the transactions contemplated hereby are also subject to the
following conditions:
7.2.1 Representations and Warranties. All representations and
warranties of Sellers contained in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date. The
parties acknowledge and agree that any breach of, or inaccuracy in, any
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representations or warranties of Sellers contained in this Agreement (whether at
the date of this Agreement or the Closing Date) shall be subject to the
indemnification provisions of Section 9.1 hereof.
7.2.2 Performance of Agreements. Sellers shall have fully
performed all obligations, agreements and conditions required to be fulfilled by
it pursuant to the terms hereof at or prior to the Closing Date, and shall have
tendered to Buyer the documents and certificates required by Article 8.
7.2.3 Compliance Certificate. Sellers shall have delivered to
Buyer certificate(s), dated the Closing Date, executed by each of them as to the
fulfillment of the conditions set forth in Sections 7.2.1, 7.2.2, 7.2.4 and
7.2.8.
7.2.4 Material Adverse Effect. There shall not have occurred
or be reasonably likely to occur, after the date of this Agreement, in the good
faith judgment of Buyer, any fact, change, circumstance, event, occurrence or
development that has had or is reasonably expected to have any Seller Material
Adverse Effect.
7.2.5 Opinion of Counsel. Buyer shall have received the
opinion of Cox, Hodgman & Giarmarco, counsel for Turn-Matic and the Sellers,
dated the Closing Date and in the form attached hereto as Exhibit 6.
7.2.6 Consents, etc. All material authorizations, consents,
waivers or approvals of any and all Governmental Entities and other Persons
necessary in connection with the consummation of the transactions contemplated
herein shall have been obtained, and all filings required shall have been made.
7.2.7 Financing. The Closing Date Financing shall have been
consummated on terms and conditions satisfactory to Buyer.
7.2.8 Real Property Leases. The Real Property Leases shall
have been revised to extend the terms until March 31, 2004 and otherwise on
terms satisfactory to Buyer, including, if required by Buyer, an option in favor
of Buyer to extend the terms of either or both said Real Property Leases for
additional five (5) year terms subject to the rental rates thereof being reset
at market rates, as determined through an appraisal process to the mutual
satisfaction of the landlords and Buyer. Sellers shall cause to be delivered to
Buyer evidence, satisfactory to Buyer, that the landlords to said Real Property
Leases consent to the foregoing.
7.2.9 Customer Assurances. Buyer shall have been reasonably
satisfied that Ford Motor Company, and its affiliated companies, as principal
customers of Turn-Matic, will continue doing business with Turn-Matic after the
Closing Date on volumes, relative product orders and terms (including prices and
payment and credit terms) substantially similar to the volumes, relative
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product orders and terms such customers currently do business with Turn-Matic.
7.3 Additional Conditions to the Obligations of Sellers. The
obligations of Sellers to consummate the transactions contemplated hereby are
also subject to the satisfaction at or prior to the Closing Date of the
following conditions:
7.3.1 Representations and Warranties. All representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects, as of the date of this Agreement and shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date.
7.3.2 Performance of Agreements. Buyer shall have fully
performed in all material respects all obligations, agreements, conditions and
commitments required to be fulfilled by Buyer on or prior to the Closing Date,
and shall have tendered to the Sellers the documents and certificates required
by Article 8.
7.3.3 Compliance Certificate. Buyer shall have delivered to
the Sellers its certificate, at and as of the Closing Date, executed on its
behalf by its Chief Executive Officer, as to the fulfillment of the conditions
set forth in Sections 7.3.2 and 7.3.3.
7.3.4 Opinion of Counsel. Sellers shall have received the
opinion of Miller, Canfield, Paddock and Stone, P.L.C., counsel for Buyer, dated
the Closing Date and in the form attached hereto as Exhibit 7.
7.3.5 Consents, etc. All material authorizations, consents,
waivers or approvals of any and all Governmental Entities necessary in
connection with the consummation of the transactions contemplated hereby shall
have been obtained, and all filings required shall have been made.
7.4 Non-Compliance with and Termination of this Agreement.
7.4.1 Each of the parties hereto agrees to, and each of
Sellers agrees to cause Turn-Matic to, use its reasonable best efforts to bring
about the satisfaction of the conditions required to be performed by it prior to
and at the Closing Date.
7.4.2 This Agreement may be terminated at any time prior to
the Closing Date without any liability of any party to any other parties (except
for a willful breach by such party of this Agreement prior to such termination)
in any of the following ways:
7.4.2.1 by the mutual written agreement of Turn-Matic
and the Buyer.
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7.4.2.2 by either Buyer or Turn-Matic if a
Governmental Entity shall have issued a nonappealable final order, decree or
ruling or taken any other action have the effect of permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated in this
Agreement.
7.4.2.3 by Buyer, if any of the conditions specified
in Sections 7.1 or 7.2 shall not have been met and the Closing shall not have
occurred by the Deadline through no fault of Buyer; or
7.4.2.4 by Turn-Matic, if any of the conditions set
forth in Sections 7.1 and 7.3 shall not have been met and the Closing shall not
have occurred by the Deadline through no fault of any of the Sellers or
Turn-Matic; or
7.4.2.5 by Buyer, if there has been a breach by any
of the Sellers of any agreement, covenant or obligation contained in this
Agreement or any breach of, or inaccuracy in, any representation or warranty of
Sellers contained in this Agreement which is not curable or is not cured within
thirty (30) days after receipt of written notice thereof by Sellers; or
7.4.2.6 by Buyer, if there shall occur any facts,
circumstances, changes, events, conditions or developments which, in the good
faith judgment of Buyer, individually or in the aggregate with all other such
facts, circumstances, events, conditions and developments, and all breaches of,
and inaccuracies in, agreements, covenants, obligations, representations and
warranties of Sellers, constitute or are reasonably likely to constitute a
Seller Material Adverse Effect.
7.4.2.7 by Seller, if there has been a breach by
Buyer of any agreement, covenant or obligation contained in this Agreement or
any breach of, or inaccuracy in any representation or warranty of Buyer
contained in this Agreement, which is not curable or is not cured within thirty
(30) days after receipt of written notice thereof by Buyer.
7.4.3 In the event of the termination of this Agreement
pursuant to Section 7.4.2, this Agreement shall forthwith become void and there
shall be no liability on the part of any party to any other parties, except that
Article 10 shall survive such termination and nothing herein shall relieve any
party from liability for any willful breach hereof.
ARTICLE 8. CLOSING DOCUMENTS
8.1 Sellers' Obligations. At the Closing, Sellers shall deliver or
cause to be delivered to Buyer the following:
8.1.1 Turn-Matic Shares. Stock certificates representing all
of the Turn-Matic Shares, duly endorsed in blank
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or accompanied by stock powers with signatures guaranteed by a financial
institution that is a participant in the Securities Transfer Agents Medallion
Program or the New York Stock Exchange Medallion Signature Guarantee Program,
together with any opinions of counsel or other documents or instruments as may
be necessary to permit transfer of such shares to Buyer free of any legends on
such certificates.
8.1.2 Resignations. Resignations of those officers and
directors of Turn-Matic whose resignations may be requested by Buyer.
8.1.3 Compliance Certificate. The certificate required by
Section 7.2.3.
8.1.4 Opinion of Counsel. The opinion of counsel required by
Section 7.2.5.
8.1.5 Turn-Matic Encumbrances. Uniform Commercial Code Form
UCC-3 Termination Statements and such other releases of Encumbrances as may be
necessary to effect the satisfaction of all Encumbrances (including (without
limitation) all Encumbrances given to secure Turn-Matic Indebtedness).
8.1.6 Employment Agreements. The employment agreements
required by Section 5.1.
8.1.7 Certain Records. The stock books, stock ledgers and
minute books of Turn-Matic.
8.1.8 Certified Articles of Incorporation. True and complete
copies of the Articles of Incorporation of Turn-Matic, as certified by the
appropriate state official, and certificates of good standing of Turn-Matic from
the appropriate state official in each state listed in Section 3.1 of the
Disclosure Schedule, which articles (as so certified) and certificates of good
standing are dated not more than thirty (30) days prior to the Closing Date.
8.1.9 Certified Bylaws. As to Turn-Matic, a certificate of the
Sellers certifying that attached thereto are true and complete copies of the
Bylaws of Turn-Matic, as amended through the Closing Date and as in full force
and effect on the Closing Date, and that the Articles of Incorporation of
Turn-Matic, as certified by the appropriate state official and as delivered at
the Closing, have not been amended or rescinded since the date of such
certification and remain in full force and effect on the Closing Date.
8.1.10 Noncompetition Agreements. (i) A Noncompetition
Agreement in substantially the form attached hereto as Exhibit 8 (the
"Noncompetition Agreement") duly executed by each of the Majority Shareholders;
and (ii) to the extent required by Buyer, noncompetition agreements in form
mutually satisfactory to Buyer
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and Raymond B. Dorris, Jr. and James B. Dorris, duly executed by such other
Persons.
8.1.11 General Releases. General Releases in substantially the
form attached hereto as Exhibit 5 (the "General Releases") duly executed by each
of the Sellers.
8.1.12 Escrow Agreement. The Escrow Agreement duly executed by
each of the Sellers.
8.1.13 Release of Guarantees. Documentary evidence,
satisfactory to Buyer, that any and all guarantees of indebtedness owed by
Sellers, or any one or more of them, or any trust or other entity for the
benefit of one or more of them, have been released and terminated as of the
Closing Date.
8.1.14 Repayment of Obligations Owed by Sellers to Turn-Matic.
Evidence, satisfactory to Buyer, that the indebtedness, owed by Sellers, or any
one or more of them, to Turn-Matic has been repaid and satisfied as of the
Closing Date.
8.1.15 Other Documents. All other documents, instruments and
writings required to be delivered by Sellers at or prior to the Closing pursuant
to this Agreement and such other and further documents and instruments as may
have been reasonably requested by Buyer in connection with the consummation of
the transactions contemplated hereby.
8.2 Buyer's Obligations. At the Closing, Buyer shall deliver to
the Sellers the following:
8.2.1 Base Purchase Price. The Base Purchase Price for the
Turn-Matic Shares in accordance with Section 1.3(a).
8.2.2 Resolutions. Copies of resolutions of the Board of
Directors of Buyer certified by the Secretary of Buyer authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated.
8.2.3 Compliance Certificate. The certificate required by
Section 7.3.3.
8.2.4 Opinion of Counsel. The opinion of counsel for Buyer
required by Section 7.3.4.
8.2.5 Escrow Agreement. The Escrow Agreement duly executed
by Buyer.
8.2.6 Noncompetition Agreement. The Noncompetition Agreement
duly executed by Buyer.
8.2.7 Additional Documents. All other documents, instruments
and writings required to be delivered by Buyer at or prior to
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the Closing pursuant to this Agreement and such other and further documents and
instruments as may have been reasonably requested by Sellers in connection with
the consummation of the transactions contemplated hereby.
ARTICLE 9. INDEMNIFICATION
9.1 Indemnification by the Sellers. Subject to the limits set forth in
this Section 9, each of the Sellers, jointly and severally (except that any Loss
arising out of a breach of any representation or warranty provided under the
second and/or fourth sentences of Section 3.2 shall be indemnified by the
Sellers, respectively, on only a several and not joint basis, for the Loss
arising from a particular Seller's own representation and warranty with respect
to ownership and title to Turn-Matic Shares), shall indemnify, defend and hold
Buyer, Turn-Matic and their respective Representatives (other than Sellers)
harmless from and against any and all Losses that they may suffer, sustain,
incur or become subject to, net of amounts actually recovered after deduction of
costs of collection under insurance policies covering the subject matter of the
Loss and determined on an after income tax basis taking the Loss into account,
arising out of or due to:
9.1.1 Any inaccuracy of any representation or breach of any
warranty of any of the Sellers in this Agreement, any Schedule or certificate
(whether at the date of this Agreement or at the Closing Date).
9.1.2 Any breach by any of the Sellers of any of their
respective covenants, agreements or obligations under this Agreement.
9.1.3 Any matter described in Exhibit 5 hereto.
9.2 Indemnification by Buyer. Subject to the limits set forth in this
Section 9, Buyer shall indemnify, defend and hold the Sellers harmless from and
against any and all Losses that the Sellers may suffer, sustain, incur or become
subject to, net of amounts actually recovered after deduction of costs of
collection under insurance policies covering the subject matter of the Loss and
determined on an after income tax basis taking the Loss into account, arising
out of or due to:
9.2.1 Any inaccuracy of any representation or the
breach of any warranty of Buyer in this Agreement (whether at the date of this
Agreement or at the Closing Date).
9.2.2 Any breach by Buyer of any of its covenants,
agreements or obligations in this Agreement.
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9.3 Limited Survival.
(a) All representations, warranties, covenants and agreements
of the parties contained in this Agreement will survive the execution and
delivery of this Agreement and the Closing and shall be fully effective and
enforceable for the Applicable Time Period. For purposes of this Agreement, the
"Applicable Time Period" shall mean the period ending as follows:
(i) Except as provided below in this Section
9.3(a) and in Section 9.3(b), all representations, warranties,
covenants, agreements and obligations of Seller or Buyer in this
Agreement (and the related indemnification provisions in Sections 9.1
and 9.2) will survive until the date that is twenty-four (24) months
after the Closing Date.
(ii) The representations and warranties
contained in Section 3.16, and the related indemnification provisions
in Section 9.1, will survive until the date that is thirty-six (36)
months after the Closing Date.
(iii) Article 10, the indemnification
obligations in Section 9.1.3, the representations and warranties
contained in Sections 3.1, 3.2, 3.3, 3.4, 3.11 and 3.12, and 4.1, 4.2,
4.3 and 4.4, and the related indemnification provisions in Sections 9.1
and 9.2, will survive the Closing for an unlimited period of time.
(b) Any claim for indemnification under this Agreement on or
prior to the expiration of the Applicable Time Period shall survive until
resolved or finally determined pursuant to this Agreement.
(c) The rights of indemnification and other remedies based on
such representations, warranties, covenants and obligations are subject to
disclosures made by Sellers in this Agreement and pursuant to the Disclosure
Schedule, but otherwise will not be affected by any investigation conducted by
or on behalf of Buyer at any time, whether before or after execution and
delivery of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with any such representations, warranties, covenants
and obligations; provided, however, that notwithstanding the foregoing, Sellers
shall not be liable for indemnification to Buyer for breach of a representation
or warranty in any situation where the particular breach is within the actual
(and not implied or constructive) knowledge of either the President or the Chief
Financial Officer of Buyer as of the Closing Date; provided, further, that Buyer
reserves the right to terminate this Agreement on the basis of any said breach
as provided in Section 7.4.2.5. Subject to the foregoing, all such
representations and warranties are contractual provisions, entitling the party
suffering Losses based on the breach thereof, or inaccuracy therein, to
indemnification in accordance with the terms of this Agreement without necessity
of reliance thereon; and
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the waiver of any condition based on the accuracy of any representation or
warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification or other remedy based
on such representations, warranties, covenants and obligations.
(d) The parties will use reasonable, good faith efforts to
agree on whether indemnifiable Losses exist and, if so, the amount. Any amounts
determined to be owed will be paid within 30 days of such determination.
(e) Notwithstanding anything to the contrary in this
Agreement, the following limitations will apply with regard to Losses for which
Sellers or Buyer would otherwise have indemnification obligations under this
Agreement:
(i) Buyer and Sellers will not have any
liability, obligation or responsibility to the extent that the
aggregate of all Losses of Sellers is less than or equal to Seventy
Five Thousand Dollars ($75,000) (the "First Threshold").
(ii) Neither Sellers nor Buyer will have any
liability, obligation or responsibility for Losses of the other party,
to the extent that the aggregate of all Losses exceeds One Million
Seven Hundred Thousand Dollars ($1,700,000) (the "Cap").
(f) Notwithstanding anything to the contrary contained in this
Agreement, none of the First Threshold or the Cap shall apply to any of the
Excluded Items. For purposes hereof, "Excluded Items" means:
(i) In the case of Sellers, the obligations of
Sellers to indemnify Buyer under Sections 9.1.1 for breach of, or
inaccuracy in, Section 3.2, 3.11, 3.12 or 3.20;
(ii) In the case of Sellers and Buyer, the
obligation to indemnify the other under Sections 9.1.1 or 9.2.1 with
respect to Section 10.1; and
(iii) In the case of Buyer or Sellers, claims
based on fraud.
9.4 Notice and Opportunity to Defend. If there occurs an event which
either party asserts is an indemnifiable event, the party seeking
indemnification (the "Indemnitee") shall notify the party obligated to provide
indemnification (the "Indemnitor") promptly. If such event involves any claim or
the commencement of any action or proceeding by a third person, the Indemnitee
shall give the Indemnitor written notice of such claim or the commencement of
such action or proceeding. The notice shall describe the claim, the amount
thereof if known and quantifiable, and the basis therefor. Delay or failure to
so notify the
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Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that is prejudiced by reasons of such delay or failure. The
Indemnitor shall be entitled to assume and control (with counsel of its choice)
the defense of such matter at the Indemnitor's expense by sending written notice
of its election to do so within 30 days after receiving written notice from the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate with separate counsel, if it
desires, at its own expense in the defense of such asserted liability. Any
compromise of such asserted liability by the Indemnitor shall require the prior
written consent of the Indemnitee which shall not be unreasonably withheld;
provided no such consent shall be necessary as long as it is a monetary
settlement which provides a release of the Indemnitee with respect to such
matter. If, however, the Indemnitee refuses its consent to a bona fide offer of
settlement which the Indemnitor wishes to accept, the Indemnitee may continue to
pursue such matter, free of any participation by the Indemnitor, at the sole
expense of the Indemnitee. In such event, the obligation of the Indemnitor to
the Indemnitee shall be equal to the lesser of (i) the amount of the offer of
settlement which the Indemnitee refused to accept plus the costs and expenses of
the Indemnitee prior to the date the Indemnitor notifies the Indemnitee of the
offer of settlement, and (ii) the actual out-of-pocket amount the Indemnitee is
obligated to pay as a result of the Indemnitee's continuing to pursue such
matter, plus the costs and expenses of the Indemnitee to conclusion of such
matter. The Indemnitor shall be entitled to recover from the Indemnitee any
additional expenses incurred by the Indemnitor as a result of the decision of
the Indemnitee to pursue such matter. If the Indemnitor shall not have assumed
the defense of such claim within the 30 day period, the Indemnitee may assume
the defense of such claim with counsel of its choice but may not settle or
compromise such claim without the consent of the Indemnitor, which consent shall
not be unreasonably withheld.
ARTICLE 10. MISCELLANEOUS
10.1 Expenses. Whether or not the Closing occurs, each party shall pay
its own expenses incident to preparing for, entering into and carrying out this
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby (other than costs or expenses billed to and paid by
Turn-Matic prior to the date of this Agreement) and thereby, including
attorneys' fees, brokerage or financial advisory fees, filing fees and
accounting fees. For purposes of clarification, Sellers agree that Turn-Matic
shall not incur or pay any costs or expenses relating to the transactions
contemplated hereby and instead Sellers, jointly and severally, shall bear and
pay all of such costs and expenses. In the event of termination of this
Agreement, the obligation of each party to pay its own costs and expenses will
be subject to the
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rights of each party arising from a willful breach of this Agreement by the
other party.
10.2 Notices. All notices, requests, demands and other communications
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the parties at the following addresses or
sent by telecopier, with confirmation received, to the telecopy number specified
below:
If to Sellers at:
Raymond B. Dorris, Sr.
34657 Centaur
Clinton Township, Michigan 48035
Fax No: (248) 792-8550
With copies to:
Cox, Hodgman & Giarmarco
Attn: Kenneth J. LaMotte, Esq.
William H. Heritage III, Esq.
201 W. Big Beaver, Suite 500
Troy, Michigan 48084
Fax No: (248) 528-2773
If to Buyer at:
Newcor, Inc.
Attn: President and Chief Executive Officer
1825 S. Woodward Avenue, Suite 240
Bloomfield Hills, Michigan 48302-0574
Fax No.: (248) 253-2410
With copies to:
Miller, Canfield, Paddock and Stone, P.L.C.
Attn: J. Kevin Trimmer, Esq.
1400 N. Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48304
Fax No.: (248) 258-3036
All Notices shall be deemed delivered when actually received if delivered
personally or by overnight courier, or if sent by telecopier (the receipt of
which will be promptly confirmed in writing), addressed in accordance with this
Section 10.2. Each of the parties shall notify the others of any change of
address or telecopy number.
10.3 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, and by different parties in separate counterparts, each of
which when executed shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
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10.4 Entire Agreement. This Agreement (together with the Disclosure
Schedule and the Related Agreements) constitutes the entire agreement with
respect to the subject matter and supersedes all prior agreements and
understandings among the parties with respect to the subject matter.
10.5 Headings. The headings contained in this Agreement (and the
Disclosure Schedules) are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement or the Schedules.
10.6 Assignment; Amendment of Agreement. Prior to Closing, this
Agreement shall not be assigned by any party without the prior written consent
of all other parties. After the Closing, any party may assign all or any portion
of this Agreement or its/his/her rights, interests or obligations hereunder to
any Person except that no such assignment shall relieve such party of its
obligations hereunder and none of Sellers may assign any portion of its interest
in any Earn-Out Payment except pursuant to the laws of descent and distribution.
This Agreement may be amended only by written agreement of the parties.
10.7 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Michigan
applicable to contracts executed and fully performed within it, without giving
effect to its conflicts of laws principles thereof.
10.8 Failure to Close. If for any reason this Agreement is terminated
prior to the Closing Date, Buyer shall return to Turn-Matic all documents and
other information theretofore delivered to Buyer in conjunction herewith. Buyer
shall not retain copies of any such documents or other information conveyed to
Buyer by Turn-Matic in connection with the transactions contemplated by this
Agreement, except for information which was: (a) possessed by Buyer prior to
May, 1997; (b) disclosed to Buyer by an independent third party without a
violation of any obligation of confidentiality on the part of such third party
to Turn-Matic; or (c) ascertainable from public or published information or
trade secrets.
10.9 Further Assurances. Each party agrees that it will execute and
deliver, and cause to be executed and delivered, on or after the date of this
Agreement, all such other documents and will take all reasonable actions as may
be necessary to consummate the transactions contemplated in this Agreement.
10.10 Parties in Interest. Except as otherwise set forth herein, this
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto, and nothing in this Agreement is intended or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
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10.11 Non-Waiver. The failure of any one or more instances of a party
to insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement shall not be construed as a subsequent waiver of
any such terms, covenants, conditions but the same shall continue and remain in
full force and effect as if no such forbearance or waiver had occurred.
10.12 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated are fulfilled to the extent possible.
10.13 Incorporation of Schedules. The Disclosure Schedule is
incorporated into this Agreement and shall be deemed a part of this Agreement as
if set forth herein in full. References to "this Agreement" and the words
"herein", "hereof" and words of similar import refer to this Agreement
(including its Disclosure Schedule) as an entirety.
10.14 No Construction Against Drafter. This Agreement is being entered
into between competent Persons who are experienced in business and represented
by counsel, and has been reviewed by the parties and their counsel. Therefore,
any ambiguous language in this Agreement will not necessarily be construed
against any particular party as the drafter of such language.
10.15 Relationship of the Parties. Nothing in this Agreement will be
deemed to create a partnership, joint venture or employment relationship between
the parties.
10.16 Dispute Resolution.
10.16.1 Arbitration. All disputes and controversies of every
kind and nature between the parties hereto involving (or believed to involve, in
the reasonable judgment of the party pursuing the matter) an amount in
controversy aggregating less than $100,000, and arising out of or in connection
with this Agreement (including, without limitation, Sections 9.1 and 9.2) shall
be submitted to arbitration pursuant to the following procedures:
(i) Except as modified hereby, the arbitration shall be
governed by the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") including the
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Supplementary Procedures for Large Complex Disputes. After a dispute or
controversy arises, any party may, in a written notice delivered to the
other party, demand such arbitration. Such notice shall designate the
name of the arbitrator (who shall be an impartial person) appointed by
such party demanding arbitration, together with a statement of the
matter in controversy in reasonable detail.
(ii) Within thirty (30) days after receipt of such
demand, the other party shall, in a written notice delivered to the
other party, name such party's arbitrator (who shall be an impartial
person). If such party fails to name an arbitrator, then the second
arbitrator shall be named by the AAA. The two arbitrators so selected
shall name a third arbitrator (who shall be an impartial person) within
thirty (30) days, or in lieu of such agreement on a third arbitrator by
the two arbitrators so appointed, the third arbitrator shall be
appointed by the AAA. If any arbitrator appointed hereunder shall die,
resign, refuse, or become unable to act before an arbitration decision
is rendered, then the vacancy shall be filled by the methods set forth
in this Section for the original appointment of such arbitrator. Each
party shall pay one-half (1/2) of the arbitration fees and costs,
including transcription costs.
(iii) Except as provided in Section 10.16.2, each party
shall bear its own arbitration costs and expenses. The arbitration
hearing shall be held in Oakland County, Michigan at a location
designated by a majority of the arbitrators. The substantive laws of
the State of Michigan (excluding conflict of laws provisions), and the
Federal Arbitration Act and the Michigan Rules of Evidence shall apply.
(iv) An award rendered by a majority of the arbitrators
appointed pursuant hereto shall be final and binding on all parties to
the Proceeding, shall resolve the question of costs of the arbitrators,
legal fees and expenses and all related matters, and judgment on such
award may be entered and enforced by either party in any court of
competent jurisdiction.
(v) The arbitrators may by an interim or final award
grant injunctive relief.
(vi) Except as provided in Section 10.16.2, the parties
stipulate that the provisions of this Section shall be a complete
defense to any Proceeding instituted in any federal, state or local
court or before any administrative tribunal with respect to any
controversy or dispute arising out of this Agreement. The arbitration
provisions hereof shall, with respect to such controversy or dispute,
survive the termination or expiration of this Agreement.
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The parties hereto and the arbitrators may not disclose the
existence or results of any arbitration hereunder without the prior written
consent of the other party; nor will any party hereto disclose to any third
party any confidential information disclosed by any other party hereto in the
course of an arbitration hereunder without the prior written consent of such
other party. Notwithstanding the foregoing, a party may disclose the existence
or results of an arbitration hereunder, and any such confidential information
(a) to their respective counsel and other advisors with a need to know such
information in connection with such arbitration proceedings, (b) as required to
be disclosed by deposition, subpoena or other court or governmental action, (c)
in connection with their respective obligations under the Exchange Act and the
rules and regulations promulgated thereunder, (d) in connection with
registration of offerings of securities under the Securities Act and the rules
and regulations promulgated thereunder, or (e) otherwise required to be
disclosed under applicable law.
10.16.2 Emergency Relief. Notwithstanding anything in this
Section 10.16 to the contrary and subject to the provisions of Section 10.16,
any party may seek from a court any provisional remedy or injunctive relief that
may be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
10.17 Exclusive Jurisdiction.
(a) Subject to Section 10.16, each party hereto hereby
irrevocably submits to the jurisdiction of the United States District Court for
the Eastern District of Michigan and, if such court does not have jurisdiction,
of the courts of the State of Michigan in Oakland County, for the purposes of
any action arising out of this Agreement, or the subject matter hereof or
thereof, brought by any other party.
(b) Subject to Section 10.16, to the extent permitted by
applicable law, each party hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise in any such action, any claim (i) that it is
not subject to the jurisdiction of the above-named courts, (ii) that the action
is brought in an inconvenient forum, (iii) that it is immune from any legal
process with respect to itself or its property, (iv) that the venue of the suit,
action or proceeding is improper or (v) that this Agreement or the subject
matter hereof or thereof may not be enforced in or by such courts.
10.18 Time of the Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
10.19 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
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"Agreement" means this Stock Purchase Agreement and the
Disclosure Schedule.
"Business Day" means a day that is not a Saturday, Sunday or
national holiday upon which banks in the State of Michigan are generally open to
conduct a commercial banking business.
"Closing Date Financing" means certain debt financing
contemplated by the Buyer, a portion of the proceeds of which will be used to
pay the purchase price of the Turn-Matic Shares.
"Debt Offering Documents" means each offering circular or
memorandum and registration statement (including any preliminary or final
prospects contained therein) relating to the Closing Date Financing.
"Encumbrance" means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, mortgage, right of first refusal, proxy, voting agreement or trust, or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.
"Environment" means soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters, streams, ponds,
drainage basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and any
other environmental medium or natural resource.
"Environmental Liabilities" means any cost, damages, expense,
liability, obligation, or other responsibility or any Loss arising from or under
Environmental Law and consisting of or relating to:
(a) any environmental, health, or safety matters or
conditions (including on-site or off-site contamination, and regulation
of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law;
(c) financial responsibility under Environmental Law
for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law (whether or not
such Cleanup has been required or requested by any Governmental Entity
or any other Person) and for any natural resource damages; or
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(d) any other compliance, corrective, investigative,
or remedial measures required under Environmental Law.
The terms "removal," "remedial," and "response
action," include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
"Environmental Law" means any Governmental Regulation that
requires or relates to:
(a) advising appropriate authorities, employees, and
the public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the release,
or minimizing the hazardous characteristics of wastes that are
generated;
(d) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological
amenities;
(f) reducing to acceptable levels the risks inherent
in the transportation of hazardous substances, pollutants, oil, or
other potentially harmful substances;
(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up
or prevention; or
(h) making responsible parties pay private parties,
or groups of them, for damages done to their health or the Environment,
or permitting self-appointed representatives of the public interest to
recover for injuries done to public assets.
"Facilities" means any real property, leaseholds, or other
interests currently or formerly owned or operated by Turn-Matic and any
buildings, plants, structures, or equipment
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(including motor vehicles, tank cars, and rolling stock) currently or formerly
owned or operated by Turn-Matic.
"Governmental Authorization" means any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Entity or
pursuant to any Governmental Regulation.
"Hazardous Activity" means the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, or use
(including any withdrawal or other use of groundwater) of Hazardous Materials
in, on, under, about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that materially
increases the danger, or risk of danger, or poses an unreasonable risk of harm
to persons or property on or off the Facilities, or that may materially affect
the value of the Facilities or Turn-Matic.
"Hazardous Materials" means any waste or other substance that
is listed, defined, designated, classified or treated as hazardous, radioactive,
or toxic or a pollutant or a contaminant under or pursuant to any Environmental
Law, including any admixture or solution thereof, and specifically including
petroleum and all derivatives thereof or synthetic substitutes therefor and
asbestos or asbestos-containing materials.
"Losses" means all liabilities, damages (compensatory,
consequential, incidental, natural resource and other, but excluding punitive
and exemplary damages except to the extent the same are an element of damages
awarded to a third party for which the party seeking indemnification is
otherwise responsible), losses, penalties, fines, deficiency, forfeitures,
assessments, claims, suits, proceedings, investigations, actions, demands,
judgments, awards, settlements, arbitrations, diminution in value, response
costs, costs of cleanup, containment and remediation, and other costs and
expenses, including amounts paid in settlement, interest, court costs,
reasonable attorneys' fees, and consultants' and experts' fees. For purposes of
clarity, the parties acknowledge that the term "Losses" is not limited to
matters asserted by third parties, but also include Losses incurred or sustained
in the absence of third party claims.
"Occupational Safety and Health Law" means any Government
Regulation designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful
working conditions.
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
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liability company, joint venture, estate, trust, association, organization,
labor union, or other entity or Governmental Entity.
"Proceeding" means any claim, action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Entity or
arbitrator.
"Product Recall" means any systematic effort by Buyer,
Turn-Matic, a customer or a Governmental Entity (provided, that in the case of
Buyer or Turn-Matic such effort is at the request of a customer or a
Governmental Entity) to remedy a breach of warranty of Turn-Matic or as required
in order to comply with any Governmental Regulations.
"Related Agreement" means the General Releases, the Escrow
Agreement, the Noncompetition Agreements and, in the case of Sellers, also
includes the stock certificates, stock powers and other certificates executed
and delivered by Sellers pursuant to Section 8.1 hereof, and, in the case of
Buyer, also includes the certificates executed and delivered by Buyer pursuant
to Section 8.2 hereof.
"Related Person" means with respect to a particular
individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly
controlled by such individual or one or more members of such
individual's Family;
(c) any Person in which such individual or members of
such individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual
or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
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(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a
Material Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a similar
capacity); and
(f) any Related Person of any individual described in
clause (b) or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse, (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of voting securities
or other voting interests representing at least 50% of the outstanding voting
power of a Person or equity securities or other equity interests representing at
least 50% of the outstanding equity securities or equity interests in a Person.
"Release" means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional, that, when combined or
aggregated with prior events, would constitute a quantity reportable to any
Governmental Authority under any applicable Environmental Law.
"Representatives" of any Person means the affiliates,
subsidiaries, officers, directors, employees, consultants, shareholders,
representatives, counsel, accountants, agents, trustees, beneficiaries,
successors and assigns of such Person.
"SEC Filing" means any statement or report filed or to be
filed by Buyer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934 and the rules and regulations of the SEC
thereunder relating to this Agreement, the Closing Date Financing and/or the
transactions contemplated hereby and/or thereby.
"Threat of Release" means a substantial likelihood of a
Release, that, when combined or aggregated with prior events, would constitute a
quantity reportable to any Governmental Authority under any applicable
Environmental Law, that may require action in order to prevent or mitigate
damage to the Environment that may result from such Release.
10.20 Disclosures in Schedules. The disclosures in the Disclosure
Schedule relate only to the representations and
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warranties in the section or subsection of this Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement. In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Schedule (other than an exception
expressly set forth as such in the Disclosure Schedule with respect to a
specifically identified representation or warranty) the statements in the body
of this Agreement will control.
10.21 Sellers' Agent; Power of Attorney.
(a) Sellers' Agent. The Sellers hereby appoint and constitute
Raymond B. Dorris, Sr. as Sellers' Agent hereunder, to exercise the
powers of behalf of the Sellers set forth in this Agreement; and
Raymond B. Dorris, Sr. hereby accepts such appointment. In the event of
the death, resignation or inability to act of Raymond B. Dorris, Sr.,
and upon receipt by Buyer of evidence of the same which is satisfactory
to Buyer, Marie E. Dorris shall be successor Sellers' Agent with all
powers of his predecessor.
(b) Power of Attorney. Each Seller, by his or her execution of
this Agreement, hereby constitutes and appoints the Sellers' Agent his
or her true and lawful attorney in fact, with full power in his or her
name and on his or her behalf:
(i) to receive on behalf of such Seller the
proceeds of sale of such Seller's Turn-Matic Shares being sold
hereunder, to give Buyer a receipt therefor on behalf of such
Seller and to hold such proceeds subject to the terms hereof
and the instructions of such Seller with respect to the
ultimate disbursement thereof;
(ii) to act on such Seller's behalf according to
the terms of this Agreement, including, without limitation,
the power to contest or acquiesce in the determination of the
Adjustment Amount in accordance with Section 1.4; to give and
receive notices on behalf of all the Sellers; and to act on
their behalf in connection with any matter as to which the
Sellers are an "Indemnitee" or "Indemnitor" under this
Agreement; all in the absolute discretion of the Sellers'
Agent;
(iii) in general, to do all things and to perform
all acts, including, without limitation, executing and
delivering all agreements, certificates, receipts,
instructions and other instruments contemplated by or deemed
advisable in connection with this Agreement.
This power of attorney, and all authority hereby conferred, is granted subject
to the interests of the other Sellers and the Buyer hereunder and in
consideration of the mutual covenants and agreements made herein, and shall be
irrevocable and shall not be
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terminated by any act of any Seller or by operation of law, whether by the death
or incapacity of any Seller or by the occurrence of any other event. Each Seller
agrees, jointly and severally, to hold the Sellers' Agent free and harmless from
any and all loss, damage or liability which they, or any one of them, may
sustain as a result of any action taken in good faith hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
BUYER:
NEWCOR, INC.
By: /s/ W. John Weinhardt
------------------------------
Its: President
-------------------------
SELLERS:
/s/ Raymond B. Dorris
-----------------------------------
Raymond B. Dorris, Sr. (as a "Seller"
and a "Majority Shareholder")
/s/ Marie E. Dorris
-----------------------------------
Marie E. Dorris (as a "Seller" and a
"Majority Shareholder")
/s/ Raymond B. Dorris, Jr.
-----------------------------------
Raymond B. Dorris, Jr.
/s/ James B. Dorris
-----------------------------------
James B. Dorris
/s/ Richard H. Dorris
-------------------------------------
Richard H. Dorris
/s/ Anthony P. Dorris
-------------------------------------
Anthony P. Dorris
/s/ Patrick C. Dorris
-------------------------------------
Patrick C. Dorris
/s/ Jeffrey W. Dorris
-------------------------------------
Jeffrey W. Dorris
/s/ Louella Sabel
-------------------------------------
Louella Sabel
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<PAGE> 1
EXHIBIT 10(n)
July 31, 1992
Mr. Dennis H. Reckinger
Post Office Box 623
112 North Lake Street
Port Sanilac, Michigan 48469
Dear Dennis:
We are pleased to confirm our confidential offer to you of the position of
President and General Manager of Midwest Rubber, a division of Newcor, Inc. This
offer is of course contingent upon completion of the purchase of Midwest Rubber
by Newcor, Inc. This position will report to the Executive Vice President and
Chief Operating Officer of Newcor, Inc. and will be responsible for all sales,
marketing and manufacturing efforts and has full profit and loss responsibility
for the division.
The compensation package for this position is as follows:
* Base compensation paid biweekly on the corporate payroll at the rate of
$95,250.00 per year.
* Participation in the Newcor Incentive Plan effective November 1, 1992.
Participation for fiscal year 1992 will be on a discretionary basis.
* You will be furnished a company automobile (General Motors Suburban)
through the Company Automobile Policy. All insurance and operating costs
will be paid by the company, and you will be charged $50.00 per month for
personal use.
* Medical and dental insurance for you and your eligible dependents
effective on the first day of the month following employment on the
Corporate program.
* Basic life insurance of two times your annual salary with AD&D equal to
your basic coverage.
* Disability income protection that provides up to 13 weeks full pay and 66
2/3% of base pay (not to exceed $5,000.00) until age 65 in the event of
permanent disability.
<PAGE> 2
Mr. Dennis H. Reckinger
July 31, 1992
Page Two
* Continuation of the normal paid holidays of Midwest Rubber currently
numbering ten per year.
* Continuation of your eligibility for five weeks vacation per year.
* Participation in the Newcor, Inc. Retirement Plan for Salaried Employees
upon meeting the eligibility requirements. The pension benefit is
calculated on 1.1% of adjusted average monthly earnings times the period
of benefit service.
* Participation in the Newcor Savings Plan. The savings plan currently
permits you to voluntarily defer up to 9% of base earnings (subject to IRS
maximums) into a qualified 401(k) investment program.
* In the event of termination by the company for other than "cause," you
will receive a payment equal to 12 months of your base salary in effect at
the time of your termination notification. You shall also be eligible for
continuation of company paid medical, dental and life insurance during
this 12 month period. "Cause" shall mean dishonesty, willful misconduct,
gross negligence or insubordination. During this one year severance
period, you agree that you shall not directly or indirectly, without the
consent of the company, engage in business or activity which is
competitive with the business of the company.
Dennis, we look forward to you and the Midwest Rubber organization becoming a
part of the Newcor team. Acceptance of this offer does not imply a continued
employment contract. Any employee may voluntarily leave employment upon proper
notice and may be terminated by the employer at any time and for any reason.
Further, any benefits outlined herein may be changed at the discretion of the
company. Any oral or written statements or promises to the contrary are hereby
expressively disavowed and should not be relied upon.
Please acknowledge acceptance of this offer by signing in the space provided
below and returning one copy. Should you have any questions, please feel free to
contact me.
Sincerely,
NEWCOR, INC.
/s/ Thomas D. Parker
- -----------------------------
Thomas D. Parker
Director Human Resources ACCEPTED: /s/ Dennis H. Reckinger
Cc: J.D. Carney DATE: 8/3/92
<PAGE> 1
EXHIBIT 10(o)
September 25, 1995
Mr. Robert C. Ballou
17223 Maple Hill Drive
Northville, Michigan 48167
Dear Bob:
We are pleased to confirm our confidential offer to you for the newly created
position of Group Vice President, Precision Machined Products. This position
will have total profit and loss responsibility for the precision machining
divisions of Newcor, including at the present time Rochester Gear, Eonic and
Blackhawk Engineering. The position will report directly to the president and
chief executive officer of Newcor, Inc.
The compensation package for this position is as follows:
o Base compensation paid bi-weekly at the rate of $135,000 per year.
o Participation in the Newcor Management Incentive Plan beginning with
fiscal year 1996. Your targeted earnings under this plan would be 50%
of base earnings. Actual payouts can be higher or lower, however, based
upon a combination of your individual performance and the performance
of the company. For fiscal year 1996 only, your payout will be
guaranteed at a minimum of the 50% target level.
o A one-time signing bonus of $15,000, payable after 30 days of service.
o The use of a corporate leased automobile in accordance with the Company
Automobile Policy (executive level--see attached). All insurance and
operating costs will be paid by the company, and you will be charged
$50.00 per month for personal use.
o Medical and dental insurance for you and your eligible dependents as
described in the Newcor Flex brochures, effective after 30 days of
service (copy attached).
o Basic life insurance of two times your annual salary with A.D.&D. equal
to your basic coverage after a 30 day eligibility requirement. You may
also purchase optional life and A.D.&D. up to an additional 3x base
salary through the Flex Plan.
<PAGE> 2
Mr. Robert C. Ballou
September 25, 1995
Page Two
o Disability income protection that provides up to 13 weeks full pay and
66 2/3% of base pay to age 65 in the event of permanent disability.
o The normal paid holidays recognized by Newcor, currently numbering 13
per year.
o Eligibility for four weeks' vacation in recognition of the
organizational level of your position.
o Participation in the Newcor, Inc. Retirement Plan after one year of
service. The monthly pension benefit is based on 1.1% of average
monthly earnings multiplied by the period of benefit service.
o Participation in the Newcor Savings Program after three months of
service. The savings program permits you to voluntarily defer up to 15%
of base earnings (subject to IRS maximums) into a qualified 401(k)
investment program.
o In the event of termination by the company for reasons other than
"cause," you will receive a continuation of salary and benefits for a
minimum of six months from the date of termination notification.
"Cause" shall mean dishonesty, willful misconduct, gross negligence or
insubordination.
Bob, we appreciate your consideration of this offer, and we look forward to your
becoming a part of the Newcor team. Acceptance of this offer does not imply a
continued employment contract. Any employee may voluntarily leave employment
upon proper notice and may be terminated by the employer at any time and for any
or no reason and with or without cause. Further, any benefits outlined herein
may be changed at the discretion of the company. This agreement supersedes any
prior conversations and agreements regarding your employment and represents the
entire agreement between the parties. Any oral or written statements or promises
to the contrary are hereby disavowed and should not be relied upon.
I am looking forward to working with you.
<PAGE> 3
Mr. Robert C. Ballou
September 25, 1995
Page Three
Please acknowledge acceptance of this offer by signing in the space provided
below and returning one copy. Should you have any questions, please feel free to
contact me.
Sincerely,
NEWCOR, INC. Accepted: /s/ Robert C. Ballou
----------------------------
Robert C. Ballou
Date: 9/27/95
/s/ W. John Weinhardt
- ---------------------
W. John Weinhardt
President and Chief Executive Officer
<PAGE> 1
NEWCOR, INC.
Exhibit 13 to Form 10-K
For the Year Ended October 31, 1997
Portion of Newcor, Inc. 1997 Annual Report to Shareholders
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations ("MD&A") should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
Overview
The Company is organized into three business segments: Precision Machined
Products, Rubber and Plastic and Special Machines. The Precision Machined
Products segment produces transmission, powertrain and engine components and
assemblies for the automotive and agricultural vehicle industries. The Rubber
and Plastic segment produces cosmetic and functional seals and boots and
functional engine compartment products primarily for the automotive industry.
These two segments had previously been reported as a single Components and
Assemblies segment. Further segmentation has become necessary due to the
growth of the Company's Components and Assemblies business. The Special
Machines segment designs and manufactures welding, assembly, forming, heat
treating and testing machinery and equipment for the automotive, appliance and
other industries.
The last two fiscal years have marked a period of significant change and
transition for the Company. The Company completed three acquisitions in the
Rubber and Plastic segment during 1996, Boramco, Inc. and Rubright, Inc. on
January 2, 1996 and Production Rubber Products, Inc. on April 1, 1996. These
acquisitions were combined with Midwest Rubber, a division acquired in 1992, to
strengthen the Company's market position in this segment and to create the
critical mass management considers necessary to effectively provide the
engineering support, innovative products, and product line breadth required to
continue to meet its customers' needs. The Rubber and Plastic segment was
further enhanced with a fourth acquisition, Plastronics Plus, Inc.
("Plastronics"), in January 1997.
Consistent with management's strategy of reducing the impact on the Company of
the volatility of results of the Special Machines segment, the Company
completed the sale of two of the three divisions within this segment in 1996.
On May 6, 1996, the Company sold the business and certain assets of its Wilson
Automation ("Wilson") division. The Wilson divestiture was accounted for as a
discontinued operation, and, accordingly, the results of operations of Wilson
have been removed from continuing operations in the Consolidated Statements of
Income and related Notes and reclassified to discontinued operations for 1996
and prior years. Effective October 21, 1996, Newcor also sold its Newcor
Machine Tool ("NMT") division, which manufactured multi-stationed metal cutting
machines and CNC lathes.
The Company's strategy to build its Precision Machined Products segment as a
high volume automotive supplier took a significant step forward as a result of
the following actions: On March 6, 1997 the Company sold its Eonic, Inc.
("Eonic") division that was principally a low growth, low volume manufacturer
of industrial cams and camshafts. On December 23, 1997, the Company purchased
the assets of Machine Tool & Gear, Inc. ("MT&G") for $27.3 million, and
assumed approximately $5.8 million of debt, which was subsequently retired.
MT&G manufactures differential pinion and side gears, output shafts and rear
axle shafts for the automotive industry. Subsequent to year-end, the Company
also signed definitive agreements to purchase the common stock of the three
companies comprising The Deco Group ("Deco") for approximately $55.0 million
and the common stock of Turn-Matic, Inc. ("Turn-Matic") for approximately $17.0
million, conditioned upon, among other things, the consummation of financing.
Deco manufactures high-volume, precision-machined engine and powertrain
components and assemblies for the medium and heavy truck and automotive
industries, while Turn-Matic manufactures high volume, precision machined
engine components and assemblies for the automotive industry. These companies
all have product lines and capabilities that management believes will
complement the Company's existing precision machining businesses. In the
twelve months ended September 30, 1997, sales for these three companies
aggregated approximately $112 million. Assuming the acquisition of MT&G and
the pending acquisitions of Deco and Turn-Matic had occurred at the beginning
of 1997, the Precision Machined Products segment sales would have been
approximately 71.0% of 1997 consolidated sales, while the Rubber and Plastic
segment would have decreased to approximately 20.0% of 1997 consolidated sales
and the Special Machines segment would have decreased to approximately 9.0% of
1997 consolidated sales. As a result of these acquisitions, the Company's
financial condition and operations for 1998 and future years will differ
substantially compared with 1997 and prior years.
<PAGE> 2
Results of Continuing Operations
The following table illustrates the factors causing year-to-year sales trends
by segment, including the effect of flow through sales, acquisitions and
divestitures, and net incremental business from operations owned throughout
each year presented.
<TABLE>
<CAPTION>
PRECISION
MACHINED RUBBER AND
(in millions) PRODUCTS PLASTIC SPECIAL MACHINES TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 Sales $42.4 $17.2 $30.6 $90.2
Acquisitions 13.4 13.4
Net incremental business 6.0 1.8 0.3 8.1
-----------------------------------------------------------------
1996 Sales 48.4 32.4 30.9 111.7
Flow through sales 14.5 14.5
Acquisitions 13.2 13.2
Divestitures (10.4) (6.5) (16.9)
Net incremental business 8.0 2.9 (2.6) 8.3
-----------------------------------------------------------------
1997 Sales $60.5 $48.5 $21.8 $130.8
=================================================================
</TABLE>
Fiscal 1997 Compared with Fiscal 1996
The Company achieved record sales in 1997 of $130.8 million, an increase of
$19.1 million, or 17.1%, from 1996 sales of $111.7 million. Sales for the
Precision Machined Products segment increased $12.1 million, or 24.8%, to $60.5
million, sales for the Rubber and Plastic segment increased $16.1 million, or
49.5%, to $48.5 million, while sales for the Special Machines segment decreased
$9.1 million, or 29.2% to $21.8 million. The increase in sales for the
Precision Machined Products segment was due to approximately $8.0 million of
increased product sales within existing divisions and flow through sales of
material of approximately $14.5 million, partially offset by the effect of
$10.4 million in 1996 sales attributable to the divested Eonic division. The
$14.5 million increase from flow through sales occurred because a customer that
had been providing material to the Company decided to have the Company purchase
the material and include the value of the material in the selling price.
Without the flow through sales, the Company's overall sales would have
increased $4.6 million, or 4.1%, over 1996 sales. The increase in sales for
the Rubber and Plastic segment was primarily due to the inclusion of a full
year of results for three rubber and plastic component companies acquired
during the first two quarters of fiscal 1996, as well as the January 1997
acquisition of Plastronics. Additional sales from the four acquired Rubber and
Plastic segment companies aggregated approximately $13.2 million during 1997.
The remaining growth within the Rubber and Plastic segment of $2.9 million was
due to incremental new business at the existing division within this segment.
Sales decreases within the Special Machines segment were due to the effect of
$6.5 million in 1996 sales attributable to the divested NMT division that was
sold during 1996 and a $2.6 million sales decrease at the remaining division
within this segment (Bay City). The sales decrease at the Bay City division
was due to insufficient new orders to sustain the business that existed during
1996.
Consolidated gross profit increased $1.1 million to $23.8 million in 1997 from
$22.7 million in 1996. The increase in gross profit is attributable to the
increase in sales, partially offset by a decrease in consolidated gross margin.
Consolidated gross margin decreased to 18.2% in 1997 from 20.3% in 1996. The
decrease in margin was primarily attributable to the effect of the $14.5
million of flow through material sales that the Precision Machined Products
segment purchased in 1997 rather than receiving from the customer during 1996.
These sales generated $0.7 million of incremental gross profit. Other factors
that adversely impacted margin were the decline in sales in the Special
Machines segment (which has generally commanded higher margins than other
segments), and reduced margins due to product mix within this segment. In
addition, gross margin within the Rubber and Plastic segment was negatively
impacted by production inefficiencies associated with high labor turnover
caused by relatively full employment and increased costs associated with
starting production on new parts for the 1998 model year. High labor turnover
is continuing to affect certain businesses in the Rubber and Plastic segment in
1998, as described in the Recent Developments section below. Partially
offsetting margin reductions were operating performance gains that resulted
from the Company's continuous improvement programs at certain of the Company's
divisions, particularly within the Precision Machined Products segment. The
genesis of the Company's commitment to continuous improvement began in late
1995 when a business operating system (the "Newcor Operating System") was
introduced with an emphasis on the use of continuous improvement tools such as
cellular manufacturing, one-piece flow, value engineering, kaizen, and
team-oriented problem solving. As is common in the automotive supplier
industry, certain of the Company's long-term contracts required price
reductions over the term of the contract. These price reductions were largely
offset by the impact of pricing on new products and cost reductions related to
the continuous improvement programs.
Selling, general and administrative expenses (SG&A) increased to $15.8 million
in 1997 from $15.1 million in 1996. SG&A as a percentage of sales decreased to
12.0% in 1997 from 13.5% in 1996. The increase in SG&A expense was primarily
due to the acquisitions in the Rubber and Plastic segment, which added
approximately $2.7 million of SG&A expense in 1997, largely offset by
<PAGE> 3
an approximate $2.3 million reduction due to the divestitures of Eonic and NMT.
The remaining increase in SG&A was principally due to expenditures incurred to
evaluate and select hardware and software and begin the implementation of a
company-wide information system and train employees in the Newcor Operating
System. The primary reason for the decrease in SG&A as a percentage of sales
was the sales increase described above.
Consolidated operating income increased $1.5 million to $8.3 million in 1997
from $6.8 million in 1996, and consolidated operating margin increased to 6.3%
of sales in 1997 from 6.1% of sales in 1996.
Operating income for the Precision Machined Products segment increased $1.6
million to $5.3 million in 1997 from $3.7 million in 1996. Operating margin
increased to 8.8% of segment sales in 1997 from 7.7% in 1996. The increase in
operating income was due to $0.7 million of operating income from the $14.5
million of flow through sales of previously provided customer material as
described above, incremental income associated with new business and the
elimination of significant start up costs that were incurred during 1996 for
certain new business and the reduction of controllable variable costs through
the continued implementation of the Newcor Operating System. The increase was
partially offset by the effect of $0.5 million in 1996 operating income
attributable to the divested Eonic division. Operating margins increased due
to the elimination of significant start up costs that affected 1996 results and
implementation of the Newcor Operating System as described above. The increase
in operating margins within this segment was partially offset by the lower
margin on the $14.5 million of flow through sales described above.
Operating income for the Rubber and Plastic segment increased $0.1 million to
$2.0 million in 1997 from $1.9 million in 1996. Operating margin decreased to
4.2% of segment sales in 1997 from 5.9% of segment sales in 1996. The increase
in operating income was due to incremental income from the acquisitions
described above, largely offset by the effects of production inefficiencies
associated with high labor turnover caused by relatively full employment,
increased costs associated with starting production on new parts for the 1998
model year and an incremental increase of goodwill amortization of $0.3 million
as a result of the four acquisitions during 1997 and 1996. These developments,
and, to a lesser extent, pricing issues on certain coated metal parts produced
by the segment, resulted in the operating margin reduction.
Operating income for the Special Machines segment decreased $0.6 million to
$2.3 million in 1997 from $2.9 million in 1996. Operating margin increased to
10.4% of segment sales in 1997 from 9.4% of segment sales in 1996. The
decrease in operating income was primarily due to the decline in sales and a
shift in product mix at Bay City, the remaining division in this segment,
partially offset by the elimination of $0.6 million in 1996 operating loss from
the divested NMT division. The overall increase in operating margin was
primarily due to the elimination of the NMT loss, partially offset by the
change in product mix at the Bay City division.
Consolidated operating income benefited from a net gain on the sale of a
building of $1.0 million, which was partially offset by a $0.7 million loss on
the sale of Eonic.
Interest expense was $2.1 million and $1.8 million in 1997 and 1996,
respectively. The increase in interest expense was due to additional debt
incurred to finance the acquisitions in the Rubber and Plastic segment. The
effective tax rate was 35.3% in 1997 and 31.2% in 1996. The 1996 rate was
favorably impacted by the final settlement of an IRS audit.
Fiscal 1996 Compared to Fiscal 1995
Consolidated sales in 1996 were $111.7 million, an increase of $21.5 million,
or 23.9%, from 1995 sales of $90.2 million. Precision Machined Products
segment sales increased by $6.0 million, or 14.3%, to $48.4 million, sales for
the Rubber and Plastic segment increased $15.2 million, or 89.0%, to $32.4
million and sales for the Special Machines segment increased $0.3 million, or
0.8%, to $30.9 million. Precision Machined Products segment sales increased as
a result of sales growth due to new parts programs that began production during
fiscal 1996 and 1995. The sales growth was primarily the result of significant
new orders where the Company processed material provided by the customer and
the value of the material was not reflected in sales. If the orders had
required the Company to purchase these materials, reported sales would have
been somewhat higher. Rubber and Plastic segment sales increased primarily due
to the three acquisitions during 1996, which represented $13.4 million of the
sales increase. The remaining growth within the Rubber and Plastic segment of
$1.8 million was due to incremental new business at the existing division
within this segment. Within the Special Machines segment, sales at the
divested NMT division decreased $3.6 million, while sales at Bay City, the
remaining division, increased $3.9 million, or 18.5%, compared to 1995, as a
result of an increase in orders, primarily for proprietary machines.
Consolidated gross profit increased $6.1 million to $22.7 million in 1996 from
$16.6 million in 1995. The increase in gross profit was attributable to the
increase in sales and an increase in consolidated gross margin to 20.3% in 1996
from 18.4% in 1995. The increase was primarily attributable to increased sales
of higher margin proprietary machines within the Special Machines segment and
the sales growth from new parts programs within the Precision Machined Products
segment, where the Company processed material provided by the customer and the
value of material was not reflected in cost of sales. If the orders had
required the Company to
<PAGE> 4
purchase these materials, reported gross margin would have been somewhat lower.
The margin increase related to these factors was partially offset by the
significant costs associated with starting production on certain new orders
within the Precision Machined Products segment, and, to a lesser extent,
pricing issues on certain coated metal parts produced at one of the newly
purchased divisions within the Rubber and Plastic segment. As is common in the
automotive supplier industry, certain of the Company's long-term contracts
required price reductions over the term of the contract. These price
reductions were largely offset by the impact of pricing on new products and
cost reductions related to continuous improvement programs.
SG&A increased to $15.1 million in 1996 from $11.3 million in 1995. SG&A as a
percentage of sales increased to 13.5% of sales in 1997 from 12.5% of sales in
1996. The increase was primarily due to $2.0 million of SG&A from the three
acquisitions in the Rubber and Plastic segment and the costs of hiring and
training management personnel to implement the Newcor Operating System,
primarily within the Precision Machined Products segment.
Consolidated operating income increased $1.4 million to $6.8 million in 1996
from $5.4 million in 1995, and consolidated operating margin increased to 6.1%
of sales in 1996 from 5.9% of sales in 1995.
Operating income for the Precision Machined Products segment increased $0.1
million to $3.7 million in 1996 from $3.6 million in 1995. Operating margin
decreased to 7.7% of segment sales in 1996 from 8.6% of segment sales in 1995.
The increase in operating income was due to incremental operating income from
new business, largely offset by significant start up costs that were incurred
during 1996 for the new parts programs and, to a lesser extent, the costs of
hiring and training management personnel to implement the Newcor Operating
System. The operating margin decrease that resulted from those factors was
partially offset by margins on new parts programs where the Company processed
material provided by the customer, the value of which was not reflected in
sales or cost of sales.
Operating income for the Rubber and Plastic segment increased $0.7 million to
$1.9 million in 1996 from $1.2 million in 1995. Operating margin decreased to
5.9% of segment sales in 1996 from 6.8% of segment sales in 1995. The increase
in operating income was due to incremental income from the three acquisitions,
as well as from new business, partially offset by $0.3 million of goodwill
amortization and the costs of hiring and training management personnel to
implement the Newcor Operating System. Operating margin decreased as a result
of these factors, and, to a lesser extent, pricing issues on certain coated
metal parts produced by the segment.
Operating income for the Special Machines segment increased $0.7 million to
$2.9 million in 1996 from $2.2 million in 1995. Operating margin increased to
9.4% of segment sales in 1996 from 7.3% of segment sales in 1995. Operating
income increased primarily as a result of sales of high margin proprietary
machines at the Bay City division. Operating income was partially offset by
$0.6 million in 1996 operating loss from the NMT division, which was sold
during 1996. The combination of these factors resulted in the increase in
operating margin.
Interest expense was $1.8 million and $1.5 million in 1996 and 1995,
respectively. The increase in interest expense was due to additional debt
related to the acquisitions. The effective income tax rate was 31.2% in 1996,
which was below the statutory rate of 34.0% due to the final settlement of an
IRS audit during 1996.
Liquidity and Capital Resources
Cash outflows during 1997 of $14.6 million to finance acquisitions and $3.5
million to purchase capital equipment were partially offset by positive cash
flow of $8.4 million from continuing operations, $2.5 million from the sale of
capital assets, primarily a building and $1.5 million of proceeds from the
sale of Eonic. Cash from continuing operations was primarily provided by
earnings and depreciation and amortization expense.
During 1996, the Company amended its revolving credit agreement with a major
U.S. bank to allow for a portion of the revolving credit to be replaced with a
seven-year fixed-rate term loan in the amount of $10.0 million with an annual
interest rate of 7.85%. Monthly principal payments of $0.2 million are due
from June 1998 through May 2003. At October 31, 1997, the Company had $17.0
million outstanding on a $25.0 million revolving credit agreement. On December
5, 1997 the revolving credit agreement was increased to $37.0 million to make a
down payment for the acquisition of MT&G and to repay bank debt assumed as part
of the acquisition. At December 31, 1997, the Company had $32.2 million
outstanding on the increased revolving credit agreement. On January 15, 1998,
the revolving credit agreement was amended to allow the Company to increase
total availability to $50.0 million upon satisfaction of certain conditions
relating to the acquisition financing described below.
The Company is in the process of reviewing alternatives to complete the
financing of its MT&G acquisition and finance the pending acquisitions of Deco
and Turn-Matic. The most likely financing methods are subordinated debt,
increased bank borrowings, or a combination of both. Financing the acquisition
of MT&G and the pending acquisitions will substantially increase the Company's
leverage, interest expense and cash requirements for debt service in 1998 and
future years as compared to 1997 and prior years.
<PAGE> 5
The Company believes that, through a combination of cash from operations, the
net proceeds from acquisition financing and the available credit under the
revised revolving credit agreement, it will have adequate financing to meet
anticipated funding requirements for fiscal 1998, both for the Company's
existing businesses and for pending acquisitions. However, if the Company were
unable to obtain the anticipated acquisition financing, it could not complete
the acquisitions of Deco and Turn-Matic, and if the Company does not consummate
the Deco acquisition by March 31, 1998 (subject to a 30-day extension in
certain circumstances) or negotiate other arrangements, it could forfeit the
$5.0 million deposit it paid when the agreement with Deco was signed. The
Company also expects to use a portion of the proceeds from the acquisition
financing to repay the $21.7 million promissory note it issued in connection
with the MT&G acquisition. The note is due at the completion of acquisition
financing. If acquisition financing is not completed by April 15, 1998, then
the Company must pay $5.0 million of the note, with the balance payable on May
23, 1998. If the financing is not completed before April 15, the Company plans
to obtain an increase in its existing credit line to cover the payments,
although its lender has not yet formally committed to an increase.
During 1997, Newcor continued to pay a quarterly cash dividend of $.05 per
share of common stock. Total dividends paid were $1.0 million in 1997 and $0.9
million in 1996 and 1995, respectively. The terms of the anticipated
acquisition financing are likely to require suspension of the cash dividend.
Recent Developments
On January 22, 1998 Newcor announced that it expects to report a net loss of
approximately $1.1 million to $1.3 million, or $0.22 to $0.26 per share, on
sales of approximately $29 million to $30 million for the first quarter ended
January 31, 1998, compared with net income of $0.4 million, or $0.07 per share,
on sales of $28 million for the first quarter of fiscal year 1997. These
anticipated results include the results of operations for MT&G from only
December 23, 1997 and do not include the results of operations for either Deco
or Turn-Matic.
Sales for the first quarter of fiscal year 1998 are expected to be higher than
the prior year's first quarter due to the acquisitions of Plastronics, which
was completed January 10, 1997, and MT&G, which was completed on December 23,
1997. The increase in sales from the acquisitions will be largely offset by
estimated sales decreases for the Special Machines segment and, to a lesser
extent, the remainder of the Precision Machined Products segment.
A net loss is anticipated for the first quarter of fiscal year 1998, as
compared with net income reported for the same period one year ago for several
reasons, including: (i) lower than anticipated sales by the Special Machines
segment due to not receiving a significant order that had been anticipated, as
well as delays associated with certain new orders pending final customer
approval; (ii) lower than anticipated sales by the Precision Machined Products
segment due to a temporary build-up of inventory at a significant customer
during the previous quarter; (iii) profitability at the Rubber and Plastic
segment being adversely affected by increased scrap, high training costs and
productivity issues (due to high hourly labor turnover caused by full
employment in local economies) and, to a lesser extent, by pricing issues on
certain coated metal parts produced by the segment; and (iv) costs associated
with the acquisition of MT&G and the pending acquisitions of Deco and
Turn-Matic, as well as start-up costs on a significant new program that has
been awarded to MT&G.
Certain of the factors impacting first quarter 1998 results, including the
MT&G, Deco and Turn-Matic transactions and the start-up costs associated with
the new product launch at MT&G, are short-term and/or nonrecurring in nature.
Management is implementing certain actions in response to the lower than
expected results by the Special Machines and Rubber and Plastic segments, and
believes such actions should begin to favorably impact the performance of those
segments during the second quarter of fiscal year 1998.
Except for approximately one month of results for MT&G, acquired on December
23, 1997, the Company's expected results for the first quarter of fiscal year
1998 will not include the revenues or profits of MT&G, Deco and Turn-Matic. As
described in the Overview section, sales of MT&G, Deco and Turn-Matic
aggregated approximately $112 million for the twelve months ended September 30,
1997, as compared to the Company's reported fiscal year 1997 sales of
approximately $131 million. As a result of these acquisitions, the Company's
financial condition and operations for 1998 and future years will differ
substantially from 1997 and prior years.
The Company is in the process of implementing a new company-wide Enterprise
Resource Planning (ERP) computer system. One of the anticipated benefits of
this system is year 2000 date conversion without any adverse effect on
customers or disruption to business operations. Implementation of the system
is underway with projected completion during mid 1999. The Company is also
communicating with all of its significant suppliers and large customers to
coordinate year 2000 conversion. The identifiable cost of year 2000 compliance
and its effect on the Company's future results of operations is not expected to
be material.
<PAGE> 6
Cautionary Statements Under the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
This MD&A and, in particular, the Recent Developments section, constitute
"forward-looking statements" within the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. A number of factors could cause
actual results to differ materially from those included in or suggested by such
forward-looking statements, including without limitation: the cyclical nature
of the industries served by the Company, all of which have encountered
significant downturns in the past; the level of production by and demand from
the Company's principal customers, upon which the Company is substantially
dependent, including the three major domestic automobile manufacturers and
Deere & Company; whether, when and to what extent expected orders materialize;
whether the Company will be able to successfully complete its planned
acquisitions of Deco and Turn-Matic and the related financing, and whether the
Company will be able to successfully integrate such businesses and other recent
acquisitions such as MT&G and Plastronics into the Company's pre-existing
operations and operate them profitably; whether the Company's recent
initiatives to improve upon the recent labor turnover experienced in its Rubber
and Plastic segment will be successful and cost-effective; the duration of the
start-up phase of MT&G's new program and the extent to which it is successful;
the impact on the Company of actions by its competitors, some of which are
significantly larger and have greater financial and other resources than the
Company; developments with respect to contingencies, including environmental
matters, litigation and retained liabilities from businesses previously sold by
the Company; and the extent to which the Company's new ERP computer system
performs as anticipated and the accuracy of the information supplied by the
Company's suppliers and customers concerning their year 2000 readiness. All
forward-looking statements in this MD&A are qualified by such factors, as well
as by the further discussion of these and other risks and uncertainties
of the Company's business provided in the Business section of the Company's
1997 Form 10-K. The Company disclaims any obligation to update any such
forward-looking statements.
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Newcor, Inc.
We have audited the consolidated balance sheets of Newcor, Inc. and
Subsidiaries as of October 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years ended
October 31, 1997, 1996, and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Newcor, Inc. and Subsidiaries as of October 31, 1997, and 1996 and the
consolidated results of operations and cash flows for the years ended October
31, 1997, 1996, and 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Detroit, Michigan
December 5, 1997, except as to the information
presented in Note B, for which the date is
January 16, 1998.
<PAGE> 8
<TABLE>
<CAPTION>
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the years ended October 31, 1997 1996 1995
<S> <C> <C> <C>
Sales $130,848 $111,744 $90,173
Cost of sales 107,083 89,087 73,555
-------- ------- -------
Gross margin 23,765 22,657 16,618
Selling, general and
administrative expense 15,759 15,052 11,264
Nonrecurring items, net (gain) loss (297) 824 -
-------- ------- -------
Operating income from
continuing operations 8,303 6,781 5,354
Other income (expense):
Interest expense (2,070) (1,787) (1,504)
Other (224) 178 (229)
-------- ------- -------
Income from continuing operations
before income taxes 6,009 5,172 3,621
Provision for income taxes 2,119 1,614 1,230
-------- ------- -------
Income from continuing
operations 3,890 3,558 2,391
-------- ------- -------
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit of
$611 and $853, respectively - (1,203) (1,510)
Loss on sale of discontinued
operations, net of income tax
benefit of $1,800 - (3,500) -
-------- ------- -------
Loss from discontinued operations - (4,703) (1,510)
-------- ------- -------
Net income (loss) $ 3,890 $ (1,145) $ 881
======== ======== =======
Amounts per share of common stock:
Income from continuing
operations $ 0.79 $ 0.72 $ 0.49
Loss from discontinued operations - (0.96) (0.31)
======== ======== =======
Net income (loss) $ 0.79 $ (0.24) $ 0.18
======== ======== =======
Weighted average common shares
outstanding 4,940 4,923 4,913
======== ======== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 9
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Capital in Unfunded Total
Common Excess Pension Retained Shareholders'
Stock of Par Liability Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1994 $4,676 $374 $(1,319) $21,426 $25,157
Unfunded pension liability 783
Net income 881
Cash dividends, $.20 per share (936)
Shares issued under
employee stock plans 3 21
------ ------ ------- -------
Balance, October 31, 1995 4,679 395 (536) 21,371 $25,909
Unfunded pension liability 481
Net loss (1,145)
Cash dividends, $.20 per share (938)
Shares issued under
employee stock plans 18 116
------ ------ ------- -------
Balance, October 31, 1996 4,697 511 (55) 19,288 $24,441
Unfunded pension liability (44)
Net income 3,890
Cash dividends, $.20 per share (954)
Shares issued under
employee stock plans 10 72
Stock dividend, 5% 235 1,675 (1,910)
------ ------ ------- -------
Balance, October 31, 1997 $4,942 $2,258 $(99) $20,314 $27,415
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 10
NEWCOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October 31, 1997 1996
Assets
<S> <C> <C>
Current Assets:
Cash $ 34 $ 34
Accounts receivable 22,523 17,369
Inventories 8,084 8,196
Prepaid expenses and other 7,219 4,634
Deferred income taxes 1,453 1,891
-------- --------
Total current assets 39,313 32,124
Property, plant and equipment, net of
accumulated depreciation 28,119 23,131
Prepaid pension expense 3,180 3,871
Cost in excess of assigned value of
acquired companies, net of amortization 16,080 12,689
Net assets held for sale - 3,844
Other long-term assets 4,191 1,840
-------- --------
Total assets $ 90,883 $ 77,499
======== ========
Liabilities
Current Liabilities:
Current portion of long-term debt $ 833 $ -
Accounts payable 14,874 10,175
Accrued payroll and related expenses 3,584 3,401
Other accrued liabilities 2,084 3,597
-------- --------
Total current liabilities 21,375 17,173
Long-term debt 32,267 25,400
Postretirement benefits other than pensions 6,338 6,345
Pension liability and other 3,488 4,140
-------- --------
Total liabilities 63,468 53,058
-------- --------
Shareholders' Equity
Preferred stock, no par value.
Authorized: 1,000 shares. Issued: None
Common stock, par value $1 per share.
Authorized: 10,000 shares.
Issued: 4,942 shares in 1997 and
4,697 shares in 1996 4,942 4,697
Capital in excess of par 2,258 511
Unfunded pension liability (99) (55)
Retained earnings 20,314 19,288
-------- --------
Total shareholders' equity 27,415 24,441
-------- --------
Total liabilities and shareholders'
equity $ 90,883 $ 77,499
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 11
NEWCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended October 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Income from continuing
operations $ 3,890 $ 3,558 $ 2,391
Adjustments to reconcile net income
to net cash provided by
operating activities:
Loss on sale of businesses 711 824 -
Depreciation and amortization 4,280 3,622 2,850
Deferred income taxes 692 (637) 1,577
Pensions (125) (893) 451
Gain on sale of capital assets (1,025) (168) (354)
Other - net 888 (27) (131)
Changes in operating assets
and liabilities:
Accounts receivable (3,258) 444 (3,072)
Inventories 1,498 747 (815)
Other current assets 320 (2,004) (790)
Accounts payable 1,741 2,921 (1,783)
Accrued liabilities (1,170) (589) 1,139
--------- --------- ---------
Cash provided by
continuing operating activities 8,442 7,798 1,463
--------- --------- ---------
Cash provided by (used in)
discontinued operations (1,117) 5,931 9,096
--------- --------- ---------
Investing Activities
Capital expenditures (3,539) (2,946) (4,580)
Proceeds from sale of businesses 1,500 1,984 -
Acquisitions, net of cash acquired (14,581) (11,578) -
Proceeds from sale of capital assets 2,467 420 407
--------- --------- ---------
Net cash used in investing
activities (14,153) (12,120) (4,173)
--------- --------- ---------
Financing Activities
Net borrowings (repayments) on
revolving credit line 7,700 (10,800) (11,000)
Term note proceeds - 10,000 -
Revenue bond proceeds - - 6,100
Principal payment on bonds - - (600)
Shares issued under employee
stock plans 82 134 24
Cash dividends paid (954) (938) (936)
--------- --------- ---------
Net cash provided by (used in)
financing activities 6,828 (1,604) (6,412)
--------- --------- ---------
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Increase (decrease) in cash - 5 (26)
Cash, beginning of year 34 29 55
--------- --------- -------
Cash, end of year $ 34 $ 34 $ 29
--------- --------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 13
NEWCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
A. ACCOUNTING POLICIES:
Description of the Business: Newcor, Inc. and its subsidiaries (the
"Company") design and manufacture precision machined components and assemblies
and custom rubber and plastic products primarily for the automotive and
agricultural vehicle markets. The Company is also a supplier of standard and
specialty machines and equipment systems mainly for the automotive and
appliance industries.
Principles of Consolidation - The consolidated financial statements
include the accounts of Newcor, Inc. and all subsidiaries. All significant
intercompany accounts and transactions are eliminated.
Inventory Valuation - Inventories are stated at the lower of cost or
net realizable value. Costs, other than those specifically identified to
contracts, are determined primarily on the first-in, first-out (FIFO) basis.
Contract Accounting - The percentage of completion method of
accounting is used by the Company's Special Machines segment. Sales and gross
profit are recognized as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Sales and gross
profit are adjusted prospectively for revisions in estimated total contract
costs and contract values. Estimated losses are recognized when determinable.
Property, Plant and Equipment - Property, plant and equipment is
stated at cost and is depreciated using the straight-line method. The general
range of lives is fifteen to thirty years for building and land improvements
and four to ten years for machinery, office equipment and vehicles.
Cost in Excess of Assigned Value of Acquired Companies - The costs of
acquired companies that exceed the assigned value at dates of acquisition
(goodwill) are generally being amortized over a twenty year period using the
straight-line method. Several factors are used to evaluate the recoverability
of goodwill, including management's plans for future operations, recent
operating results and each division's projected undiscounted cash flows.
Accumulated amortization was $2,715 and $1,825 at October 31, 1997 and 1996,
respectively.
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of " (FAS 121) was adopted in fiscal 1997. FAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. The effect of
adopting FAS 121 was not material.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Use of Estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Financial Instruments - The carrying amount of the Company's financial
instruments, which includes cash, accounts receivable, accounts payable, notes
payable and long-term debt approximates their fair value at October 31, 1997
and 1996. Fair values have been determined through information obtained from
market sources and management estimates.
Stock dividend - On June 11, 1997, the Company declared a 5% stock
dividend which was paid on September 12, 1997 to shareholders of record on
August 14, 1997. The dividend was charged to retained earnings in the amount
of $1,910. Per share amounts and shares outstanding included in the
accompanying consolidated financial statements and notes are based on the
increased number of shares giving retroactive effect to the stock dividend.
Earnings per share - Statement of Financial Accounting Standards No.
128, "Earnings per Share" (FAS 128) establishes an updated standard for
computing and presenting earnings per share. The statement is effective in
fiscal 1998 but will not result in a materially different reported earnings per
share amount for the Company.
Reclassifications - Certain items in prior years' financial statements
have been reclassified to conform with the presentation used in the year ended
October 31, 1997.
<PAGE> 14
B. FISCAL 1998 ACQUISITIONS:
In December 1997, the Company purchased the assets and business of Machine
Tool & Gear, Inc. ("MT&G") for $27.25 million plus the assumption of
approximately $5.8 million of debt, which was subsequently retired. MT&G
manufactures differential pinion and side gears, output shafts and rear axle
shafts for the automotive industry. For these assets, the Company paid cash of
$2.5 million in October 1997 and an additional $3.1 million in December 1997.
A promissory note for $21.65 million, paying interest at 8%, has been issued
for the balance of the purchase price. The note is due at the completion of
acquisition financing. If acquisition financing is not completed by April 15,
1998, then the Company must pay $5.0 million of the note, with the balance
payable on May 23, 1998. On December 5, 1997, the Company's revolving credit
agreement was increased from $25.0 million to $37.0 million to pay off acquired
bank debt and make the down payment on the MT&G acquisition. On January 15,
1998, the revolving credit agreement was amended to allow the Company to
increase total availability to $50.0 million upon satisfaction of certain
conditions relating to the acquisition financing described below.
The Company signed a definitive agreement to purchase the common stock of
the three companies comprising The Deco Group ("Deco") for approximately $55
million in cash in December 1997. Deco manufactures high-volume, complex
machined components and assemblies for the medium and heavy truck and
automotive industries. Deco's products include rocker arms and assemblies,
transmission shafts, axle shafts, thrust plates and other specialized products.
The Company made a non-refundable $5.0 million deposit to the Deco shareholders
at the time the agreement was signed.
In January 1998, the Company signed a definitive agreement to purchase the
common stock of Turn-Matic, Inc. ("Turn-Matic") for approximately $17 million
in cash. Contingent consideration of up to $3.5 million may be paid if
profitability achieves certain levels over the next five years. Turn-Matic
manufactures high volume, precision machined close tolerance components and
assemblies for the automotive industry. Turn-Matic's products include oil
filter adapters, main bearing caps, EGR spacers, intake and exhaust manifolds,
steering brackets and throttle body adapters.
The Company is in the process of reviewing alternatives to complete the
financing of its MT&G acquisition and finance the pending acquisitions of Deco
and Turn-Matic. The most likely financing methods are subordinated debt,
increased bank borrowings, or a combination of both.
The Company plans to consummate the Deco and Turn-Matic acquisitions
contemporaneously with the consummation of financing. All three acquisitions
will be accounted for using the purchase method of accounting. The cost in
excess of net assets acquired of approximately $72 million will be amortized on
a straight-line basis over twenty years.
C. FISCAL 1997 and 1996 ACQUISITIONS:
On January 13, 1997, the Company purchased for cash the common stock
of Plastronics Plus, Inc. (Plastronics), a Wisconsin corporation. Plastronics
primarily manufactures custom plastic injection-molded components for the
automotive industry. The purchase price was approximately $8 million in cash
plus the assumption of $4.1 million of Plastronics debt, which was subsequently
retired. The purchase was financed through the Company's existing line of
credit facility. The acquisition was accounted for using the purchase method
of accounting. The cost in excess of net assets acquired of approximately $4
million is being amortized on a straight-line basis over twenty years.
In December 1995, the Company signed three separate definitive
agreements to purchase for cash certain assets of three unrelated companies in
the molded rubber and plastic component parts industry. Each company primarily
manufactures parts for the automotive industry. Two of the acquisitions were
completed on January 2, 1996, and the third was completed on April 1, 1996.
The total purchase price for all three acquisitions was approximately $11.6
million. The acquisitions were accounted for using the purchase method of
accounting. The cost in excess of net assets acquired of approximately $8
million is being amortized on a straight-line basis over twenty years.
The 1996 unaudited pro forma results of operations as if the four
acquisitions described above had been acquired at the beginning of fiscal 1996
would have been sales of $133,023, income from continuing operations of $3,965
($.81 per share) and net loss of $738 ($.15 per share). These pro forma
results do not purport to be indicative of the results that would have occurred
had the acquisitions been made at the beginning of fiscal 1996 or which may
occur in the future. The unaudited pro forma results of operations for 1997
would have approximated the 1997 actual reported results.
<PAGE> 15
D. DISCONTINUED OPERATIONS:
The Company sold the business and certain assets of its Wilson
Automation division (Wilson) on May 6, 1996. All receivables, the land and
building, and certain liabilities were retained by the Company. The building
was leased to the buyer through April 30, 2001. Although assets were sold at
approximately net book value, accruals were established for curtailment of the
pension plan, employee separation costs, costs associated with the collection
of accounts receivable and additional liabilities related to contracts for
which the Company retained responsibility. These accruals coupled with the
operating loss from the measurement date (March 31, 1996) to the sale date
resulted in a net loss of $3.5 million on the disposition of Wilson. The
remaining accruals at October 31, 1997 are not material. Summary operating
results of discontinued operations through the measurement date are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $9,173 $26,457
Loss before income taxes (1,814) (2,363)
Benefit from income taxes 611 853
Net loss from
discontinued operations (1,203) (1,510)
</TABLE>
The Company sold the Wilson land and building during 1997 for
approximately $2.3 million, net of selling expenses. The pre-tax net gain on
this disposition was $1,008 and has been recognized as a nonrecurring item in
the consolidated statements of income.
E. BUSINESS DISPOSITIONS AND NET ASSETS HELD FOR SALE:
On March 6, 1997, the Company sold the business and substantially all
assets of its Eonic operation. Although assets were sold at approximately net
book value, accruals were established for employee separation costs, costs
associated with the collection of accounts receivable and pension plan costs,
resulting in an additional $711 loss on disposition being recognized as a
nonrecurring item in the consolidated statements of income. The Company
received cash of $1.5 million, which was used to reduce long-term debt and a
$816 note due over six years. The note pays interest equal to the prime
interest rate. The Company was negotiating an agreement to sell this division
during 1996 and, accordingly, classified the net assets of this division as a
long-term asset at October 31, 1996.
On October 21, 1996, the Company sold the business and substantially
all assets of its Newcor Machine Tool operation. Although assets were sold at
approximately net book value, accruals were established for employee separation
costs, costs associated with the collection of accounts receivable and pension
plan costs. The Company recorded a loss of $824 at October 31, 1996 for the
loss on the sale of Newcor Machine Tool and the estimated loss on disposition
of Eonic. The remaining accruals associated with these dispositions at October
31, 1997 were not material.
F. INVENTORIES:
Inventories at October 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Costs and estimated earnings of uncompleted
contracts in excess of related billings
of $1,066 in 1997 and $225 in 1996 $ 2,379 $ 4,075
Raw materials 3,752 2,641
Work in process and finished goods 1,953 1,480
-------- --------
$ 8,084 $ 8,196
======== ========
</TABLE>
Costs and estimated earnings of uncompleted contracts in excess of
related billings represents revenue recognized under the percentage of
completion method in excess of amounts billed.
<PAGE> 16
G. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at October 31, 1997 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land and improvements $ 1,096 $ 1,036
Buildings 11,815 11,956
Machinery 25,457 20,935
Office and transportation equipment 3,078 2,893
Construction in progress 1,217 723
-------- --------
42,663 37,543
Less accumulated depreciation 14,544 14,412
-------- --------
$ 28,119 $ 23,131
======== ========
</TABLE>
H. OPERATING LEASES:
The Company leases certain manufacturing equipment and facilities,
office space and other equipment under lease agreements accounted for as
operating leases. Rent expense related to these leases aggregated
approximately $1,342, $866, and $355 in 1997, 1996 and 1995, respectively.
Future minimum rental payments for leases extending beyond one year from
October 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
<S> <C>
1998 $ 1,437
1999 1,297
2000 1,220
2001 1,257
2002 1,246
Thereafter 2,678
-----------
$ 9,135
===========
</TABLE>
The Company also entered into operating lease commitments in October 1997 for
approximately $11 million of equipment, the terms of which have not been
finalized, but are expected to extend over seven years.
I. CREDIT ARRANGEMENTS AND LONG-TERM DEBT:
A summary of long-term debt at October 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revolving credit line $ 17,000 $ 9,300
Term note 10,000 10,000
Limited obligation revenue bonds, variable
interest rate (average 3.8% in 1997 and
3.6% in 1996), payable January 1, 2008 6,100 6,100
-------- --------
$33,100 $ 25,400
======== ========
</TABLE>
As of October 31, 1997, the Company had $17 million outstanding under
a revolving credit agreement with a major U.S. bank which was scheduled to
expire February 28, 1999. At that time the credit agreement allowed for
maximum borrowings of $25 million. The rate of interest on outstanding
borrowings is principally at the Eurodollar base rate plus 1% or 6.63%. During
1996, the Company converted $10 million from the revolving credit agreement to
a term note. The interest rate is fixed at 7.85%. The term note requires
quarterly interest payments through May 1998 and monthly interest and principal
payments from June 1998 through May 2003. The revolving credit agreement and
the term note require the Company to comply with certain financial covenants
including working capital, total debt and tangible net worth.
As mentioned in Note B., the Company increased its revolving credit
agreement to $37 million on December 5, 1997. On January 15, 1998, the
revolving credit agreement was amended to allow the Company to increase total
availability to $50.0 million
<PAGE> 17
upon satisfaction of certain conditions relating to the acquisition financing
for MT&G, Deco and Turn-Matic. The revolving credit agreement is
collateralized by substantially all of the Company's non-real estate assets and
by Rochester Gear, Inc. real estate. The current expiration date for the
revolving credit agreement is February 28, 2001.
In September 1995, Rochester Gear, Inc., a wholly owned subsidiary of
the Company (the Subsidiary), entered into a loan agreement whereby $6.1
million of limited obligation refunding revenue bonds were issued. These bonds
which mature on January 1, 2008 are collateralized by the Subsidiary's land,
building and equipment and guaranteed by the Company.
Total interest payments aggregated $2,114, $2,109, and $1,553 in 1997,
1996, and 1995, respectively. Annual maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
<S> <C>
1998 $ 833
1999 19,000
2000 2,000
2001 2,000
2002 2,000
Thereafter 7,267
-------------
$ 33,100
=============
</TABLE>
J. INCOME TAXES:
Provision (benefit) for federal income taxes from continuing
operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currently payable $ 1,430 $ 940 $ 1,411
Deferred, net 689 674 (181)
-------- ------- -------
$ 2,119 $ 1,614 $ 1,230
======== ======= =======
</TABLE>
Significant components of the deferred tax assets and liabilities as
of October 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued postretirement benefits $ 2,408 $ 2,157
Percentage of completion revenue 265 113
Accrued vacation and employee benefits 380 379
Costs related to sale of businesses 684 1,270
Other 728 819
-------- -------
Total deferred tax assets 4,465 4,738
-------- -------
Deferred tax liabilities:
Depreciation 2,658 1,395
Pensions 755 634
Goodwill and other 374 258
-------- -------
Total deferred tax liabilities 3,787 2,287
-------- -------
Net deferred tax asset $ 678 $ 2,451
======== =======
</TABLE>
Reconciliation of the statutory federal tax rate to the effective rate
is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Nondeductible expenses 2.1 1.6 1.8
Foreign sales corporation (0.5) (1.2) (1.4)
Other items, net (0.3) (3.2) (0.4)
---- ---- ----
Effective tax rate 35.3% 31.2% 34.0%
==== ==== ====
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income taxes paid (refunded) $1,615 $550 $(1,667)
</TABLE>
<PAGE> 19
K. EMPLOYEE RETIREMENT BENEFITS:
Pension Plans:
The Company provides retirement benefits for certain employees under
several defined benefit pension plans. Benefits from these plans are based on
compensation, years of service and either fixed dollar amounts per year of
service or employee compensation during the later years of employment. The
assets of the plans consist principally of cash equivalents, corporate and
government bonds, and common and preferred stocks. The Company's policy is to
fund only amounts required to satisfy minimum legal requirements.
The following tables summarize the funded status, net periodic pension
(benefit) expense and actuarial assumptions:
<TABLE>
<CAPTION>
1997 1996
Accumulated Assets Accumulated
Assets Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefit obligation $16,853 $8,321 $15,438 $ 7,974
Nonvested benefit obligation 214 249 499 99
------- ------ ------- -------
$17,067 $8,570 $15,937 $ 8,073
------- ------ ------- -------
Actuarial present value of
projected benefit
obligations $18,514 $8,570 $17,851 $ 8,073
Plan assets at market value 23,826 7,438 21,230 6,428
------- ------ ------- -------
Plan assets in excess of
(less than) projected
benefit obligation 5,312 (1,132) 3,379 (1,645)
Unrecognized net asset (1,236) (109) (1,500) (131)
Unrecognized net (gain) loss
and other (1,384) 614 414 1,425
------- ------ ------- -------
Prepaid (accrued) pension
expense $2,692 $(627) $ 2,293 $ (351)
====== ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Net periodic pension (benefit) expense: 1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 460 $ 808 $ 846
Interest cost on projected
benefit obligation 1,968 1,938 1,912
Actual return on assets (5,337) (4,045) (4,015)
Amortization of net gain and
deferral 2,828 2,335 2,370
------ ------- -------
Net periodic pension (benefit) expense $(81) $ 1,036 $ 1,113
====== ======= =======
Actuarial assumptions at end of year: 1997 1996 1995
Discount rates 7.5% 8.0% 8.0%
Expected return on plan assets 9.0% 9.0% 9.0%
Compensation increases 5.0% 5.0% 6.0%
</TABLE>
The sale of Wilson during 1996 resulted in Wilson employees no longer
earning additional benefits under the plans. As a result of the recognition of
prior service costs for these employees, the Company recognized a pre-tax
pension curtailment charge of approximately $400 as a component of the loss on
discontinued operations in 1996.
<PAGE> 20
Retiree Health Care and Life Insurance Benefits:
The Company provides health care and life insurance benefits to
certain eligible retired employees but has discontinued retiree health benefits
for all active employees who retire after January 1, 1993. The plans are
unfunded. Benefits and cost-sharing provisions vary by location. Generally,
the medical plans pay a stated percentage of most medical expenses, reduced for
any deductible and payments made by government programs or other group
coverage. The cost of providing most of these benefits is shared with the
retirees. The cost sharing limits the Company's future retiree medical cost
increases to the rate of inflation, as measured by the Consumer Price Index.
The following tables summarize the accrued postretirement benefit
obligation, net periodic postretirement benefit costs and actuarial
assumptions:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $6,048 $6,333
Other fully eligible participants 105 98
------ ------
Total accumulated postretirement
benefit obligations 6,153 6,431
Unrecognized net gain (loss) from changes
in assumptions 185 (86)
------ ------
Accrued postretirement benefit cost $6,338 $6,345
====== ======
1997 1996 1995
Net periodic postretirement benefit cost, principally
interest cost on projected benefit obligations $ 478 $ 485 $ 538
====== ====== ======
1997 1996
Actuarial assumptions:
Discount rates 8.0% 8.0%
Health care cost current rate of increase:
Medical 7.8% 8.0%
Prescription drugs 9.6% 10.0%
Ultimate health care cost rate of
increase by 2004:
Medical 6.0% 6.0%
Prescription drugs 6.0% 6.0%
Increase due to a 1% increase in health
care cost trend rate:
APBO 7.3% 6.6%
Net periodic postretirement benefit cost 7.6% 6.9%
</TABLE>
L. STOCK OPTION PLANS:
The Company has four stock option plans: a 1982 plan and a 1993 plan
which are expired except as to options still outstanding and two 1996 plans
(the Non-Employee Directors Stock Option Plan and the Employee Incentive Stock
Plan). Under the Non-Employee Directors Stock Option Plan, 105,000 common
stock options may be granted to non-employee directors. The Employee Incentive
Stock Plan provides for the use of several long-term incentive compensation
tools for key employees, including incentive stock options which are limited to
a maximum of 315,000 shares. Option prices for both plans must not be less
than the fair market value of the Company's stock on the date granted. Options
are exercisable over 10 years and vest at a rate of 25% each year, commencing
in the second year. The weighted average remaining exercise period relating to
outstanding options at October 31, 1997 is approximately seven years. Options
expire upon termination of employment or one year following death or
retirement. No charge is made against income when options are exercised.
Common stock options outstanding are as follows:
<PAGE> 21
<TABLE>
<CAPTION>
Weighted
Average
Shares Option Price
<S> <C> <C>
Outstanding at November 1, 1994 75,264 $ 8.77
Granted 113,925 6.68
Exercised (1,889) 5.13
Expired (26,364) 9.89
-------
Outstanding at October 31, 1995 160,936 7.63
Granted 16,695 9.01
Exercised (7,631) 5.13
Expired (5,513) 8.33
-------
Outstanding at October 31, 1996 164,487 7.86
Granted 73,815 8.00
Exercised - -
Expired (6,300) 9.14
-------
Outstanding at October 31, 1997 232,002 $ 7.83
-------
Exercisable shares at October 31, 1997 91,062 $ 8.09
=======
Options available to grant at October 31, 1997 339,501
=======
</TABLE>
The Company applies the intrinsic value based method to account for
stock options granted to employees. This method is set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Under this method, no compensation expense is recognized on the grant date
since on that date the option price equals the market price of the underlying
common stock. Net income and net income per share for 1997 and 1996 would not
have been materially different from reported amounts if compensation expense
had been determined based on the fair value method as set forth in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
M. SEGMENT REPORTING:
The Company reports its activities under three industry segments:
Precision Machined Products, Rubber and Plastic, and Special Machines. The
Precision Machined Products segment consists of automotive components and farm
equipment parts machined in dedicated manufacturing cells. The Rubber and
Plastic segment consists of molded rubber and plastic parts primarily for the
automotive industry. These two segments had previously been known as the
Components and Assemblies segment. Further segmentation was due to the growth
of the Company's Components and Assemblies business. Special Machines consist
of standard individual machines, as well as custom designed machines, all
manufactured on a made-to-order basis. Information by industry segment is
summarized below:
<TABLE>
<CAPTION>
Precision
Machined Rubber and Special
Products Plastic Machines Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers (1)
1997 $ 60,471 $ 48,517 $ 21,860 $ 130,848
1996 48,439 32,447 30,858 111,744
1995 42,382 17,165 30,626 90,173
Operating income (loss) from
continuing operations
1997 $ 5,336 $ 2,015 $ 2,275 $ (1,323) $ 8,303
1996 3,711 1,908 2,907 (1,745) 6,781
1995 3,638 1,161 2,228 (1,673) 5,354
Identifiable assets
1997 $ 32,683 $ 34,192 $ 10,855 $ 13,153 $ 90,883
1996 30,789 20,940 15,050 10,720 77,499
1995 32,036 6,050 30,857 8,610 77,553
Capital expenditures
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
1997 $ 1,332 $ 1,057 $ 332 $ 818 $ 3,539
1996 1,547 755 639 5 2,946
1995 3,499 661 395 25 4,580
Depreciation and amortization
1997 $ 2,113 $ 1,677 $ 376 $ 114 $ 4,280
1996 2,278 770 468 106 3,622
1995 2,080 284 453 33 2,850
</TABLE>
(1) Sales to three manufacturers in the automotive industry, all
representing over 10% of consolidated sales, aggregated approximately
$58, $46, and $39 million in 1997, 1996, and 1995, respectively. Sales
to agricultural equipment manufacturers, principally one customer, were
$40, $19, and $14 million in 1997, 1996, and 1995, respectively.
N. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
1997:
Sales $27,975 $34,589 $32,385 $35,899 $130,848
Gross margin 5,330 6,539 5,465 6,431 23,765
Net income 366 1,082 1,222 1,220 3,890
Net income per share $0.07 $0.22 $0.25 $0.25 $0.79
Share prices:
High $ 9.41 $ 9.17 $ 8.69 $ 9.88 -
Low 7.03 7.50 6.91 7.50 -
Dividends 0.05 0.05 0.05 0.05 -
Quarter
First Second Third Fourth Total
1996:
Sales $23,260 $27,128 $27,902 $33,454 $111,744
Gross margin 5,335 5,497 5,038 6,787 22,657
Income from continuing
operations 1,247 834 604 873 3,558
Loss from discontinued
operations (772) (3,931) - - (4,703)
-------- --------- -------- -------- ----------
Net income (loss) $ 475 $(3,097) $ 604 $ 873 $ (1,145)
Earnings (loss) per share:
Continuing operations $ 0.25 $ 0.17 $ 0.12 $ 0.18 $ 0.72
Discontinued operations (0.16) (0.80)
- - (0.96)
--------- --------- --------- --------- ---------
Net income (loss) per share $ 0.09 $ (0.63) $ 0.12 $ 0.18 $ (0.24)
Share prices:
High $ 9.77 $10.23 $11.91 $ 9.41 -
Low 6.91 7.27 8.45 7.86 -
Dividends 0.05 0.05 0.05 0.05 -
</TABLE>
O. CONTINGENT LIABILITIES:
The Company has been notified by one of its largest customers that the
customer is defending itself in a patent infringement lawsuit involving certain
processes/methods used on manufacturing equipment supplied by numerous vendors
including one of the Company's former divisions within the Special Machines
segment. The Company retained responsibility for this matter when it sold the
related business. Certain component suppliers of the Company have been
notified of their potential responsibility to the Company in connection with
this action. The Company does not possess sufficient information to evaluate
the validity of this claim and, accordingly, is unable to determine whether it
will ultimately be required to make any payment related to this lawsuit, or the
extent to which any such payment could be offset or mitigated by claims against
suppliers.
During the past two years, the Company sold several of its businesses,
including the division that produced the equipment described above. In each
case the Company's agreement with the purchaser requires it to indemnify the
purchaser for various claims
<PAGE> 23
including certain environmental, product liability, warranty and other claims
that may arise relating to the conduct of the business before the date of sale,
subject in some cases to limits on the time within which an indemnification
claim may be brought or the maximum amount the Company may be required to pay.
The Company provided for its estimated indemnification obligations when these
businesses were sold and has no reason to believe there are potential claims
against it in excess of this provision, although no specific amounts are
included in such reserve with respect to the patent infringement action
described above.
Various other legal matters arising during the normal course of
business are pending against the Company. Management does not expect that the
ultimate liability, if any, of these matters will have a material effect on
future consolidated financial statements.
<PAGE> 24
FIVE YEAR FINANCIAL SUMMARY
The following financial summary for the years indicated has been
derived from the consolidated financial statements of Newcor, Inc. Information
for 1996 and prior years, excluding balance sheet information, has been
restated for the discontinued operations of Wilson Automation.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating Results
Precision Machined Products:
Sales $ 60,471 $ 48,439 $ 42,382 $ 32,183 $ 24,039
Operating income 5,336 3,711 3,638 2,192 1,182
Rubber and Plastic:
Sales 48,517 32,447 17,165 14,733 12,116
Operating income 2,015 1,908 1,161 1,464 623
Special Machines:
Sales 21,860 30,858 30,626 27,200 29,228
Operating income
(loss) from continuing operations 2,275 2,907 2,228 (3,071) 111
Consolidated:
Sales 130,848 111,744 90,173 74,116 65,383
Gross margin 23,765 22,657 16,618 11,069 11,645
Interest expense 2,070 1,787 1,504 1,111 575
Income (loss) from
continuing operations before
cumulative effect of changes
in accounting principles 3,890 3,558 2,391 (850) 72
Per share income(loss)
from continuing operations
before cumulative effect of
changes in accounting
principles (1) 0.79 0.72 0.49 (0.17) 0.01
Net income (loss) 3,890 (1,145) 881 (2,202) 884
Net income (loss)
per share (1) 0.79 (0.24) 0.18 (0.45) 0.18
Dividends per share (1) 0.19 0.19 0.19 0.19 0.19
Financial Position
Working capital $17,938 $14,951 $ 26,575 $ 32,186 $ 25,309
Current ratio 1.84 1.87 2.63 2.66 2.05
Net property, plant
and equipment 28,119 23,131 24,518 22,793 17,632
Total assets 90,883 77,499 77,553 84,836 73,305
Total debt 33,100 25,400 26,200 31,500 12,000
Shareholders' equity 27,415 24,441 25,909 25,157 28,440
Debt as percent of
total capitalization 54.7% 51.0% 50.3% 55.6% 29.7%
Other Financial Data
Shareholders' equity
per share (1) $5.55 $4.96 $5.27 $5.12 $5.59
Depreciation and amortization
from continuing operations 4,280 3,622 2,850 2,235 1,593
Capital expenditures from
continuing operations 3,539 2,946 4,580 4,568 4,951
Weighted average
shares outstanding (1) 4,940 4,923 4,913 4,895 4,837
</TABLE>
(1) Share and per share data have been restated to reflect a 5% stock dividend
declared on June 11, 1997.
<PAGE> 1
EXHIBIT 21
NEWCOR, INC.
Exhibit 21 to Report on Form 10-K
For the Year Ended October 31, 1997
List of Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction Percentage of
of Outstanding Securities
Name of Subsidiary Incorporation Owned by Parent
<S> <C> <C>
ENC Corp. Michigan 100%
Newcor Foreign Sales Corporation Michigan 100%
Newcor M-T-L, Inc. Michigan 100%
Plastronics Plus, Inc. Wisconsin 100%
Rochester Gear, Inc. Michigan 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Newcor, Inc. on Form S-8 (File Nos. 033-72906, 333-01895, 333-12931, and
333-12937) of our report dated December 5, 1997, except as to the information
presented in Note B, for which the date is January 16, 1998, on our audits of
the consolidated financial statements of Newcor, Inc. as of October 31, 1997 and
1996, and for the years ended October 31, 1997, 1996, and 1995, which report is
incorporated by reference in this Annual Report on Form 10-K.
Detroit, Michigan
January 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 22523
<ALLOWANCES> 0
<INVENTORY> 8084
<CURRENT-ASSETS> 39313
<PP&E> 42663
<DEPRECIATION> 14544
<TOTAL-ASSETS> 90883
<CURRENT-LIABILITIES> 21375
<BONDS> 6100
0
0
<COMMON> 4942
<OTHER-SE> 22473
<TOTAL-LIABILITY-AND-EQUITY> 90883
<SALES> 130848
<TOTAL-REVENUES> 130848
<CGS> 107083
<TOTAL-COSTS> 122545
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2070
<INCOME-PRETAX> 6009
<INCOME-TAX> 2119
<INCOME-CONTINUING> 3890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3890
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
