SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 27, 1998
Commission File Number 1-12767
CHEMFAB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 03-0221503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Daniel Webster Highway
Merrimack, New Hampshire 03054
(Address of principal executive office) (Zip Code)
Registrant's telephone number including
area code: (603) 424-9000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_____.
------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 30, 1998
Common Stock, $ .10 par value 7,850,700 shares
CHEMFAB CORPORATION
INDEX
Part I - Financial Information: Page No.
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Item 1 - Financial Statements
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Consolidated Balance Sheets at September 3
27, 1998 and June 30, 1998
Consolidated Statements of Income for 5
the Three Months Ended September 27,
1998 and September 28, 1997
Consolidated Statements of Cash Flows 6
for the Three Months Ended September
27, 1998 and September 28, 1997
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of 8
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Financial Condition and Results of Operations
---------------------------------------------
Part II - Other Information:
Item 6(a) - Exhibits 11
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Item 6(b) - Reports on Form 8-K 11
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Signatures 12
<TABLE>
<S><C>
CHEMFAB CORPORATION
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CONSOLIDATED BALANCE SHEETS
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(in thousands except par value amounts)
September 27, June 30,
1998 1998
_____________ ___________
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,468 $ 11,099
Receivables:
Trade 19,061 20,946
Other - 17
Inventories 19,750 17,403
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,098 1,373
Prepaid expenses, and other current assets 1,202 720
Deferred tax assets 731 730
-------- --------
Total current assets 47,310 52,288
Property, plant and equipment, at cost 55,701 50,260
Less: accumulated depreciation (27,074) (26,043)
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Net property, plant and equipment 28,627 24,217
Goodwill, net 15,671 9,926
Other assets 2,869 2,673
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Total assets $ 94,477 $ 89,104
======== ========
See accompanying Notes to Consolidated Financial Statements.
CHEMFAB CORPORATION
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CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands except par value amounts)
Sept. 27, June 30,
1998 1998
---------- --------
(Unaudited)
Current liabilities:
Accounts payable and accrued
expenses $ 13,838 $ 12,307
Accrued income taxes 3,164 2,540
Billings in excess of costs and
estimated earnings on
uncompleted contracts 345 151
------- -------
Total current liabilities 17,347 14,998
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Deferred tax liabilities 1,752 1,752
Shareholders' equity:
Preferred stock, par value $.50:
authorized - 1,000 shares,
none issued - -
Common stock, par value $.10:
authorized - 15,000 shares;
issued 8,701 shares at September 27, 1998 870 869
and 8,689 shares at June 30, 1998
Additional paid-in capital 25,115 25,008
Retained earnings 63,429 61,036
Treasury stock, at cost
(877 shares at September 27, 1998
and at June 30, 1998) (15,137) (15,137)
Foreign currency translation
adjustment 1,101 578
------- -------
Total shareholders' equity 75,378 72,354
------- -------
Total liabilities and shareholders' equity $ 94,477 $ 89,104
======= =======
See accompanying Notes to Consolidated Financial Statements.
CHEMFAB CORPORATION
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(in thousands except par value amount)
Three Months Ended
Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
Net sales $ 25,233 $ 22,154
Cost of sales 16,796 14,595
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Gross profit 8,437 7,559
Selling, general and
administrative expenses 4,254 3,969
Research and development 860 659
Other (income) expense (124) 16
Interest income, net (103) (82)
-------- --------
Income before income taxes 3,550 2,997
Provision for income taxes 1,157 959
-------- -------
Net income $ 2,393 $ 2,038
======== ========
Earnings per share:
- Basic $0.31 $0.26
- Diluted $0.30 $0.25
Weighted average common share outstanding:
- Basic 7,816 7,973
- Diluted 8,092 8,281
See accompanying Notes to Consolidated Financial Statements.
CHEMFAB CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(in thousands)
Three Months Ended
------------------
Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
Cash flows from operating activities:
Net income $ 2,393 $ 2,038
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 1,338 1,205
Change in assets and liabilities:
Receivables 2,619 (114)
Costs and estimated earnings in excess
of billings on uncompleted contracts, net (531) 540
Inventories (1,324) (1,262)
Prepaid expenses and other (251) (199)
Other assets (531) (68)
Accounts payable and accrued expenses (37) (1,427)
Accrued income taxes 588 827
Deferred tax assets and liabilities (1) (2)
Total adjustments 1,870 (500)
Net cash provided by operating activities 4,263 1,538
Cash flows from investing activities:
Purchase of Vdb/hi-tex (6,123) 0
Capital expenditures (net) (4,933) (1,205)
Net cash used in investing activities (11,056) (1,205)
Cash flows from financing activities:
Proceeds from exercise of stock options 108 946
Purchase of treasury shares 0 (1,889)
Net cash provided by/(used in) financing 108 (943)
activities
Effect of exchange rate changes on cash 54 (50)
Net decrease in cash and cash equivalents (6,631) (660)
Cash and cash equivalents at beginning of year 11,099 8,055
Cash and cash equivalents at end of period $ 4,468 $ 7,395
========= =========
Interest paid $ 0 $ 0
Income taxes paid $ 677 $ 203
See accompanying Notes to Consolidated Financial Statements
</TABLE>
CHEMFAB CORPORATION
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Notes To Consolidated Financial Statements.
------------------------------------------
September 27, 1998
------------------
(Unaudited)
Note 1- Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements of Chemfab Corporation (the
Company) included in this report reflect all adjustments (consisting
of only normally recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial position at September 27, 1998 and June 30, 1998 and the
consolidated statements of income and cash flows for the three months
ended September 27, 1998 and September 28, 1997. The unaudited
results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year.
Certain notes and other information have been condensed or omitted
from these interim financial statements. The statements, therefore,
should be read in conjunction with the consolidated financial
statements and related notes included in the Chemfab Corporation
Annual Report on Form 10-K for the year ended June 30, 1998 (file
no. 1-12767).
Note 2- Acquisitions:
Purchase - Vdb/hi-tex Technische Gewebe Gmbh
On September 7, 1998 the Company completed the purchase of the
business assets (principally inventory, equipment, certain liabilities
and accounts payable, accruals and intangibles) of Vdb/hi-tex Technische
Gewebe Gmbh (Vdb) for approximately $6.2 million in cash including
associated transaction costs. The acquisition was accounted for using
the purchase method of accounting. Prior to the acquisition, Vdb's main
business was in the fabrication and distribution of PTFE composite
products principally purchased from Chemfab. This business is
expected to continue. Vdb's primary markets are in Germany, Turkey
and Eastern European countries. The acquisition of Vdb resulted in the
recognition of goodwill of approximately $5.9 million which will be
amortized over 15 years.
Note 3- Inventories:
Inventories consist of the following:
Sept. 27, 1998 June 30,1998
-------------- ------------
(in thousands)
Finished Goods $ 7,832 $ 5,674
Work in Process 6,344 7,396
Raw Materials 5,574 4,333
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$19,750 $17,403
======= =======
Note 4- Commitments and Contingencies:
The Birdair, Inc. (Birdair) litigation described in Part 1, Item 3 in
the fiscal 1998 Annual Report is still pending. The Company
vigorously denies liability. While the litigation is in the early
stages of pretrial discovery, the Company continues its efforts to
resolve the dispute.
Various other lawsuits and claims are pending or have been asserted by
and against the Company, including matters previously disclosed by the
Company in its Form 10-K for the year ended June 30, 1998. Although
the outcome of such matters cannot be predicted with certainty and
some lawsuits or claims may be disposed of unfavorably to the Company,
management believes that the disposition of its current legal
proceedings, to the extent not covered by insurance, will not have a
material adverse effect on the Company's financial condition and
results of operations.
ITEM 2 Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Three Months Ended September 27, 1998
-------------------------------------
Net Sales
- ---------
The Company's consolidated net sales for the three months ended September 27,
1998, the first quarter of fiscal 1999, increased 14% to $25,233,000 from
$22,154,000 in the same quarter last year. Shipments of the Company's
engineered products worldwide increased 4% over the year earlier period while
shipments of architectural products rose 73%. Had mainland European currencies
and the Pound Sterling remained at the same exchange rates as last year,
consolidated revenue would have increased by 13% and worldwide engineered
products would have increased by 3% over the previous year.
Engineered Products - Americas sourced sales (which include all non-
architectural product sales from the Company's U.S. manufacturing plants;
principal geographic markets are the Americas and the Far East) increased 4% to
$11,898,000 from $11,472,000 for the same quarter last year. This sales
increase resulted principally from strength in the Company's food processing
markets. It is expected that revenues from sales of engineered products,
particularly into the Americas, will remain relatively solid through the end of
the fiscal year.
Engineered Products - Europe sourced sales (which include all product sales from
the Company's European manufacturing plants; principal geographic markets are
Europe, Africa and the Far East) increased to $6,429,000 from $6,054,000 in the
same quarter last year. The British Pound, which is the currency in which the
Company's European sales are recorded, strengthened relative to mainland
European currencies and relative to the U.S. Dollar. Measured in constant
currency rates, sales would have increased 2% over the same period last year.
The impact of the purchase of Vdb (see Note 2) was minor as the acquisition was
transacted shortly before the end of the quarter. For the remainder of the
year, the Company expects to benefit from the inclusion of the revenue from the
Vdb acquisition. Sales growth for the balance of the European business is
expected to continue at approximately the same rate for the remainder of the
fiscal year.
Engineered Products - Asia Pacific Business Group sales (which include all non-
architectural product sales to customers in the Far East and Australia)
decreased slightly to $1,479,000 from $1,500,000 in the same quarter last year.
This decrease was the result of a continued weakness of the economy in certain
Asian countries which has caused a downward trend in revenues. Percentage
revenue growth from industrial product shipments into the Asia Pacific region is
expected to continue at approximately this level for the remainder of the fiscal
year.
Architectural Product sales increased 73% to $5,427,000 from $3,128,000 in the
same quarter last year. This increase in revenues was the result of an increase
in sizable projects underway to-date this year versus last year. On September
30, 1998, the Company entered into a $28,600,000 million contract to supply
PTFE-coated fabric as the roof membrane for thousands of tent-styled shelters in
Mina, Kingdom of Saudi Arabia. The Company expects to ship the entire order in
fiscal 1999, subject to various normal raw material and production risks
associated with large-volume orders. Based on recent post-period order entry
and other relevant market data, the Company expects that architectural product
sales for the remainder of the year are likely to continue at record levels,
subject to various normal raw material and production risks associated with
record volumes.
Gross Profit Margins
- --------------------
Gross profit margins as a percentage of consolidated net sales declined slightly
to 33.4% for the quarter, down from 34.1% for the first quarter of last year.
The decline is principally attributable to product mix, with high architectural
sales, and some out-of-period costs associated with the Tent City project, the
revenues for which are not expected to be realized until the second and third
quarter of fiscal year 1999.
Selling, Administrative, Research and Development Expenses
- ----------------------------------------------------------
Selling, general and administrative expenses increased 7% to $4,254,000 from
$3,969,000 in the same quarter last year. Increased selling, general and
administration expenditures resulted from additional expenses relating to Vdb
(see Note 2) and additional legal expenses, as well as normal increases in
salaries and other costs. Selling, general and administrative expenses as a
percentage of sales were 17%, down slightly from the first quarter of last year.
Research and development expenses were $860,000 compared to last year's level of
$659,000. This level of spending, at approximately 3% of total revenues, is
consistent with recent, as well as planned, levels of research and development
spending.
Interest Expense, Net
- ---------------------
The Company had net interest income of $103,000 for the quarter compared to net
interest income of $82,000 for the same quarter last year, largely as a result
of excess average cash balances.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 27, 1998, the Company generated $4,263,000 of
cash from operations, which was up from the same quarter of the prior year.
During this same period, the Company invested $4,933,000 in property, plant and
equipment additions, and expended $6,123,000 to acquire Vdb/hi-tex Technische
Gewebe Gmbh (see Note 2). The Company also received $108,000 in cash proceeds
and related tax benefits from the exercise of stock options during this period.
Working capital decreased to $29,963,000 from $37,290,000 at the end of fiscal
1998. As of September 27, 1998, the Company had approximately $21 million of
additional credit available under its domestic and international borrowing
facilities. During the first month of the second fiscal quarter, the Company
commenced draws on its line of credit to finance operations, and expects that it
will continue to do so in connection with the cash flow requirements of the Tent
City project. Management believes that the combination of cash on hand, cash
expected to be generated from operations, and available credit facilities will
be adequate to finance operations during fiscal 1999 and to deal with any
liabilities or contingencies described in Note 4 to the Consolidated Financial
Statements.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Investors are cautioned
that forward-looking statements are inherently uncertain. Actual performance
and results may differ materially from those projected or suggested due to
certain risks and uncertainties, including raw material procurement, production
and related risks, and shipment delays for a contract of the magnitude of Tent
City, fluctuation in the demand for the Company's architectural products and
similar economic and industry risks related to the award and continuation of
certain large projects, and the Company's ability to penetrate the consumer
bakeware liner market. Additional information concerning certain risks and
uncertainties that could cause actual results to differ materially from those
projected or suggested is contained in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998 which has been filed with the Securities
and Exchange Commission. The forward-looking statements contained herein
represent the Company's judgment as of the date of this filing, and the Company
cautions readers not to place undue reliance on such statements.
PART II - OTHER INFORMATION
---------------------------
ITEM 3 _ Legal Proceedings
- --------------------------
See the information under the caption "Note 4 _ Commitments and Contingencies"
in Notes to Consolidated Financial Statements of this 10Q.
ITEM 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
6(a) Exhibits
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10(b)10 Asset Purchase Agreement between Chemfab Corporation and
Vdb/hi-tex Technische Gewebe Gmbh dated July 17, 1998.
6(b) Reports on Form 8-K
-------------------
None.
CHEMFAB CORPORATION
SIGNATURES
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CHEMFAB CORPORATION
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(Registrant)
By:/S/ John W. Verbicky
--------------------
President, Chief Executive Officer and Director
By:/S/Moosa E. Moosa
-----------------
Moosa E. Moosa
Vice President - Finance, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By:/S/ Hilary A. Arwine
--------------------
Hilary A. Arwine
Corporate Controller
(Principal Accounting Officer)
Date: November 11, 1998
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of the 17th day of July, 1998 (this
"Agreement"), is by and among Chemfab Corporation, a Delaware corporation
("Chemfab"); Chemfab Germany GmbH ("Buyer"), a company to be organized under
German law that will be the wholly-owned subsidiary of an overseas holding
company the ultimate controlling person of which is Chemfab; Messrs. Wolfgang
Langer ("Langer"), Joachim Helmut Nestler ("Nestler") and Kurt Reiner Butzler
("Butzler"); Holtzendorff Holding GmbH & Co. KG, a partnership organized under
German law ("Holtzendorff"); Vdb/hi-tex Technische Gewebe GmbH, a corporation
organized under German law (the "Company"); and Schuhmacher EKZ Uetersen KG
("GmbH & Co."), a partnership organized under German law ("Schuhmacher KG").
W I T N E S S E T H:
WHEREAS, Messrs. Langer, Nestler and Butzler (herein, the "Individual
Shareholders") and Holtzendorff (herein, the "Institutional Shareholder") (the
Institutional Shareholder and Individual Shareholders collectively, "Current
Shareholders") own all of the capital stock ("Stock") of the Company.
WHEREAS, the Current Shareholders plan to sell and assign all of the Stock
of the Company to Schuhmacher KG, in connection with a transaction in which the
Company will be merged with and into Schuhmacher KG (herein, the "Merger"), and
in which Schuhmacher KG shall be the surviving company and maintain its
partnership name as "Schuhmacher KG".
WHEREAS, the Company desires to sell to the Buyer, and the Buyer desires to
purchase from the Company, certain assets owned and/or operated by the Company
in connection with the conduct of the Company's PTFE-coated-materials business
unit, namely, the conversion, distribution and sale of PTFE-coated fabrics for
industrial markets and applications in Germany and elsewhere worldwide (such
business conducted by the Company referred to herein as the "Purchased
Business").
WHEREAS, in connection with the Merger, Schuhmacher KG is willing to assume
the Company's agreement and obligation to sell to the Buyer the Purchased
Business and related assets, and to consummate such sale, subject to the terms
and conditions of this Agreement. For purposes of this Agreement, the term
"Seller" refers to the Company, until the effective date of the Merger, and to
Schuhmacher KG, from and after the effective date of the Merger.
WHEREAS, each party will derive substantial direct and indirect economic
benefits from the Seller's sale to the Buyer, and the Buyer's purchase from the
Seller, of the Purchased Business and the assets defined in Section 1.1 below as
the Acquired Assets.
WHEREAS, the parties wish to enter into this Agreement to set forth
explicitly each party's rights and obligations in respect of the sale and
purchase of the Acquired Assets.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Buyer, Chemfab and the Seller hereby agree as follows:
1. PURCHASE AND SALE.
1.1. Acquired Assets. Subject to the terms and conditions set forth in this
Agreement, at the Closing referred to in Section 4 hereof, the Seller shall
sell, assign, transfer title to and deliver to the Buyer, and the Buyer shall
purchase, acquire title to and take assignment and delivery of all of the
following assets of the Seller (all of such assets included in this Section 1.1
are hereinafter referred to collectively as the "Acquired Assets"):
(a) all inventories, including raw materials, work in process and finished
goods, either which are owned (in whole or in part) by the Seller, or in which
the Seller has rights, on the Closing Date (as defined in Section 4.1 hereof)
and are used by the Seller in connection with the Purchased Business
(collectively, the "Inventories"), as more particularly described on the Closing
Inventory Schedule to be delivered by the Seller to the Buyer pursuant to
Section 4.4 hereof, but excluding the Excluded Assets, referred to in Schedule
1.2;
(b) all machinery, equipment, computers, computer peripherals and other
hardware, phone systems, cables and wiring, furniture, fixtures, tools, spare
parts, supplies, materials and other personal property used in the Purchased
Business, including those which are described on Schedule 1.1(b) hereto
(collectively, the "Equipment");
(c) all of Seller's rights as lessee in and to the real property lease
dated 01.06.1984 (the "Lease")between Seller and Rheinbeton ("Landlord") for the
lease of the Company's main facility in Colone, Germany;
(d) all trade accounts receivable (billed and unbilled), notes receivable
and miscellaneous receivables of the Purchased Business outstanding at Closing
listed in Schedule 1.1(d) (but excluding the receivable due from the Turkish
Joint Venture (as defined in Section 4.4 (c)(x) below) and loans due from
related parties);
(e) all of the Seller's right, title and interest in and to its current
corporate name, and any other related trade names, "Von der Bruggen" "Vdb" and
"Vdb/hi-tex", and any and all other trade name or names now or previously used
by the Company or its predecessors (or by which any of them were known)
(collectively "Trade Names");
(f) all of the Seller's title to, interest in, and rights under, the
contracts, leases, and agreements described on Schedule 1.1(f) hereto, for the
purchase or sale of utilities, equipment, goods, materials and services for use
in connection with the Purchased Business (the contracts and agreements referred
to in this Section 1.1(f) being referred to herein, collectively, as the "Other
Contracts");
(g) all of the Seller's title to, interest in, and rights under, the
purchase orders of customers issued to the Purchased Business ("Customer
Purchase Orders") and purchase orders of the Purchased Business issued to
vendors ("Vdb Purchase Orders"), in each case to the extent listed on Schedule
1.1(g) hereto;
(h) all of the Seller's trademarks, trade names, copyrights, designs,
patents, "small patents" (i.e., Gebrauchsmaster, and/or Geschmacksmuster)
licenses and applications with respect to any of the foregoing, and all
continuation, substitution, renewals, reassurances and division of any patents,
trademarks and patent and trademark applications of the Seller, and all of the
Seller's software products and related licenses, websites and domain names,
telephone and fax-phone numbers, production records, technical information,
manufacturing know-how, processes, trade secrets, customer lists, claims against
third parties relating to any of the intangible assets described in this Section
1.1(h), and any other intangible assets, in each case to the extent they relate
or pertain to the Purchased Business and including, without limitation, those
described on Schedule 1.1(h) hereto and, to the extent assignable, the Seller's
rights, insofar as they relate to the Purchased Business, arising on or after
the Closing Date under all confidentiality, non-competition and non-solicitation
agreements entered into by Seller with anyone or more of its present or former
employees, agents, suppliers, etc. (the "Confidentiality Agreements")
(collectively, the "Intangibles");
(i) all of the Seller's inventory of promotional materials relating to the
Purchased Business and all of the Seller's inventory of forms relating to the
Purchased Business, including, without limitation, sales quotation forms, sales
invoices, purchase orders, sales acknowledgments, packaging lists and bills of
lading (all of the items referred to in this Section 1.1(f) being referred to
herein, collectively, as the "Promotional Materials and Forms");
(j) all of the Seller's rights under the licenses and permits described on
Schedule 1.1(j) hereto (collectively, the "Permits"), all of which relate to the
Purchased Business; and
(k) all of the Seller's title to, interest in, and rights under any
workers' compensation, commercial liability, property and casualty, and/or other
insurance policies (herein "Insurances") providing coverage (whether on an
"occurrence" basis and/or a "claims made" basis) for the Purchased Business, its
operations and/or any of the Acquired Assets, with respect to claims arising
and/or made (for the first time) on or after the Closing.
(l) all of the Seller's accounting books, records and ledgers, employment
and personnel records for all employees of the Purchased Business, manufacturing
records, quality control records, formulations, bills of material, routings,
customer records, historical purchasing information and hazardous waste disposal
records, in each case to the extent relating to and pertaining to the Purchased
Business or any of the Acquired Assets, and any and all other documents and
records relating to the Acquired Assets, unless the transfer of such original
records would violate pertinent German law. In the latter case, the Seller will
convey copies or other appropriate forms of the foregoing; and
(m) for the benefit of the Company's employees, any and all pension plans,
assets, or other assets relating to any Employee Benefit Plan (as defined in
Station 5.15(a)) in which the Seller or any of Seller's employees has an
interest, as listed in Part 2 of Schedule 1.) (m) hereto (the transferred
pension assets herein the ,"Pension Assets").
It is understood that the Lease, Other Contracts, Customer Purchase Orders, Vdb
Purchase Orders, Confidentiality Agreements, Permits and other contracts or
arrangements (collectively "Transferred Agreements") with third parties shall be
purchased by and assigned to Buyer in connection with the transfer of the
Purchased Business only (i) to the extent assignable to Buyer in accordance with
their terms or by operation of law, or (ii) to the extent Seller procures the
consent to such assignment of the other party(ies) (herein, the "Contract
Obligees") to such Transferred Agreements.
1.2. Excluded Assets. Notwithstanding the foregoing, the Seller shall not
sell to the Buyer, and the Buyer shall not purchase from the Seller the excluded
assets listed on Schedule 1.2 (including any of the following assets of the
Seller) (collectively, the "Excluded Assets"), as contemplated by the
allocations made in the right-hand column entitled "EKZ KG" Schedule 13.9, as
described in Section 13.9(a) below:
(a) except for the Pension Assets, any of the Seller's cash, marketable or
other securities, commercial paper and cash equivalents or other investments, on
hand or in bank accounts at Closing, and all of the Seller's bank accounts;
(b) all of Seller's title to, interest in, and rights under, any
collective bargaining agreement and other employment agreements; and
(c) all corporate records, and all other documents, books and records, of
the Seller not relating to the Purchased Business.
2. PURCHASE PRICE.
2.1. Initial Price; Loan Payoffs. The Buyer shall pay to the Seller an
amount equal to 7,599,000 Deutsche Marks (DM) (the "Initial Price"), subject to
adjustment pursuant to Section 4.3 below (and the Initial Price, as so adjusted,
herein the "Final Purchase Price"). In addition, at Closing, the Buyer shall
pay the principal of the "Shareholder Loan(s)" and "Related-Party Loans(s)" on
the Seller's books, which are reflected as items 13 and 14 on Schedule 13.9
hereto (such Loans herein the "Designated Loans"), up to a maximum amount of DM
2,801,000 (such principal repayments, subject to the foregoing cap, herein the
"Loan Payoff Amounts").
As provided in Sections 4.2 hereof, at the Closing the Buyer shall pay to the
Seller the Closing Payment (as defined in Section 4.2) and shall pay to the
holders of the Designated Loans ("Holders") the Loan Payoff Amounts, by wire
transfer thereof in immediately available funds to the account designated by the
Seller and such Holders. The Initial Price (and the Final Purchase Price after
adjustment pursuant to Section 4.3 hereof) will be allocated among the Acquired
Assets in the manner set forth in Section 13.9 hereof.
3. LIABILITIES.
3.1 Assumption Of Certain Obligations. The liabilities of the Purchased
Business shall be allocated among Seller and Buyer as set forth in this Section
3.
(a) Trade and Other Disclosed Liabilities. At the Closing, the Buyer
shall assume, and agree to pay, perform, fulfill and discharge, all obligations
of the Seller disclosed in Schedule 3.1 (a) or noted in the Financial Statements
(as defined in Section 5.5 below) (in either case, however, only up to the
amount reserved or accrued for in the Financial Statements or Schedule 3.1(a))
including obligations arising under the (i) Other Contracts, (ii) Vdb Purchase
Orders, and (iii) the Customer Purchase Orders; and bonuses and benefits payable
to Vdb employees as of Closing, but only to the extent actually reserved for on
the Seller's books. To the extent not so reserved on the Seller's books, Seller
shall promptly reimburse Buyer for any such expenses not so reserved.
The obligations assumed by the Buyer pursuant of this Section 3.1 are referred
to herein as the "Assumed Obligations".
3.2 Excluded Liabilities. The Buyer shall not assume, and shall not be
deemed to have assumed for any purpose whatsoever, any liability or obligation
of the Seller of any kind or nature that (i) relate to or arise from any actual
or alleged liability for international, federal, state or local taxes of any
kind (including without limitation, income, sales, value-added, payroll, other
employment-related, capital gains, and other taxes) for any period prior to the
Closing (herein, the "Retained Tax Liabilities"), (ii) all bank debt and other
liabilities that are listed in Schedule 3.2 or are in excess of liability
amounts or risk levels listed therein, or, even if not listed on Schedule 3.2,
(iii) that is not disclosed in Schedule 3.1 or noted in the Financial Statements
or is in excess of reserve levels noted therein (as defined in Section 5.5),
(iv) that is listed in the right-hand column entitled "EKZ KG" of Schedule 13.9,
and (iv) that is listed in the right-hand column entitled "EKZ KG" of Schedule
13.9, and (v) any obligations accrued or due at or after Closing under the
Designated Loans in excess of the Loan Payoff Amounts (collectively herein the
"Designated Loans Balance") (with all such unassumed liabilities and obligations
described in this Section 3.2 referred to herein as the "Excluded Liabilities").
4. CLOSING.
4.1. Time and Place. The closing of the transfer and delivery of all
documents and instruments necessary to consummate the transactions contemplated
by this Agreement (the "Closing") shall be held at the law offices of Hasche
Eschenlohr in Frankfurt, Germany, on or before August 14, 1998, provided that
the Merger shall have been consummated and become effective by August 7, 1998.
In the event that the Merger has not become effective by and as of August 7,
1998, the Closing shall occur seven days after the Merger becomes effective.
For example, if the Merger becomes effective on August 24, 1998, the Closing
shall occur on August 31, 1998. The date on which the Closing is actually held
hereunder is sometimes referred to herein as the "Closing Date". If the Merger
has not become effective by September 23, 1998, either party shall have the
option to terminate this Agreement.
4.2. Transactions at Closing. At the Closing:
(a) The Seller shall duly execute and deliver to the Buyer or its nominee
or nominees such deeds, bills of sale, certificates of title, lien discharge
instruments (with respect to Mortgage Liens, as described in Section 5.9 below)
and other instruments of assignment or transfer with respect to the Acquired
Assets as the Buyer may reasonably request and as may be necessary to vest in
the Buyer good record and marketable title to all of the Acquired Assets, in
each case subject to no Encumbrance (as defined in Section 5.9 hereof) except
for the Encumbrances specified in Schedule 4.2(a) hereto (the "Permitted
Encumbrances").
(b) The Buyer shall deliver to the Seller DM 7,599,000 (the "Closing
Payment") by wire transfer thereof in immediately available funds to an account
designated by the Seller; and shall deliver to the Holders the Loan Payoff
Amounts by wire transfer thereof in immediately available funds to an account
designated by the Holders.
(c) The Seller shall deliver to Buyer written consents of each of the
Contract Obligees to the assignment by Seller to Buyer of all Transferred
Agreements as follows:
(i) at Closing, with respect to all Transferred Agreements with
customers, suppliers or vendors of the Purchased Business whose purchases or
supplies amount to ten percent (10%) or more of the products and sales, or raw
materials and purchases, respectively, of the Purchased Business;
(ii) at Closing or within 30 days thereafter, written consents with
respect to all other Transferred Agreements.
(d) The Buyer shall duly execute and deliver to the Seller such
instruments of assumption with respect to the Assumed Obligations as the Seller
may reasonably request.
(e) The Seller shall deliver (i) a certificate confirming that it has not
changed its partnership name from Schuhmacher KG and that it has not adopted and
has no plans to adopt as its partnership name any of the Trade Names, and (ii)
an instrument of assignment transferring the Trade Names to the Buyer.
(f) The Seller shall be liable for and pay all income, sales, value-added,
capital gain, stamp or negotiable instrument, transfer, real estate property
and/or gains, and other national, federal, state and local taxes attributable
to, arising from, or relating to the sale and transfer of the Acquired Assets to
Buyer.
4.3. Purchase Price Adjustment. Upon determination of the Vdb Net Asset
Value pursuant to, and in accordance with, the provisions of Section 4.4 hereof:
(a) if the Vdb Net Asset Value is less than DM 809,000, then (A) the
Payment for the Acquired Assets shall be reduced, DM for DM by the amount of
such short-fall (with the amount of the Payment for the Acquired Assets as so
reduced referred to herein as the "Final Purchase Price"), and (B) the Seller
shall pay to the Buyer an amount equal to (x) the Initial Purchase Price, less
(y) "Final Purchase Price" (herein, the "Adjustment Payment").
(b) if the Vdb Net Asset Value is greater than DM 809,000, -- then (A) the
Payment for the Acquired Assets shall be increased, DM for DM, by the amount of
such excess (with the amount of the Initial Purchase Price as so increased also
referred to herein as the "Final Purchase Price") and (B) the Buyer shall pay to
the Seller an amount equal to (x) the Final Purchase Price less (y) the Initial
Purchase Price (herein the "Adjustment Payment").
(d) The Adjustment Payment due by the Seller to the Buyer or by the Buyer
to the Seller pursuant to this Section 4.3 shall be paid, no later than ten (10)
business days after the final determination of the Vdb Net Asset Value, by wire
transfer of immediately available funds to such account as shall be designated
by the recipient.
4.4 Vdb Net Asset Value.
The Vdb Net Asset Value shall be defined as the difference between the
value of the Acquired Assets less the amount of the Assumed Obligations assumed
by the Buyer, subject however (x) to the use of the methodology for allocation
at Closing of the assets and liabilities of the Purchased Business described in
Section 13(a) below, and (y) to the terms and conditions set forth below in this
Section 4.4.
(a) At the Closing Date, Seller shall deliver to the Buyer (i) unaudited
financial statements (including a profit and loss statement and a statement of
cash flows for the month of June and for the six-month period ending June
30,1998, and a balance sheet as of June 30,1998 (the " Trial Balance Street",
and together with the foregoing P&L and cash flow statements, herein the "
Interim Financials") prepared in accordance with Generally Accepted Accounting
Policy in Germany, consistently applied ("German GAAP"); and (ii) a complete
list of the Acquired Assets (the "Asset List").
(b) Within five (5) days after the Closing Date, the Seller shall deliver
to the Buyer a schedule (the "Closing Inventory Schedule") setting forth the
results of a physical count of the Inventory as of the close of business on the
last business day preceding the Closing Date. With respect to the taking of any
such physical count of Inventory pursuant to this Section 4.4(a), the Seller
agrees that representatives of the Buyer and Ernst & Young, the Buyer's
certified independent public accounting firm, shall have the right to observe
the taking of such physical count of the Inventory and the preparation of the
Closing Inventory Schedule.
(c) Within ninety (90) days after the Closing, Ernst & Young shall prepare
and deliver to the Seller (i) an audit report of the count and value of the
Acquired Assets, as listed or referenced on the Asset List, (ii) audited
financial statements of the Purchased Business as of the Closing Date, and (iii)
a calculation of the tangible net worth of the Acquired Assets (i.e., the
difference between the value of the current and tangible assets in the Acquired
Assets less the value of the Assumed Obligations) as of the Closing Date, in
each case determined in accordance with German GAAP (the audited financials and
calculation of net worth and loan balances sometimes hereafter referred to as
the "report and calculation"). In connection with these audits, Ernst & Young
shall: (w) completely write off the remaining DM 65,000 investment in the
Turkish joint venture knows as Hi-Tex Turkey (herein the "Turkish Joint
Venture"); (x) value all inventory and tangible assets at cost in accordance
with German GAAP; (y) make appropriate reserves or adjustments for: bonuses and
benefits accrued in favor of Vdb employees as of the Closing, but only to the
extent assumed by Buyer; any and all expenses accrued or accruable (in
connection with German GAAP) for distributor or agent bonuses, discounts and/or
other incentive arrangements, or future terminations of such distributorship or
agency; obsolete or slow-moving inventory, and completely write-off all
inventory older than one (1) year; aged or disputed receivables; obsolete
equipment; and any lack of consent from a Contract Obligee to the assignment of
a pertinent Transferred Agreement, any failure of the Seller to transfer and
assign one or more of the Transferred Agreements, and/or customer defections or
terminations; and (z) not include any value for the Intangibles. The Seller
shall give Ernst & Young such access to the Seller's books, work papers and
records, and to all work papers and supporting collateral documents in the
possession of its independent accountants.
(d) The report and calculation prepared pursuant to Section 4.4(c) above
shall be final, binding and conclusive on the parties hereto unless, within
thirty (30) days after the delivery of such audited report to the Seller, the
Seller gives written notice to the Buyer of the Seller's objection to such
report and calculation or any portion thereof and stating the general basis of
such objection. If, within fifteen (15) days after the giving by the Seller of
any such written notice to the Buyer, the Seller and the Buyer are unable to
reach agreement with respect to such report and calculation or any portion
thereof objected to by the Seller, the Seller shall have the right to direct its
independent accountants to prepare its own audited report and calculation of the
assets' worth and loan balances, which calculation shall be prepared pursuant
to, and in accordance with, the provisions of Section 4.4(c) hereof. Seller's
accountants shall have access to Ernst & Young's work papers relating to the
report and calculation as is reasonably necessary for Seller's accountants to
test the report and its effect its own calculation. If after such calculation
of the assets' worth by Seller's accountants, the Buyer and the Seller are still
unable to agree on the calculation of Vdb's tangible net worth, then the Buyer
and the Seller shall select a third internationally recognized independent
public accounting firm to prepare its own calculation of Vdb's tangible net
worth which calculation shall be prepared pursuant to, and in accordance with,
the provisions of Section 4.4(c) hereof. The determination of such calculation
of Vdb's tangible net worth by such third accounting firm shall be final,
binding and conclusive on the parties, except that if such calculation falls
outside the range between Seller's accountants' and Ernst & Young's
calculations, then the calculations shall be based on whichever of such
calculations was closer to the calculations of such third accounting firm. The
Seller shall, for purposes of any such calculations, afford to such third
accounting firm with the same access to its books, work papers and records, and
to the work papers and supporting collateral documents in the possession of its
accountants relating to the calculations of Vdb's tangible net worth, as is
required to be afforded to Ernst & Young pursuant to Section 4.4(c).
(e) Each of the Seller and the Buyer shall pay the cost of its own
independent public accounting firm and shall bear one-half (1/2) of the total
cost of the third independent public accounting firm, if one is selected for
purposes of, and pursuant to, this Section 4.4.
(f) The final determination of the calculation of the Company's tangible
net worth, as of the Closing Date, pursuant to the procedures described in
Section 4.4 (c) (and, if applicable, Section 4.4(d)), is referred to herein as
the "Vdb Net Asset Value".
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE CURRENT
SHAREHOLDERS.
The Seller and each of the Shareholders jointly and severally represent and
warrant to the Buyer and Chemfab as follows:
5.1. Organization; Authority. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization. The Seller has full power and authority to own and
hold the Acquired Assets, to carry on the Purchased Business and to own or lease
and operate its properties as such Purchased Business is now conducted and such
properties are now owned, leased or operated, to execute and deliver this
Agreement and the Lease Agreement (as defined in Section 7.9 hereof) and to
carry out all actions required of the Seller pursuant to the terms of this
Agreement and the Lease. The Seller has full power and authority to execute and
deliver this Agreement and to carry out all actions required of Seller pursuant
to the terms of this Agreement.
5.2. Corporate Approval; Binding Effect. The Company has obtained all
necessary director, shareholder, and other authorizations and approvals required
for the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against it in accordance with its terms.
5.3. Non-Contravention. Except as set forth on Schedule 5.3 hereto,
neither the execution and delivery of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby will
constitute a violation of, or be in conflict with, or constitute or create a
default under, or result in the creation or imposition of any Encumbrance upon
any property of the Company (including, without limitation, any of the Acquired
Assets owned or held by the Seller) pursuant to, (a) any Transferred Agreement
or any other agreement or commitment to which the Company is a party or by which
such Company or any of its properties (including, without limitation, any of the
Acquired Assets owned or held by the Seller) is bound or to which the Company or
any of its properties is subject, (b) any statute or any judgement, decree,
order, regulation or rule of any court or governmental authority or (c) the
charter and by-laws of the Company.
5.4. Governmental Consents; Transferability of Licenses Etc. Except as set
forth on Schedule 5.4 hereto, no consent, approval or authorization of, or
registration, qualification or filing with, any governmental agency or authority
is required for the execution and delivery of this Agreement by the Company or
for the consummation by the Company or the transactions contemplated hereby or
thereby. To the best knowledge of the Company, the Seller holds and has
maintained, prior to Closing, and the Permits listed on Schedule 1.1 (j) hereto
include, all such licenses, permits and other authorizations from all such
governmental authorities as are necessary or desirable for the conduct of the
Purchased Business or in connection with the ownership or use of the Acquired
Assets (including, without limitation, all air and water discharge permits
required in connection with the Seller's operations at its manufacturing
facility located in Colone, Germany), each of which, except as expressly
designated on Schedule 5.4 hereto, is transferable to the Buyer, and true and
complete copies of all of which have previously been delivered to the Buyer.
5.5. Financial Statements. The Seller has delivered the following
financial statements to the Buyer, and there are attached as Schedule 5.5
hereto: (i) the Company's audited statements of income and loss and cash flows
and balance sheets (herein, "financial statements") for the 12-month periods
ending December 31, 1995, 1996 and 1997 (collectively, the "Annual Financial
Statements"); and (ii) the unaudited financial statements of the Company for
the six-month period ending June 30, 1998 (herein, the "stub-period financials";
the Annual Financial Statements and stub-period financials being referred to
herein, collectively, as the "Historical Financials"; and the Historical
Financials and Interim Financials collectively herein the "Financials"). The
Financials have been or will be prepared in accordance with German GAAP (except,
in the case of the stub-period financials and Interim Financials, for a lack of
footnotes and subject to year end audit adjustments consisting only of routine
accruals); each of the statement of assets and estimated liabilities included in
the Financials is or will be true and accurate in all material respects and
fairly presents the financial condition of the Seller as of its date; and each
of the statement of income included in the Financials is or will be true and
accurate in all material respects and fairly presents the results of operations
of the Sellers for the period covered thereby.
5.6. Absence of Certain Changes. Except as set forth on Schedule 5.6
hereto, since December 31, 1997 the Seller has carried on the Purchased Business
only in the ordinary course, and there has been no change in the condition
(financial or otherwise), results of operations, assets, liabilities or business
of the Purchased Business other than changes arising in the ordinary course of
business, none of which, either individually or in the aggregate, has been
materially adverse. Without limiting the foregoing, since such date there has
been, in respect of the Purchased Business, no (i) material adverse changes in
key customer relationships, (ii) decrease in the gross margin, as calculated
pursuant to the cost accounting practices employed by the Seller on a consistent
basis, on sales to any of the Seller's top five customers, (iii) regulatory
changes adversely affecting the Purchased Business, (v) manufacturing or quality
problems which might impact in any material respect future sales or the goodwill
of the business or (v) material damage to, or destruction of, or other material
adverse change in the physical condition, capacity or operation of, any of the
Acquired Assets. Moreover, without limiting any of the foregoing, since
December 31, 1997, the Seller has conducted the Purchased Business on a basis
consistent with its past business practices, has not sold any assets pertaining
to the Purchased Business other than in the ordinary course of business, and has
not accelerated the recording of sales or accounts receivable relating to or
pertaining to the Purchased Business through the use of promotional discounts,
special pricing arrangements, extended or special terms, or other techniques
which would result in sales recognition in excess of the level which would
otherwise have been anticipated during the period since December 31, 1997 by
reference to the last twelve months of actual sales and recent sales trends.
The backlog of the Purchased Business as of December 31, 1997 was DM ______ and
as of [June 30, 1998 was DM ________].
5.7. Litigation, etc. Except as set forth on Schedule 5.7 hereto, no
action, suit, proceeding or investigation is pending or, to the knowledge of the
Company and each of its Shareholders, threatened, relating to or affecting the
Purchased Business or the Acquired Assets, or which questions the validity of
this Agreement or challenges any of the transactions contemplated hereby.
5.8. Conformity to Law. Except as set forth on Schedule 5.8 hereto, the
Seller has complied with, and is in compliance with, (a) all laws, statutes,
governmental regulations and all judicial or administrative tribunal orders,
judgments, writs, injunctions, decrees or similar commands applicable to the
Purchased Business or any of the Acquired Assets (including, without limitation,
any labor, environmental, occupational health, zoning or other law, regulation
or ordinance) and (b) for all unwaived terms and provisions of all contracts,
agreements and indentures to which the Seller is a party and which relate to the
Purchased Business, or by which all or any portion of the Purchased Business or
any of the Acquired Assets is subject, except in the case of (a) or (b) any non-
compliance that individually or in the aggregate will not have a material
adverse effect on the assets, liabilities, condition (financial or other),
operations or prospects of the Purchased Business and will not have a material
adverse effect on the ability of the Company to perform their obligations under
this Agreement and the other agreements to be delivered pursuant hereto
(referred to in this Agreement as a "Material Adverse Effect"). Except as set
forth in Schedule 5.8 hereto, neither the Seller nor any of the Shareholders has
committed, been charged with, or been under investigation with respect to any
violation of any provision of any federal, state or local law or administrative
regulation in respect of the Purchased Business or any of the Acquired Assets.
5.9. Title to Acquired Assets. Except as set forth on Schedule 5.9 hereto,
the Seller is the lawful owner of, has good and valid record (where applicable)
and marketable title to (or otherwise has all necessary and customary retention
of title, lease and/or other interests in), and has the full right to sell
convey, transfer, assign and deliver the Acquired Assets, without any
restrictions. Except for mortgages and other liens described on Schedule 5.9
hereto ("Mortgage Liens") which secure indebtedness for borrowed money and which
will be discharged by the Seller (at its sole cost) at or prior to the Closing,
and except for Permitted Encumbrances, all of the Acquired Assets are free and
clear of any security pledges, liens, claims, charges, options, mortgages,
debts, leases (or subleases), conditional sales agreements, title retention
agreements, encumbrances of any kind, material defects as to title or
restrictions against the transfer or assignment thereof (collectively,
"Encumbrances"). At and as of the Closing, the Seller will convey the Acquired
Assets to the Buyer by deeds, bills of sale, certificates of title and
instruments of assignment and transfer effective to vest in the Buyer, and the
Buyer will have, good and valid record and marketable title to all of the
Acquired Assets, free and clear of all Encumbrances other than Permitted
Encumbrances.
5.10. Real Property; Safety, Zoning and Environmental Matters.
(a) Schedule 5.10 hereto describes the Seller's facility in Colone,
Germany (the "Real Property"). The Seller does not own or lease any real
property in connection with the Purchased Business other than the Real Property
The buildings, plants, improvements and fixtures included as a part of the Real
Property are in useable condition and repair for their present use given the
respective age of each such item and its use in the operation of the Purchased
Business. Neither the Company nor any of its Shareholders has received any
notice that either the whole or any portion of the Real Property is to be
condemned, requisitioned or otherwise taken by any public authority. Neither
the Company nor any of its Shareholders has any knowledge of any public
improvements which may result in special assessments against or otherwise affect
the Real Property.
(b) Except as set forth on Schedule 5.10 hereto and insofar as it relates
to the Purchased Business, neither the Company nor any of its Shareholders
has received notice from any third party including, without limitation, any
federal, state or local governmental authority: (A) that a Company or any
predecessor in interest which operated the Purchased Business has been
identified by the German public authorities or any private person or entity
as a potentially responsible party for infringement or violations of
environmental laws or for wastes generated, stored at or disposed from the
Real Property or the Seller's business; (B) that any hazardous waste, any
hazardous substances, any pollutant or contaminant, or any toxic substance,
oil or hazardous materials or other chemicals or substances regulated by
any Environmental Laws ("Hazardous Substances") which either Company or any
predecessor in interest which operated the Purchased Business has
generated, traded, transformed, transported or disposed of has been found
at any site at which a federal, state or local agency or other third party
has conducted or has ordered that either Company or any predecessor in
interest which operated the Purchased Business conduct a remedial
investigation, removal or other response action pursuant to any
Environmental Law; or (C) that the Company or any predecessor in interest
which operated the Purchased Business is or shall be a named party to any
claim, action, cause of action, complaint, (contingent or otherwise) legal
or administrative proceeding arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Substances; and
(c) Attached as part of Schedule 5.10 hereto is a list of all documents,
reports, site assessments, data, reports, communications or other materials,
which was or is in the possession of the Company and/or any of its Shareholders
or to which any of them has access or which any of them has communicated, that
contain information with respect to potential environmental liabilities
associated with the Real Property and relating to compliance with Environmental
Laws or the environmental condition of the Real Property and adjacent
properties.
5.11. Equipment. Schedule 1.1(b) hereto sets forth a complete and
accurate list of all of the Equipment other than items having a value
individually of less than approximately DM 1,000. The Equipment is utilized by
the Seller in connection with the conduct of the Purchased Business in the
ordinary course and is in good condition and repair for its present use in
connection with the conduct of the Purchased Business.
5.12. Insurance. Schedule 5.12 hereto lists all policies of fire,
liability, workmen's compensation, life, property and casualty and other
insurance owned or held by or maintained for the benefit of the Seller in
connection with the Purchased Business or any of the Acquired Assets.
5.13. Contracts. The Seller has delivered or made available to the
Buyer true, correct and complete copies of all the Other Contracts, Vdb Purchase
Orders and Customer Purchase Orders and Confidentiality Agreements
(collectively, the "Transferred Agreements"), together with all modifications
and supplements thereto. Each of the Transferred Agreements is in full force
and effect according to its stated terms and conditions, and neither the Company
nor any of its Shareholders has any reason to believe that any of the
Transferred Agreements is invalid or that any material breach or default, or
event or condition which with notice or the passage of time or both would
constitute such a breach or default, exists with respect thereto. The Seller
has performed all obligations required to be performed by it to date under each
Transferred Agreement. Subject to obtaining any necessary consents by the other
party or parties to any such contract (the requirement of any such consent being
reflected on Schedule 5.13 hereto), no Transferred Agreement includes any
provision the effect of which may be to enlarge or accelerate any obligations of
the Buyer to be assumed thereunder or give additional rights to any other party
thereto or will in any other way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement. With respect to the
Customer Purchaser Order with _____________ (P.O. # _____) [complete with data
for any large unfilled P.O. in excess of DM 1,000,000], the Seller represents
that the Purchased Business has the capability to fill and ship that order in a
timely manner.
5.14. Compensation of and Contracts with Employees. Schedule 5.14
hereto sets forth a complete and accurate list of each employee of the Purchased
Business and the rate, character and amount of annualized compensation and
bonuses paid to such employee for the fiscal years ended December 31, 1996 and
1997 and the current year. The changes in compensation reflected on such
schedule are for normal merit or other raises and bonuses consistent with
Seller's compensation policy. Except as set forth on Schedule 5.14 hereto, the
Company has not entered into any employment agreement, written or oral, with any
employee. Except as set forth on Schedule 5.14 hereto, since December 31, 1997
the Company has not made any pension, bonus or other payment, other than base
salary, or become obligated to make any such payment, to any of the employees
outside the normal practices, plans and policies of the Seller. Except as set
forth on Schedule 5.14 hereto, the Company has no outstanding loans or advances
to employees.
5.15. Employee Benefit Plans.
(a) Identification of Plans. Except for the arrangements listed or
summarized in Schedule 5.15 hereto, neither the Seller nor any of its Affiliates
(as defined below) maintains, contributes to, or participates in, and neither
the Seller nor any of its Affiliates at any time in the preceding three (3)
years maintained, contributed to, or participated in any pension, profit-
sharing, deferred compensation, bonus, stock option, share appreciation right,
severance, group or individual health, dental, medical, life insurance, survivor
benefit, car allowance, or similar plan, policy or arrangement, whether formal
or informal, for the benefit of any employee, consultant or director of the
Seller. Each of the arrangements set forth in Schedule 5.15 hereto is herein
referred to as an "Employee Benefit Plan". As used in this Agreement,
"Affiliate" means, with respect to any entity, any person, corporation,
partnership or other entity controlling, controlled by or under common control
with, such entity.
(b) Delivery of Documents. The Seller has heretofore delivered or made
available to the Buyer true, correct and complete copies of each Employee
Benefit Plan.
5.16. Labor Relations. Except as set forth on Schedule 5.16 hereto, in
connection with the Purchased Business, there are no pending or threatened labor
claims or litigations against Seller or the Purchased Business, in the labor
courts or elsewhere, and the Company is in full compliance with all federal and
state laws respecting employment and employment practices, terms and conditions
of employment, wages and hours, payroll tax and other payroll withholding, and
nondiscrimination in employment, except for any non-compliances that
individually or in the aggregate will not have a Material Adverse Effect, and
are not engaged in any unfair labor practice. Except as set forth on
Schedule 5.16 hereto, there is no charge pending or, to the knowledge of the
Company or any of its Shareholders, threatened against the Company alleging
unlawful discrimination in employment practices before any court or agency and
there is no charge of or proceeding with regard to any unfair labor practice
against the Company pending before any German labor court. There is no labor
strike, dispute, slow-down or work stoppage actually pending or to the knowledge
of the Company or any of its Shareholders threatened against or involving the
employees of the Company. No one has petitioned within the last three years,
and no one is now petitioning, for union representation of any employees of the
Company. No grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is pending against the Company and no claim
therefor has been asserted. None of the employees of the Company is covered by
any collective bargaining agreement, and no collective bargaining agreement is
currently being negotiated by either Company pertaining to any employees of the
Company. Except as fully described on Schedule 5.16 hereto, the Company has not
experienced any work stoppage during the Shareholders' ownership of the Company.
The Company is not a party to any current "social plan" or other contractual
obligation (including any obligation arising under any agreement with a union or
other collective bargaining unit) that governs, applies to or restricts any
workforce reduction by the Company. The Company does not have a workers'
council.
5.17. Trademarks, Patents, Etc. Schedule 1.1(h) hereto sets forth a
complete and accurate list of (a) all patents, "small patents" (i.e.,
Gebrauchsmaster and/or Geschmacksmuster) trademarks, Trade Names and registered
copyrights, in each case to the extent used or proposed to be used in connection
with the Purchased Business (whether or not registered in the name of the
Company (and/or any of its affiliates) or any of its Shareholders), all
applications therefor, and all licenses and other agreements relating thereto,
and (b) all written agreements relating to technology, know-how and processes
which the Company is licensed or authorized to use by others or which the
Company has licensed or authorized for use by others, in each case in connection
with the Purchased Business. Except to the extent set forth in Schedule 1.1(h)
hereto, the Company owns or has the sole and exclusive right to use all patents
(i.e., Gebrauchsmaster and/or Geschmacksmuster), trademarks, Trade Names and
copyrights, in the jurisdictions in which they are shown as registered, used or
necessary for the conduct of the Purchased Business in the ordinary course as
presently conducted or proposed to be conducted, the consummation of the
transactions contemplated hereby will not alter or impair any such right, and
each of these rights and other Intangibles should be duly transferred to Buyer;
none of the Current Shareholders nor the Seller has granted, assigned, or
licensed to any other person or entity the Trade Names or rights therein. No
claims have been asserted, and no claims are pending, by any person regarding
the use of any such trademarks, trade names, copyrights, technology, know-how or
processes, or challenging or questioning the validity or effectiveness of any
license or agreement, and, to the best knowledge of the Company and each of its
Shareholders, there is no basis for such claim. To the knowledge of the Company
and each of its Shareholders, the use by the Company of such patents,
trademarks, trade names, copyrights, technology, know-how or processes used in
the conduct of the Purchased Business in the ordinary course does not
infringe on the rights of any person.
5.18. Suppliers and Customers. Schedule 5.18 hereto sets forth the
five largest suppliers and ten largest customers of the Company for the year
ended December 31, 1997. Except as set forth on Schedule 5.18 hereto, the
relationships of the Seller with such suppliers and customers are good
commercial working relationships and no such supplier or customer has canceled
or otherwise terminated, or threatened in writing to cancel or otherwise to
terminate, its relationship with the Company or has during the last 12 months
decreased materially, or threatened to decrease or limit materially, its
services, supplies or materials to the Company or its usage or purchase of the
services or products of the Company except for normal cyclical changes related
to customers' businesses. Since December 31, 1997, the Seller has not at any
time been placed on C.O.D. terms by any supplier and the Seller is not currently
on C.O.D. terms with any such supplier. Except as set forth on Schedule 5.18
hereto, neither the Company nor any of its Shareholders has any knowledge that
any such supplier or customer intends to cancel or otherwise substantially
modify its relationship with the Company or to decrease materially or limit its
services, supplies or materials to the Company, or its usage or purchase of
services or products of the Company, and to the knowledge of the Company and
each of its Shareholders, the consummation of the transactions contemplated
hereby will not adversely affect the future relationship of the Buyer with any
such supplier or customer.
5.19. Acquired Assets Complete. The Acquired Assets are, when utilized
by a labor force substantially similar to that currently employed by the
Company, adequate to conduct the Purchased Business; and with respect to any and
all assets used or useful in the Company's business that are leased from one or
more of the Shareholders or an affiliate of any Shareholder(s) (all of which
such assets are listed on Schedule 5.19 hereof), the Company has valid leases
therefor (as listed in Schedule 1.1(f) hereto), and each such lease is at market
rates and on other standard commercial terms.
5.20. Brokers. Neither the Company nor any of its Shareholders has
retained, utilized or been represented by any broker or finder in connection
with the transactions contemplated by this Agreement.
5.21. No Undisclosed Liabilities. Except as set forth on any Schedule
hereto or as reflected or reserved against in the Financials delivered to the
Buyer as described in Section 5.5 hereto, the Seller does not have any material
liabilities, indebtedness or obligations of any nature, whether accrued,
absolute, contingent or otherwise, relating to the Purchased Business or the
Acquired Assets.
5.22 Turkish Joint Venture. The Company has commenced appropriate
dissolution proceedings under the laws of Turkey for the dissolution of the
Turkish Joint Venture.
5.23. Disclosure. No representation or warranty by the Company or any
of the Shareholders in this Agreement or in any exhibit, schedule, written
statement, certificate or other document delivered or to be delivered to Buyer
pursuant hereto or in connection with the consummation of the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND CHEMFAB.
The Buyer and Chemfab jointly and severally represent and warrant to each
Company as follows:
6.1. Organization and Standing of Buyer. Each of the Buyer and Chemfab is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of the Buyer and Chemfab has
full power and authority under its Certificate of Incorporation and By-Laws and
applicable laws to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby and thereby.
6.2. Corporate Approval; Binding Effect. Except as provided in Section
7.14 below, each of the Buyer and Chemfab has obtained all necessary
authorizations and approvals required for the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of the Buyer and Chemfab
and constitutes the legal, valid and binding obligation of each of the Buyer and
Chemfab, enforceable against each of the Buyer and Chemfab in accordance with
its terms.
6.3. Non-Contravention. Neither the execution and delivery by each of the
Buyer and Chemfab of this Agreement nor the consummation by each of the Buyer
and Chemfab of the transactions contemplated hereby will constitute a violation
of, or be in conflict with, constitute or create a default under, or result in
the creation or imposition of any liens upon any property of the Buyer or
Chemfab pursuant to (a) the Certificate of Incorporation or By-Laws of the Buyer
or Chemfab, each as amended to date; (b) any agreement or commitment to which
the Buyer or Chemfab is a party or by which the Buyer or Chemfab or any of its
properties is bound or to which the Buyer or Chemfab or any of its properties
is subject; or (c) any statute or any judgment, decree, order, regulation or
rule of any court or governmental authority relating to the Buyer or Chemfab.
6.4. Brokers. Neither the Buyer nor Chemfab has retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
The obligation of the Buyer to consummate the Closing shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions (to
the extent noncompliance is not waived in writing by the Buyer):
7.1 Schedules. The Seller shall have completed, and the Buyer shall have
reviewed and approved, to its reasonable satisfaction, all of the Schedules of
this Agreement.
7.2. Representations and Warranties True at Closing. The representations
and warranties made by the Seller and each of its Shareholders in or pursuant to
this Agreement shall be true and correct at and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
at and as of the Closing Date.
7.3. Compliance With Agreement. The Company shall have performed and
complied with all of its obligations under this Agreement that are to be
performed or complied with by it on or prior to the Closing.
7.4 Merger Effective. The Merger shall have been comsumated and shall be
fully effective under German law on or before September 23, 1998 -- time being
of the essence.
7.5. No Change. Neither the Purchased Business nor any of the Acquired
Assets shall have been, or shall be threatened to be, adversely affected in any
way as a result of fire, explosion, earthquake, disaster, accident, labor
trouble or dispute, change in business organization, any action by the Federal
Republic of Germany or any other governmental authority, change in technology,
obsolescence of product, flood, drought, embargo, riot, civil disturbance,
uprising, activity of armed forces or act of God or public enemy. Since
December 31, 1997, there shall not have occurred any (i) adverse change in the
financial condition or business prospects of the Company or the Purchased
Business; (ii) transactions (other than the consummation of the Merger) or
business activities outside the ordinary course, including without limitation:
material borrowings; the granting or creation of a mortgage or other lien on or
regarding any part or all of the Acquired Assets; and/or the sale, disposition,
or distribution of any product line, business unit or division, or operating
asset(s); and (iii) any dividends, distributions or other payments of any kind,
directly or indirectly, to or on behalf of any of the Current Shareholders'
Stock of the Company (or otherwise, except for payment in the ordinary course of
base compensation).
7.6. Seller's Certificate. The Seller and each of the Current Shareholders
shall have delivered to the Buyer in writing, at and as of the Closing, a
certificate duly executed (respectively) by an authorized partnership officer or
executive of the Seller and each Current Shareholder, in form and substance
satisfactory to the Buyer and the Buyer's counsel, certifying the continued
accuracy of the representations and warranties of Sections 7.2 - 7.6
(inclusive), and 7.8 - 7.11 (inclusive); their compliance with the covenants in
Sections 8A.1 and 8A.2; and that the conditions in each of Sections 8.1 - 8.9
have been satisfied.
7.7. Opinion of Counsel. Ulrich Gorny, counsel to the Seller and the
Shareholders, shall have delivered to the Buyer a written opinion, addressed to
the Buyer and dated the Closing Date, with respect to the Subject matters in
Sections 5.1, 5.2, 5.3, 5.4, 5.6, 5.8, 5.9, 5.10, 5.17, 5.21, 5.22, 5.23, 7.4
and 7.8 in a form reasonably acceptable to the Buyer and its counsel.
7.8. Governmental Approvals. The Seller shall have received, at its
expense, all licenses, permits, and other governmental approvals (including,
without limitation, a Certificate of Dissolution from the Turkish authorities
confirming the dissolution of the Turkish Joint Venture under Turkish law)
deemed necessary in the opinion of the Buyer's counsel for the Seller to
transfer the Acquired Assets to the Buyer, and for the Buyer to own them and
operate the Purchased Business.
7.9. Consent of Third Parties. Subject to Section 4.2(c) above, each
Contract Obligee or other party to any Transferred Agreement or any other
contract with the Seller under which the transactions contemplated by this
Agreement (a) would constitute a default giving rise to a claim for damages or
injunctive relief which could materially adversely affect any of the Acquired
Assets or the business carried on with any of the Acquired Assets, (b) would
accelerate obligations, (c) would permit cancellation of such contract, (d)
which is necessary or reasonably desirable to effect the assignment of such
Transferred Agreement or other contract to Buyer, shall have given such consent
at no expense to the Buyer and in form and substance satisfactory to the Buyer,
as may be necessary to permit the consummation of the transactions contemplated
by this Agreement without default or acceleration under or cancellation of such
contract.
7.10. No Litigation. No restraining order or injunction shall prevent
the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending or threatened before any court or administrative
body (i) in which it will be or is sought to restrain or prohibit or obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby, or (ii) in connection with any claim for
damages in excess of DM 15,000 against the Seller (except for the matters
disclosed on Schedule 5.7 hereto).
7.11. Lease Assignment and Certificates. The Seller shall have
executed and delivered to the Buyer an assignment of its rights in the Lease,
together with a consent to assignment signed by the Landlord, and estoppel
certificates signed by both the seller and the Landlord confirming the terms of
the Lease, that there have not recently been and there are no pending defaults
by either the Landlord or the Seller under the Lease, and other customary
undertakings.
7.12. Buyer Due Diligence. Chemfab and the Buyer shall have completed
and shall be satisfied with the results of their financial, legal and business
due diligence of the Seller's books and records, the Acquired Assets, and the
Purchased Business, including without limitation an audit (using German GAAP) of
the Historical Financials, together with stub period financial statements and
data through and as of the date of closing (collectively, the "Vdb Financial
Information"), conducted by Chemfab's auditors at Chemfab's expense (it being
understood and agreed that the Company will give Chemfab's auditors access to,
and permit them to make copies of, the Vdb Financial Information and related
books and records on a confidential basis), as being reasonably consistent with
the financial condition of the Company as presented in the valuation report
dated February 9, 1998 and prepared by Dr. Dornbach & Partner KG (herein the
"Valuation Report"); and that the Trial Balance Sheet confirms that the Vdb Net
Asset Value is not likely to vary materially from DM 809,000.
7.13 Management Directors. Chemfab shall have reached written and signed
agreement with the current management directors (other than members of the
Schuhmacher family) (herein, the "Company's Management Directors") of the
Company for their employment by the Buyer (after Closing), subject to reasonable
performance criteria.
7.14 Company Employees. Chemfab shall have received from Seller and
reviewed to its satisfaction performance evaluation, compensation histories,
professional growth prospects and other relevant information about each of the
workers employed by Seller; and the Company's Management Directors shall have
assisted Chemfab evaluate each employee and his/her current and projected role
in the Purchased Business. Based on that information and in consultation with
the Company's Management Directors, Chemfab shall have decided about any
necessary workforce reductions, reorganization, and/or new hires by the
Purchased Business after Closing; and shall have reached agreement with the
Seller and the Shareholders regarding the allocations of any and all costs
associated with such employment decisions to be implemented immediately after or
otherwise as the result of the consummation of the transactions contemplated by
this Agreement.
7.15 Chemfab Board Approval. The Board of Directors of Chemfab shall have
authorized Chemfab and the Buyer to enter into this Agreement and to carry out
the transactions contemplated hereby.
7.16. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Buyer in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
all respects to the Buyer and the Buyer's counsel, and the Buyer shall have
received the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
The obligation of the Seller to consummate the Closing shall be subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(to the extent noncompliance is not waived in writing by the Seller):
8.1 Schedules. The Schedules to this Agreement shall have been completed
by the Seller and approved by the Buyer in its reasonable discretion.
8.2. Representations and Warranties True at Closing. The representations
and warranties made by the Buyer and Chemfab in or pursuant to this Agreement
shall be true and correct at and as of the Closing Date with the same effect as
though such representations and warranties had been made or given at and as of
the Closing Date.
8.3. Compliance with Agreement. The Buyer and Chemfab shall have performed
and complied with all of their respective obligations under this Agreement that
are to be performed or complied with by them at or prior to the Closing.
8.4. Closing Certificate. The Buyer and Chemfab shall have delivered to
the Seller and the Shareholders in writing, at and as of the Closing, a
certificate duly executed by the President or any Vice President of the Buyer
and Chemfab, in form and substance satisfactory to the Seller, the Current
Shareholders and their counsel, to the effect that the conditions in each of
Sections 6.1 - 6.4 have been satisfied.
8.5. Consent of Third Parties. Each other party to any contract with the
Buyer under which the transactions contemplated by this Agreement (a) would
constitute a default giving rise to a claim for damages or injunctive relief
which could materially adversely affect any of the Acquired Assets or the
business carried on with any of the Acquired Assets, (b) would accelerate
obligations, or (c) would permit cancellation of such contract, shall have given
such consent at no expense to the Seller and in form and substance satisfactory
to the Seller, as may be necessary to permit the consummation of the
transactions contemplated by this Agreement without default or acceleration
under or cancellation of such contract.
8.6. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body, in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.7. Lease Assumption. The Buyer shall have accepted the assignment of the
Lease and agreed to assume the obligations of the lessee thereunder arising on
an after the Closing Date.
8.8 Merger Effective. The Merger shall have been consummated and shall be
fully effective under German law on or before September 23, 1998 -- time being
of the essence.
8.9. Proceedings and Documents Satisfactory. All proceedings in connection
with the transactions contemplated by this Agreement and all certificates and
documents delivered to the Seller or Shareholders in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
all respects to the Seller, Shareholders and their counsel, and the Seller and
Shareholders shall have received the originals or certified or other copies of
all such records and documents as they may reasonably request.
8A. PRE-CLOSING COVENANTS AND AGREEMENTS.
8A.1 Ordinary Course. Between the date of this Agreement and the Closing
Date, Seller shall not, with respect to or in connection with the Purchased
Business, engage in any business activity or enter into any transaction outside
the ordinary course of business, including without limitation:
(i) material borrowings; the issuance of capital stock in the Company; the
granting or creation of a mortgage or other lien on or regarding the Acquired
Assets; and/or the sale, disposition, or distribution of any product line,
business unit or division, or operating asset(s); and
(ii) any dividends, distributions or other payments of any kind, directly
or indirectly, to or on behalf of any of the Current Shareholders in respect of
their Stock (or otherwise, except for payment in the ordinary course of base
compensation).
8A.2 Exclusivity; No Shop. Between the date of this Agreement and the
Closing Date, none of the Current Shareholders nor Seller shall (i) sell, offer
to sell, or entertain any offers to sell or buy, all or any part of the
Company's Stock or the Purchased Business; (ii) negotiate or discuss with any
third persons regarding any such sale or purchase; and (iii) retain a broker,
financial adviser, investment bank or other agent for the purpose, directly or
indirectly, of preparing the Purchased Business for sale or conducting the
activities prohibited by clauses (i) and/or (ii) above.
8A.3 Minimum Break-Up Fee. In the event that either Seller of Buyer, as
the case maybe, breaches its obligations under this Agreement and as a result
fails to close the sale or purchase, respectively, of the Purchased Business,
then (a) such party shall automatically and promptly pay the non-defaulting
party's Transaction Expenses (as defined in Section 13.1 below), up to but not
exceeding DM 150,000; and (b) the non-defaulting party may exercise any and/or
all of its other remedies at law or in equity, including pursuit of a claim for
damages, specific performance or injunctive relief, subject in each case to
Section 13.5 below.
9. TRANSITIONAL MATTERS AND POST-CLOSING COVENANTS.
9.1. Accounts Receivable Matters.
(a) The Buyer shall undertake to collect, on behalf of the Company, the
receivable in the approximate amount of 311,000 Deutsche Marks due from the
Turkish Joint Venture (herein, the "Turkish Receivable"), and neither the
Company nor any of the Shareholders shall have any involvement or contact with
the Turkish Joint Venture relative thereto. The Buyer shall remit to the
Company periodic payments equal to the difference between (i) net collection
proceeds received in payment of such receivable, less (ii) out-of-pocket
expenses reasonably incurred in the collection of the receivable, and a
servicing fee payable to Buyer of 2 1/2% of all payments received. The Buyer
shall have the right, in its sole discretion, to compromise or settle parts or
all of the Turkish Receivable.
(b) Except as provided in Section 9.1(a) with respect to the Turkish
Receivable, the Seller shall assist Buyer in the collection both of the accounts
receivable of the Purchased Business that are outstanding on the Closing Date
(the "Pre-Closing Accounts Receivable"), and those accounts receivables
generated by the Purchased Business after the Closing Date (the "Post-Closing
Accounts Receivable").
(c) Prior to Closing, Seller shall notify all of its customers of the sale
of the Purchased Business to Buyer, and shall instruct each customer in writing
to remit all payments made after the Closing Date (whether on Pre-Closing
Accounts Receivable and Post-Closing Account Receivables) to the Buyer (made to
the order of the Buyer). Seller shall endorse to the Buyer's order and cause
all payments received at the Seller's existing lockbox account after the Closing
Date to be immediately forwarded to the Buyer. From and after the Closing Date,
any and all payments received by the Seller or any of the Shareholders from any
customer or former customer of the Purchased Business who has outstanding
obligations in respect of both Pre-Closing Accounts Receivable and Post-Closing
Accounts Receivable shall be promptly endorsed to the Buyer's order and sent to
the Buyer.
9.2 Tax Matters. Seller shall (a) cause to be filed with the appropriate
international, federal, state, or local tax authority any and all tax returns of
all kinds with respect to Retained Tax Liabilities, and (b) pay when due all
Retained Tax Liabilities.
9.3. Cooperation. The Seller and the Shareholders acknowledge that the
Buyer and Chemfab will require significant assistance after the Closing in order
to arrange for and implement the smooth transition of the management and
operation of the Purchased Business and to transition the Purchased Business
away from its relationships with some of the Shareholders. The parties hereto
will provide, at no cost to the other, reasonable cooperation to each other to
effectuate a smooth transition of the Purchased Business from the Seller to the
Buyer and to preserve the customer relationships of the Purchased Business.
9.4 Insurances. With respect to prospective claims for losses to be
indemnified by Seller under Section 12.1 of this Agreement, Seller shall
maintain (at its sole cost) Insurances after Closing (including tail insurance,
where applicable) in such amounts and coverages it deems prudent for so long as
its indemnification obligations survive under Section 12.5 below, and shall name
Buyer as a co-insured thereunder at no additional cost to Buyer.
9.5 Trade Names. Neither Schuhmacher KG nor any of the Current
Shareholders shall at any time after Closing use any of the Trade Names, nor
attempt or undertake to grant, give or license to other any of the Trade Names
or any rights therein.
10. CONFIDENTIAL INFORMATION.
(a) The Company and the Shareholders (together with affiliates of all
Shareholders and Shareholders and beneficiaries of the Corporate Shareholder)
(collectively, "Covenantors") shall maintain the confidentiality of, and shall
not use for the benefit of themselves or others, (i) any non-public information
concerning the Purchased Business; or (ii) any non-public information concerning
the Turkish Joint Venture in any manner that is harmful or disadvantageous to
the interests of the Purchased Business, Buyer or Chemfab.
(b) Any and all information disclosed by the Buyer or Chemfab to the
Company or by the Company or the Shareholders to the Buyer or Chemfab as a
result of the negotiations leading to the execution of this Agreement, or in
furtherance thereof, which information was not already known to the Company, the
Shareholders, or to the Buyer or Chemfab, as the case may be, shall remain
confidential to the Company and the Buyer or Chemfab, as the case may be, and
their respective employees and agents.
(c) The information intended to be protected hereby shall include, but not
be limited to, financial information, customers, sales representatives, and
anything else having an economic or pecuniary benefit to the Buyer, Chemfab or
the Company, respectively. Notwithstanding the terms and conditions of
paragraphs (a) and (b) above, nothing contained in this Section 10 shall
restrict: (i) disclosure of any such information required by applicable statute,
rule or regulation or any court of competent jurisdiction, provided that the
non-disclosing party is given prior notice and either prior review or, if
applicable, an adequate opportunity to contest such disclosure, (ii) disclosure
of any such information on a confidential basis to the parties' attorneys,
accountants and lenders, (iii) disclosure of any such information (x) which is
available publicly as of the date of this Agreement or (y) which, after the date
hereof, becomes available publicly through no fault of the disclosing party or
an Affiliate of the disclosing party, (iv) disclosure of any such information to
protect such party's rights under this Agreement or in connection with tax or
other regulatory filings, (v) disclosure by the Buyer and Chemfab of information
relating to the Purchased Business and (vi) any inadvertent or incidental
disclosure of information that is not of a sensitive nature in the context of
the Purchased Business.
11. NON-COMPETITION.
Each of the Seller, the Current Shareholders (together with affiliates of all
Current Shareholders and shareholders and beneficiaries of the Institutional
Shareholder), and the Company's Management Directors acknowledges that the
covenants and agreements in this Section 11 are an essential inducement for
Buyer to acquire the Purchased Business and Acquired Assets, and an essential
condition precedent, to the Buyer's obligation to purchase the Acquired Assets
hereunder, and that the Buyer would not purchase the Acquired Assets but for the
covenants and agreements herein. For a period of five years from the Closing
Date (or, in the case of the Company's Management Directors employed by Buyer
after Closing, for five years after any future termination of employment with
Buyer), the Seller, each of the Current Shareholders (and affiliates, of all
Current Shareholders and shareholders and beneficiaries of the Institutional
Shareholder), and each of the Company's Management Directors (collectively and
separately a "Covenantor") will not (i) engage directly or indirectly in
competition with the Buyer, Chemfab or any of their Affiliates (as defined
below) anywhere in the world, alone or as a shareholder, partner, officer,
director, employee or consultant of any other business organization, in the
business of manufacturing, distributing and/or selling high-performance polymer-
based materials (collectively, the "Restricted Business"), (ii) divert to any
competitor of the Buyer, Chemfab or their Affiliates in the Restricted Business
any customer of the Buyer, or (iii) solicit or encourage any officer, employee
or consultant of the Buyer, Chemfab or their Affiliates to leave its employ for
employment by or with any competitor of the Buyer, Chemfab or their Affiliates
in the Restricted Business. Each Covenantor further acknowledges and agrees
that, in the event of a breach or threatened breach by any Covenantor of its/his
obligations under this Section 11, the Buyer and Chemfab will have no adequate
remedy at law, and accordingly, shall be entitled, without the requirement of
posting any bond, to injunctive or other appropriate equitable remedies against
such breach or threatened breach in addition to any other remedies which it may
have. If at any time the provisions of this Section 11 shall be determined to
be invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 11 shall be considered
divisible and shall become and be immediately amended to cover only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
each Covenantor agrees that this Section 11 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. Each Covenantor further acknowledges and agrees that, although no
separate monetary compensation (other than the payment of the Final Purchase
Price), is identified or payable, in respect of the covenants set forth in this
Section 11, these covenants are an integrated, bargained-for element of the
transfer of the Purchased Business and Acquired Assets to Buyer, and that as a
consequence, the Seller and each Current Shareholder acknowledge receipt as of
the Closing Date of full and adequate payment and consideration for these
covenants.
12. INDEMNIFICATION.
12.1. Indemnity by the Seller and the Current Shareholders. Subject to
the terms and conditions of this Section 12 and the arbitration clause of
Section 13.5, the Seller and each of the Current Shareholders jointly and
severally agree to indemnify and hold the Buyer and Chemfab harmless from and
with respect to any and all claims, liabilities, losses, damages, costs and
expenses, including without limitation the reasonable fees and disbursements of
counsel, net of insurance proceeds actually received (collectively, the
"Losses"), related to or arising directly or indirectly out of any of the
following:
(i) Any inaccuracies in any representation or warranty made by the Company
and/or any Shareholder in or pursuant to this Agreement or the Environmental
Agreement or any failure or breach by the Seller and/or any Shareholder of any
covenant, obligation, or undertaking made by party in this Agreement;
(ii) any of the Excluded Liabilities (whether asserted before or
after the Closing Date), including, without limitation, the following:
(A) the Retained Tax Liabilities, and any actual or alleged
liability for federal, state or local taxes of any kind relating to any period
prior to the Closing, including, without limitation, (x) any federal, state or
local taxes due as a result of any gain realized by the Seller on the sale of
the Acquired Assets to the Buyer, and (y) any state or local use, property or
transfer taxes due as a result of the sale, transfer or lease of the Acquired
Assets, including any German personal property taxes or transfer taxes (any or
all of such tax liabilities herein collectively the "Indemnified Tax
Liabilities"); and
(iii) Except for the Assumed Obligations, any claim or liability
arising under the Section 419 of the German Civil Code (BGB), and Section 75 of
the General Tax Law (AO) in connection with transactions contemplated by this
Agreement.
12.2. Indemnity by the Buyer and Chemfab. Subject to the terms and
conditions of this Section 12 and the arbitration clause of Section 13.5, the
Buyer and Chemfab jointly and severally agree to indemnify and hold the Seller
and the Shareholders harmless from and with respect to any and all claims,
liabilities, losses, damages, costs and expenses, including without limitation
the fees and disbursements of counsel, net of insurance proceeds actually
received (also referred to herein as "Losses"), related to or arising directly
or indirectly out of any of the following:
(i) any inaccuracies in any representation or warranty made by the Buyer
and Chemfab in or pursuant to this Agreement or the Environmental Agreement; or
(ii) any failure or breach by the Buyer and Chemfab of any covenant,
obligation or undertaking made by the Buyer and Chemfab in this Agreement or the
Environmental Agreement (including, without limitation, any failure by the Buyer
to pay or perform any of the Assumed Obligations).
12.3. Claims. (a) Any party seeking indemnification hereunder (the
"Indemnified Party") shall promptly notify one of the other parties hereto
obligated to provide indemnification hereunder (the "Indemnifying Party") of any
action, suit, proceeding, demand or breach (a "Claim") with respect to which the
Indemnified Party claims indemnification hereunder, provided that failure of the
Indemnified Party to give such notice shall not relieve any Indemnifying Party
of its obligations under this Section 12 except to the extent, if at all, that
such Indemnifying Party shall have been prejudiced thereby. If such Claim
relates to any action, suit, proceeding or demand instituted against the
Indemnified Party by a third party (a "Third Party Claim"), upon receipt of such
notice from the Indemnified Party, the Indemnifying Party shall be entitled to
participate in the defense of such Third Party Claim, and if and only if each of
the following conditions is satisfied, the Indemnifying Party may assume the
defense of such Third Party Claim, and, in the case of such an assumption, the
Indemnifying Party shall have the authority to negotiate, compromise and settle
such Third Party Claim:
(i) the Indemnifying Party confirms in writing that it or he is obligated
hereunder to indemnify the Indemnified Party with respect to such Third Party
Claim; and
(ii) the Indemnified Party does not give the Indemnifying Party written
notice that it or he has determined, in the exercise of its or his reasonable
discretion, that matters of corporate or management policy or a conflict of
interest make separate representation by the Indemnified Party's own counsel
advisable.
The Indemnified Party shall retain the right to employ its own counsel and to
participate in the defense of any Third Party Claim, the defense of which has
been assumed by the Indemnifying Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely responsible for its own costs and expenses
in connection with such participation.
(b) In the event of any Claims under Section 12.1 or 12.2 hereof, the
Indemnified Party shall advise the Indemnifying Party in writing of the amount
and circumstances surrounding such Claim. With respect to liquidated Claims, if
within thirty days the Indemnifying Party has not contested such Claim in
writing, the Indemnifying Party will pay the full amount thereof within ten days
after the expiration of such period.
12.4. Method and Manner of Paying Claims. Subject to the Indemnifying
Party's right pursuant to Section 12.3 hereof to defend, negotiate, compromise
and settle a Third Party Claim, the amount of any Claim shall be paid by the
Indemnifying Party forthwith on demand; provided that, (x) if any tax lien
resulting from the Indemnified Tax Liabilities is imposed or arises by operation
of law against the Acquired Assets, the Purchased Business and/or the Buyer; (y)
if the Seller or any of the Shareholders breach its or his obligations under the
Environmental Agreement or under Sections 10 or 11 of this Agreement; or (z)
(subject to the time limitation periods in Section 12.5) have breached their
other representations, warranties, covenants, and/or agreements under this
Agreement, then, in addition to the other remedies set forth in this Agreement,
the Buyer and Chemfab shall have an automatic right to tender payment documents
to the Issuing Bank (with a copy to the Seller) demanding payment against the
Letter of Credit of the amount payable under the Assumed Loans, and any other
monies now or hereafter payable to the Company or any of the Shareholders. If
the Indemnifying Party fails to pay any such Claim forthwith on demand, the
Indemnified Party may (i) proceed directly against the Indemnifying Party to
recover the amount of such Claim or (ii) set off the amount of such Claim
against amounts owed by the Indemnified Party to the Indemnifying Party.
12.5. Time Limitations on Claims. The representations and warranties
of the parties hereto contained in this Agreement or otherwise made in writing
in connection with the transactions contemplated hereby (in each case except as
affected by the transactions contemplated by this Agreement) shall be deemed
material and, notwithstanding any investigation by the Buyer or Chemfab, shall
be deemed to have been relied on by the Buyer and Chemfab and shall survive the
Closing and the consummation of the transactions contemplated hereby in the
manner and for the time periods set forth herein. The parties' respective
warranties and representations, covenants, agreements and indemnification
obligations under this Agreement shall survive Closing, subject to the following
periods of limitation:
(a) for tax, environmental and employment-related claims against the
Company, the Shareholders or the Purchased Business that arise or are
attributable to conduct or activity prior to Closing of the Company, its
employees and/or agents, and/or the Shareholders (collectively herein "Material
Risks") that have not been disclosed in a Schedule hereto or reserved for in the
Historical Financials, the liability will continue for as long as the pertinent
statute of limitations is open on claims made in respect of any one or more such
Material Risks;
(b) for other liabilities (unrelated to Material Risks) that arise or are
attributable to conduct or activity prior to Closing of the Company, its
employees and/or agents, and/or the Shareholders, such as governmental, product
liability, tort and other third-party claims (herein, "Third-Party Claims") and
that have not been disclosed in a Schedule hereto or reserved for in the
Historical Financials, the liability will continue for three years after
Closing; and
(c) except as provided in paragraphs (a&b) of this Section 12.5, the
representations, warranties, covenants and agreements of Seller, the
Shareholders, Chemfab and Buyer in this Agreement shall survive Closing for six
months.
13. GENERAL.
13.1. Expenses. All transfer, sales and other taxes payable with
respect to the sale and conveyance of the Acquired Assets to the Buyer shall be
paid by the Seller. Except as expressly provided in Section 8A.3 above, all
expenses of the preparation, execution and consummation of this Agreement and of
the transactions contemplated hereby, including, without limitation, attorneys',
accountants' and outside advisers' fees and disbursements (herein, "Transaction
Expenses"), shall be borne by the party incurring such expenses. In the event
that a Value - Added Tax (VAT) is assessed against the sale of part or all of
the Acquired Assets, the parties agree to use their best efforts to mitigate the
effects thereof on the Purchased Business; it being understood and agreed that,
in the event that the Buyer is required under German law to pay any such VAT
(without receiving or earning a complete credit therefor against future VAT
payable in respect of the sale of goods from the Buyer's inventory in the
ordinary course of business), such payment or accrual shall be deemed to be an
Assumed Obligation under Section 3.1(a) above and result in a reduction in both
the Vdb Net Asset Value (under Section 4.4 above) and the Final Purchase Price
(under Section 4.3 above).
13.2. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:
If to the Seller or any of the Current Shareholders, to:
Volker Schuhmacher
Nagelsweg
20097 Hamburg
Federal Republic of Germany
011-49-40-23-02-17 (Fax)
If to the Buyer, to:
Chemfab Corporation
701 Daniel Webster Highway
P.O. Box 1137
Merrimack, NH 03054
01-603-424-4161 (Fax)
Attention: General Counsel
13.3. Entire Agreement. This Agreement, including Exhibits, and the
Environmental Agreement contain the entire understanding of the parties,
supersedes all prior agreements and understandings relating to the subject
matter hereof and this Agreement shall not be amended except by a written
instrument hereafter signed by all of the parties hereto. Although the parties
or any of them may translate this Agreement into a German language document,
this English language version shall control.
13.4. Governing Law. The validity and construction of this Agreement
shall be governed by the internal laws (and not the choice-of-law rules) of the
Federal Republic of Germany.
13.5. Dispute Resolution. Except to the extent that (x) judicial
equitable relief for specific performance may be necessary and appropriate under
German law to enforce the transfer of the Purchased Business from Seller to
Buyer upon the terms and conditions of this Agreement, or (y) judicial
injunctive relief is necessary to enforce the parties' agreements regarding
intellectual property, non-competition covenants and trade secrets, the parties
agree that: (i) disputes arising before or after Closing (including disputes
about the validity of this Agreement) shall be finally settled according to the
Arbitration Rules of the German Institution for Arbitration (D.I.S.) in Hamburg,
Germany before a panel of three arbitrators; (ii) in all judicial and arbitral
proceedings, the losing party shall pay the prevailing party's reasonable
attorney's fees and expenses; and (iii) such proceedings shall be conducted in
English.
13.6. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
13.7. Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Neither this Agreement nor the obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of the other parties hereto; provided, however, that nothing
contained in this Section 13.6 shall prevent the Buyer, without the consent of
the Seller, from transferring or assigning this Agreement or its rights or
obligations hereunder to an Affiliate, but no such transfer or assignment shall
relieve the Buyer or Chemfab of their obligation under this Agreement. The
Buyer shall notify (which may be a subsequent notification) the Seller of any
such assignment.
13.8. Further Assurances. From time to time, at the request of the
Buyer and without further consideration, the Seller and/or the Shareholders
shall execute and deliver such further instruments of conveyance and transfer
and take such other actions as the Buyer may reasonably require more effectively
to convey and transfer any of the Acquired Assets to the Buyer. The Seller, the
Buyer and Chemfab shall also execute and deliver to the appropriate other party
such other instruments as may be reasonably required in connection with the
performance this Agreement and each shall take all such further actions as may
be reasonably required to carry out the transactions contemplated by this
Agreement.
13.9. Allocations and Tax Treatment. (a) The parties agree that the
fair market values of the assets and liabilities of the Company shall be
allocated in the format set forth in Schedule 13.9 hereto, based on the
following assumptions and understandings:
(i) assets: Seller shall retain as Excluded Assets those assets comprising
the following line items: "3. Investment"; "6. Accounts hi-tex Turkey"; that
portion of "7. Other Assets" that does not represent the insurance
policies/benefits/investments held for the funding or other benefit of Mr.
Langer's pension; and "8. Cash";
(ii) liabilities: Seller shall retain as (and be solely liable for)
Excluded Liabilities, including those liabilities comprising the following line
items: all of the "10. Accrued Liabilities" that do not include the accrued
pension obligations (determined based on German actuarial standards consistent
with past practices) payable in respect of Mr. Langer's pension; "11. Bank
Loans"; "15. Other Liabilities"; and any Designated Loans Balance (as defined in
Section 3.2(v)) with respect to items 13 and 14 in Schedule 13.9.
(iii) Schedule 13.9 hereto has been prepared in good faith by the Company
to reflect allocations of assets and liabilities as of June 30, 1998, but the
parties agree that figures set forth therein may vary as the result of the audit
to be conducted pursuant to Section 4.4; and
(iv) The audit, report and calculation conducted pursuant to Section 4.4,
and the determination of the Vdb Net Asset Value thereunder, shall be made
consistently with the foregoing assumptions.
(b) The Buyer, Chemfab and the Seller shall treat and report the transactions
contemplated by this Agreement in all respects consistently for purposes of any
federal, state or local tax, including, without limitation, with respect to
calculation of gain, loss and basis, with reference to the Purchase Price
allocations set forth on Schedule 13.9 hereto. The parties hereto shall not
take any actions or positions inconsistent with the obligations set forth
herein. Each of the parties hereto agrees to file with their respective tax
authorities with respect to the acquisition by the Buyer of the Acquired Assets,
with their income tax returns for the year in which the Closing Date occurs,
consistent with the allocations described above.
13.10. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, other than
the Seller, Chemfab and the Buyer and their respective shareholders, any rights
or remedies under or by reason of this Agreement.
13.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.12. Satisfaction of Conditions Precedent. Each of the Seller, the
Buyer and Chemfab will each use its best efforts to cause the satisfaction of
the conditions precedent contained in this Agreement; provided, however, that
nothing contained in this Section 13.12 shall obligate any party hereto to waive
any right or condition under this Agreement.
13.13. Nature of Obligation. All obligations of the Seller and the
Shareholders under this Agreement are joint and several, whether or not so
expressed. All obligations of the Buyer and Chemfab under this Agreement are
joint and several, whether or not so expressed.
13.14. Public Statements or Releases. The parties hereto each agree
that prior to the consummation of the Closing no party to this Agreement will
make, issue or release any public announcement, statement or acknowledgment of
the existence of, or reveal the status of, this Agreement or the transactions
provided for herein, or communicate with any one or more employees of the
Purchased Business, without first obtaining the consent of the other parties
hereto. Nothing contained in this Section 13.14 shall prevent any party from
making such public announcements as such party may consider necessary in order
to satisfy such party's legal or contractual obligations.
13.15. Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered as a sealed
instrument as of the date and year first above written.
CHEMFAB CORPORATION
By:/s/Moosa E. Moosa
----------------------------
Title:Vice President Finance & CFO
CHEMFAB GERMANY GMBH
By:/s/Moosa E. Moosa
----------------------------
Title:Vice President Finance & CFO
VDB/HI-TEX TECHNISCHE GEWEBE GMBH
By:/s/Wolfgang Langer
Title:
SCHUHMACHER EKZ UETERSEN KG
(GmbH & Co.)
By:/s/Volker Schuhmacher
Title:
Agreed and consented to:
SHAREHOLDERS
/s/Wolfgang Langer
________________________
Wolfgang Langer, Individually
/s/Joachim Helmit Nestler
______________________________
Joachim Helmut Nestler, Individually
/s/Kurt Reiner Butzler
_______________________________
Kurt Reiner Butzler, Individually
Holtzendorff Holding GmbH u. Co.KG
By: /s/Volker Schuhmacher
___________________________________
Its , Duly Authorized
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