SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 16, 1997
O'SULLIVAN CORPORATION
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(Exact name of registrant as specified in its charter)
VIRGINIA
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(State or other jurisdiction of incorporation)
1-4438 54-0463029
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(Commission File Number) (IRS Employer Identification Number)
1944 Valley Avenue, PO Box 3510, Winchester, Virginia, 22601
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(Address of principal executive offices, including zip code)
(540) 667-6666
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(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On July 16, 1997, GH Acquisition Corp., a Delaware corporation (Buyer) and a
wholly-owned subsidiary of Gardena Holding AG, a German corporation entered
into a definitive agreement with O'Sullivan Corporation, a Virginia
corporation (Registrant), pursuant to which Buyer agreed to purchase
substantially all of Registrant's consumer products business, identified as
Melnor Inc., including the stock of Melnor's wholly-owned subsidiary, Melnor
Canada, Ltd.
The transaction is subject to various contractual closing conditions,
including applicable governmental approvals, but is expected to become
effective during August, 1997. The final net purchase price is estimated to be
approximately $21 million. The final purchase price is subject to
adjustments made at the completion of an agreed-upon Closing Balance Sheet
as of the final date of sale.
As a part of the transaction, the parties have agreed to establish an escrow
account containing $2.5 million deducted from the net proceeds of the
disposed assets and liabilities for potential variances in projected business
operations during the fiscal year subsequent to the transaction.
As a part of the transaction, Registrant will enter into a commercial lease
agreement with Buyer for the facilities currently being occupied in
Winchester, Virginia by the U.S. operations of Melnor Inc. The agreement
will contain a provision for Buyer to purchase the facilities at a future
date.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet at June 30, 1997.
Pro Forma Consolidated Statements of Income for the Year Ended
December 31, 1996 and for the Six Months Ended June 30, 1997.
The Pro Forma Consolidated Balance Sheet of Registrant as of
June 30, 1997 reflects the financial position of Registrant after
giving effect to the transaction discussed in Item 2 and assumes the
disposition took place on June 30, 1997. The Pro Forma Consolidated
Statements of Income for the year ended December 31, 1996 and for the
six months ended June 30, 1997 assume that the disposition took place
prior to December 31, 1996 and present the operations of Registrant
for those periods.
The unaudited pro forma consolidated financial statements have been
prepared by Registrant based upon assumptions deemed appropriate in
connection with the disposition described in Item 2. These
statements are shown for illustrative purposes only and are not
necessarily indicative of the future financial position or future
results of operations of Registrant, or of the financial position or
results of operations of Registrant that would have actually occurred
had the transaction been in effect as the date or for the periods
presented.
The unaudited pro forma consolidated financial statements should be
read in conjunction with the historical financial statements and
related notes of Registrant.
(c) Exhibits
2.1 Asset Purchase Agreement By and Among O'Sullivan Corporation
and Melnor Inc. (as Seller) and GH Acquisition Corp. and
Gardena Holding AG, (as Buyer).
2.2 Agreement Between Parties Concerning Canadian Collective
Bargaining Agreement and Export Representative Agreement.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
Pro Forma
Historical Adjustments Pro Forma
ASSETS ------------ ------------- -------------
Current Assets
Cash and cash equivalents $ 8,839,519 $ 21,248,091 (b) $ 30,087,610
Receivables 36,320,126 (7,862,886) (a) 28,457,240
Inventories 36,518,388 (13,661,559) (a) 22,856,829
Deferred income tax assets 1,295,638 (54,000) (a,c) 1,241,638
Other current assets 1,654,687 478,213 (a,c) 2,132,900
------------- ------------- -------------
Total current assets $ 84,628,358 $ 147,859 $ 84,776,217
------------- ------------- -------------
Property, Plant and Equipment $ 45,967,385 $ (5,193,695) (a) $ 40,773,690
------------- ------------- -------------
Other Assets $ 9,213,500 $ 3,081,930 (a,b) $ 12,295,430
------------- ------------- -------------
Total assets $ 139,809,243 $ (1,963,906) $ 137,845,337
============= ============== =============
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of
long-term debt $ 62,296 $ (62,296) (a) $ -- --
Accounts payable 10,795,148 (801,506) (a) 9,993,642
Accrued expenses 6,776,126 (526,311) (a) 6,249,815
------------- ------------ -------------
Total current liabilities $ 17,633,570 $(1,390,113) $ 16,243,457
------------- ------------ -------------
Long-Term Debt $ -- -- $ -- -- $ -- --
------------- ------------ -------------
Other Long-Term Liabilities $ 2,944,728 $ 2,501,086 (a,b) $ 5,445,814
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Deferred Income Taxes $ 3,313,721 $ (43,323) (a) $ 3,270,398
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Commitments and
Contingencies $ -- -- $ -- -- $ -- --
------------- ------------- -------------
Stockholders' Equity
Common stock, par value
$1.00 per share; authorized
30,000,000 shares $ 15,743,222 $ -- -- $ 15,743,222
Additional paid-in capital 2,719,373 -- -- 2,719,373
Retained earnings 97,975,515 (3,315,000) (d) 94,660,515
Cumulative translation
adjustments (283,444) 283,444 (a) -- --
Unrecognized pension costs,
net of deferred tax effect (237,442) -- -- (237,442)
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Total stockholders'
equity $ 115,917,224 $ (3,031,556) $ 112,885,668
-------------- -------------- -------------
Total liabilities and
stockholders' equity $ 139,809,243 $ (1,963,906) $ 137,845,337
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O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA BALANCE SHEET
(Unaudited)
(a) To eliminate assets and liabilities of Melnor Inc. included in the
disposition.
(b) To record estimated cash proceeds from the disposition of the specified
Melnor Inc. assets and liabilities based on June 30, 1997 balances.
The actual proceeds will be based on the Closing Balance Sheet on the
date of the actual sale. The net proceeds excludes the $2.5 million
escrow account to be established as part of the sale.
(c) To reflect the tax benefit related to the transaction.
(d) To record the estimated net loss from the disposition of the specified
Melnor Inc. assets and liabilities.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
Pro Forma
Historical Adjustments (a) Pro Forma
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Net sales $ 211,363,709 $ (40,145,222) $ 171,218,487
Cost of products sold 175,559,141 (35,379,136) 140,180,005
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Gross profit $ 35,804,568 $ (4,766,086) $ 31,038,482
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Operating expenses
Selling and warehousing $ 10,717,579 $ (5,717,468) $ 5,000,111
General and administrative 8,157,101 (2,013,296) 6,143,805
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$ 18,874,680 $ (7,730,764) $ 11,143,916
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income from operations $ 16,929,888 $ 2,964,678 $ 19,894,566
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Other income (expense)
Interest income $ 686,021 $ 1,904,059 $ 2,590,080
Interest expense (108,249) 105,273 (2,976)
Other, net 107,486 317,498 424,984
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$ 685,258 $ 2,326,830 $ 3,012,088
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Income before income taxes $ 17,615,146 $ 5,291,508 $ 22,906,654
Income taxes 6,885,653 1,907,254 8,792,907
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Net income $ 10,729,493 $ 3,384,254 $ 14,113,747
============= ============= =============
Net income per common share $ .66 $ .21 $ .87
============= ============= =============
(a) To eliminate the net loss of Melnor Inc. for the year ended December 31,
1996. The adjustment for interest income reflects the interest charges
to Melnor Inc. by parent company for the period presented.
O'SULLIVAN CORPRATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
Pro Forma
Historical Adjustments (a) Pro Forma
------------- ------------- -------------
Net sales $ 104,964,921 $ (19,794,284) $ 85,170,637
Cost of products sold 87,343,393 (15,954,345) 71,389,048
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Gross profit $ 17,621,528 $ (3,839,939) $ 13,781,589
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Operating expenses
Selling and warehousing $ 5,022,037 $ (2,443,759) $ 2,578,278
General and administrative 3,678,450 (741,829) 2,936,621
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$ 8,700,487 $ (3,185,588) $ 5,514,899
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income from operations $ 8,921,041 $ (654,351) $ 8,266,690
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Other income (expense)
Interest income $ 275,149 $ 1,129,770 $ 1,404,919
Interest expense (10,777) 3,669 (7,108)
Other, net (169,557) 198,159 28,602
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$ 94,815 $ 1,331,598 $ 1,426,413
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Income before income taxes $ 9,015,856 $ 677,247 $ 9,693,103
Income taxes 3,541,359 236,416 3,777,775
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Net income $ 5,474,497 $ 440,831 $ 5,915,328
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Net income per common share $ .35 $ .03 $ .38
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(a) To eliminate the net loss of Melnor Inc. for the six months ended June
30, 1997. The adjustment for interest income reflects the interest
charges to Melnor Inc. by parent company for the period presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
O'SULLIVAN CORPORATION
/s/ James T. Holland
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James T. Holland
President and Chief
Executive Officer
/s/ C. Bryant Nickerson
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C. Bryant Nickerson
Secretary, Treasurer and Chief
Financial Officer
July 29, 1997
ASSET PURCHASE AGREEMENT
BY AND AMONG
O'SULLIVAN CORPORATION, MELNOR INC., As Seller
GH ACQUISITION CORP. AND GARDENA HOLDING AG, As Buyer
DATED: JULY 16, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS
ARTICLE II PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets
2.2 Excluded Assets
2.3 Assumed Liabilities
2.4 Purchase Price
2.5 Adjustment to the Estimated Purchase Price
2.6 Royalty
ARTICLE III RELATED AGREEMENTS
3.1 Related Agreements
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Organization; Qualification
4.2 Authority Relative to this Agreement
4.3 Consents and Approvals
4.4 Non-Contravention
4.5 Environmental Matters
4.6 Licenses and Permits
4.7 Compliance with Laws
4.8 Financial Statements
4.9 Litigation
4.10 Absence of Change
4.11 Title to Properties
4.12 Leases
4.13 Inventory
4.14 Intellectual Property
4.15 Material Contracts
4.16 Accounts Receivable
4.17 Existence and Maintenance of the Equipment
4.18 Sufficiency of Purchased Assets
4.19 Labor Matters
4.20 Employee Benefit Plans
4.21 Insider Interests
4.22 Capitalization of the Canadian Subsidiary
4.23 Insurance
4.24 Tax Matters
4.25 Finders
4.26 Non-Arm's Length Loans
4.27 No Undisclosed Liabilities
4.28 Full Disclosure
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization; Qualification
5.2 Authority Relative to this Agreement
5.3 Consents and Approvals
5.4 Non-Contravention
5.5 Finders
5.6 Litigation
ARTICLE VI ADDITIONAL AGREEMENTS
6.1 Conduct of Business
6.2 Forbearances by Seller
6.3 Negotiations with Others
6.4 Investigation of Businesses and Properties
6.5 Confidentiality
6.6 Taxes and Recording Fees
6.7 Allocation of Purchase Price
6.8 Bulk Sales Laws
6.9 Materials Received After Closing
6.10 Retention of Books and Records
6.11 HSR and Investment Canada Filings
6.12 Expenses
6.13 Public Announcements
6.14 Subsequent Events
6.15 Efforts to Consummate
6.16 Further Assurances
6.17 Proration of Rent, Utility Charges, etc.
6.18 Guarantees
6.19 Name Change
6.20 Covenant Not to Compete
6.21 Capitalization
ARTICLE VII EMPLOYEES AND EMPLOYEE MATTERS
7.1 Transferred Employees
7.2 Employee Benefit Plans
7.3 Worker's Compensation
7.4 Vacation Pay
7.5 Administration and Transferred Employee Information
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER
8.1 Representations and Warranties
8.2 Performance of this Agreement
8.3 Corporate Authorization
8.4 Consents and Approvals
8.5 Injunction, Litigation, etc.
8.6 Legislation
8.7 Title Insurance, Estoppel Certificates, etc.
8.8 Opinion of Counsel for Seller
8.9 Section 116 Certificate
8.10 Canadian Collective Bargaining Agreement
ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLER
9.1 Representations and Warranties
9.2 Performance of this Agreement
9.3 Corporate Authorization
9.4 Consents and Approvals
9.5 Injunction, Litigation, etc.
9.6 Legislation
9.7 Opinion of Counsel for Buyer
9.8 COBRA
9.9 Employment Agreements
ARTICLE X CLOSING
10.1 Time and Place of Closing
10.2 Deliveries by Seller
10.3 Deliveries by Buyer
10.4 Deliveries by Seller, O'Sullivan and Buyer
10.5 Deliveries by Seller and O'Sullivan After Closing
ARTICLE XI INDEMNIFICATION
11.1 Indemnification by Seller and O'Sullivan
11.2 Indemnification by Buyer
11.3 Third Party Claims
11.4 Limitations on Indemnification
11.5 Survival; Investigation
11.6 Notice of Claim for Indemnification
ARTICLE XII TERMINATION, AMENDMENT AND WAIVER
12.1 Termination
12.2 Effect of Termination
12.3 Amendment
12.4 Extension; Waiver
ARTICLE XIII GENERAL PROVISIONS
13.1 Notices
13.2 Schedules
13.3 Interpretation
13.4 Counterparts
13.5 Dispute Resolution; Arbitration; Legal Action
13.6 Miscellaneous
EXHIBITS:
EXHIBIT A - Escrow Agreement
EXHIBIT B - New Lease
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of July 16, 1997,
is made by and among O'SULLIVAN CORPORATION, a Virginia corporation
("O'Sullivan"), MELNOR INC., a Virginia corporation ("Seller"), GARDENA
HOLDING AG, a company incorporated under the laws of Germany ("Gardena"),
and GH ACQUISITION CORP., a Delaware corporation ("Buyer"). O'Sullivan is
the sole shareholder of Seller and Buyer is an indirect, wholly-owned
subsidiary of Gardena.
RECITALS
Seller desires to sell substantially all of its assets, including all of the
outstanding stock of its wholly-owned subsidiary, Melnor Canada Ltd., a
Canadian corporation (the "Canadian Subsidiary"), and transfer to Buyer
certain liabilities of Seller, and Buyer desires to purchase such assets,
and assume such liabilities, with the exception of certain excluded assets
and liabilities hereinafter specified, for the consideration hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1.
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Affiliate" of a Person means a Person who, directly or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, such Person.
"Allocation" has the meaning set forth in Section 6.7.
"Applicable Laws" has the meaning set forth in Section 4.20(m).
"Assumed Liabilities" has the meaning set forth in Section 2.3(a).
"Assumed Welfare Plans" has the meaning set forth in Section 7.2(e).
"Buyer's Defined Contribution Plan" has the meaning set forth in Section
7.2(b).
"Canadian Employee Plans" has the meaning set forth in Section 4.20(m).
"Canadian Final Closing Date Balance Sheet" means the balance sheet of the
Canadian Subsidiary prepared as of the Closing Date in accordance with the
procedures set forth in Section 2.5 and included (but not consolidated) in
the Final Closing Date Balance Sheet.
"Canadian Subsidiary" has the meaning set forth in the Recitals.
"Claimant" has the meaning set forth in Section 13.6(b).
"Closing" has the meaning set forth in Section 10.1.
"Closing Date" has the meaning set forth in Section 10.1.
"Contact Persons" has the meaning set forth in Section 6.4.
"Deferred Amount" has the meaning set forth in Section 2.4(a).
"Employee Plans" has the meaning set forth in Section 4.20.
"Environmental Permits" has the meaning set forth in Section 2.1(a)(iii).
"Equipment" means the Equipment of Seller and the Equipment of the Canadian
Subsidiary, collectively.
"Equipment of the Canadian Subsidiary" means the machinery, equipment,
furniture, vehicles, tools, supplies and other tangible personal property
wherever located which are used or held for use in the conduct of the
business of the Canadian Subsidiary, including without limitation, the items
listed (and identified as to location) in Schedule 1.1.
"Equipment of Seller" has the meaning set forth in Section 2.1(a)(i).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Escrow Agreement" has the meaning set forth in Section 3.1.
"Escrow Account" has the meaning set forth in Section 2.4(a).
"Escrow Amount" shall mean the sum of (i) the Deferred Amount and (ii) the
Royalty payable under Section 2.6, as such total may be adjusted from time
to time under the terms of the Escrow Agreement.
"Estimated Intercompany Loan Balance" has the meaning set forth in Section
2.4(b).
"Estimated Purchase Price" has the meaning set forth in Section 2.4(a).
"Evaluation Material" has the meaning set forth in Section 6.5.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Final Closing Date Balance Sheet" has the meaning set forth in Section
2.5(d) and shall include (but not consolidate) the U.S. Final Closing Date
Balance Sheet and the Canadian Final Closing Date Balance Sheet.
"Final Intercompany Loan Balance" has the meaning set forth in Section
2.4(b).
"Frozen Plans" has the meaning set forth in Section 7.2(a).
"Gross Margin on Sales" means, with respect to any product, gross sales for
such product less the sum of (i) actual returns, discounts and allowances
specifically related to such product ("Net Sales"), (ii) standard cost (full
absorption basis) of sales for such product calculated on a basis consistent
with past practices, (iii) specifically identified manufacturing variances
and such other variances as are customarily allocated to such product, (iv)
the proportionate share of Net Sales of such product to all Net Sales for all
products for the freight, engineering and manufacturing variances not
otherwise allocated to such product pursuant to clause (iii) above, and (v)
any advertising allowances provided to customers, or expended by Buyer,
specifically for advertising such products.
"Handling Hazardous Substances" has the meaning set forth in Section 4.5.
"Hazardous Emissions" has the meaning set forth in Section 4.5.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intercompany Loan" means all of the outstanding balances of the
intercompany loans from Seller to the Canadian Subsidiary as of the Closing
Date. The Intercompany Loan is in the approximate amount of $3.7 million.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.
"Intellectual Property" has the meaning set forth in Section 2.1(a)(v).
"Inventory" means the Inventory of Seller and the Inventory of the Canadian
Subsidiary, collectively.
"Inventory of the Canadian Subsidiary" means the raw materials, work-in-process
and finished goods, and stores, supplies and spare parts, wherever located,
which at the time of the Closing are owned by the Canadian Subsidiary.
"Inventory of Seller" has the meaning set forth in Section 2.1(a)(ii).
"Leases" has the meaning set forth in Section 4.12.
"July 31 Forecast Balance Sheet" means the forecast pro forma adjusted
balance sheet of Seller as of July 31, 1997, as adjusted in accordance with
the Schedule of Adjustments, which shall include a forecast July 31 balance
sheet of Seller and a forecast July 31 balance sheet of the Canadian
Subsidiary, which is attached hereto as Schedule 4.8(B).
"Legal Action" has the meaning set forth in Section 11.3.
"Licenses and Permits" has the meaning set forth in Section 2.1(a)(iv).
"Material Contracts" has the meaning set forth in Section 4.15.
"May 31 Balance Sheet" means the unaudited, consolidated balance sheets of
Seller and the Canadian Subsidiary as of May 31, 1997, which is attached as
Schedule 4.8 (A).
"New Lease" has the meaning set forth in Section 3.1(b).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Exceptions" has the meaning set forth in Section 4.11(a).
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a governmental or
political subdivision or an agency of instrumentality thereof.
"Preliminary Closing Date Balance Sheet" has the meaning set forth in
Section 2.5(a), and shall include a preliminary U.S. Closing Date Balance
Sheet and a preliminary Canadian Closing Date Balance Sheet.
"Purchase Price" has the meaning set forth in Section 2.4(a).
"Purchased Assets" has the meaning set forth in Section 2.1.
"Real Property of the Canadian Subsidiary" has the meaning set forth in
Section 4.11.
"Related Agreements" has the meaning set forth in section 3.1(c).
"Returns" means all returns, declarations, reports, information statements
and other documents required to be filed in respect of Taxes.
"Royalty" has the meaning set forth in Section 2.6.
"Savings Plan" has the meaning set forth in Section 7.2(b).
"Schedule of Adjustments" means the Schedule of Adjustments attached hereto
as Schedule 2.4(a), which sets forth certain agreed adjustments to certain
account balances contained in the balance sheets of Seller and the Canadian
Subsidiary.
"Subsidiary," with respect to any party to this Agreement, means any
corporation or other business entity, whether or not incorporated, of which
at least 50% of the securities or interests having, by their terms, ordinary
voting power to elect members of the Board of Directors, or other persons
performing similar functions with respect to such entity, is held directly
or indirectly by such party.
"Stock Purchase Price" has the meaning set forth in Section 2.4(b).
"Survival Date" has the meaning set forth in Section 11.5(a).
"Tax" or "Taxes" means all taxes, charges, fees, levies, imposts and other
assessments, including all income, sales, use, goods and services, value
added, capital, capital gains, alternative, net worth, transfer, profits
withholding, payroll, employer health, excise, real property and personal
property taxes, and any other taxes, customs duties, fees, assessments or
similar charges in the nature of a tax, including Canadian Employee Plans
and provincial pension plan contributions, unemployment insurance payments
and workers compensation premiums, together with any installments with respect
thereto, and any interest, fines and penalties, imposed by any governmental
authority (including federal, state, provincial, territorial, municipal and
foreign governmental authorities), and whether disputed or not.
"Transferred Employees" has the meaning set forth in Section 7.1.
"U.S. Final Closing Date Balance Sheet" means the balance sheet of Seller
prepared as of the Closing Date in accordance with the procedures in Section
2.5 and included (but not consolidated) in the Final Closing Date Balance
Sheet.
ARTICLE 2.
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets.
(a) At the Closing, Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, for the consideration hereinafter set forth in Section
2.4(a), the following listed assets, properties or rights of Seller (the
"Purchased Assets") and the business of Seller in which the Purchased Assets
are used or to which they relate:
(i) the machinery, equipment, furniture, vehicles, tools, supplies and
other tangible personal property wherever located which are used or held for
use in the conduct of the business of Seller, including, without limitation,
the items listed (and identified as to location) in Schedule 2.1(i). These
items are hereinafter referred to collectively as the "Equipment of Seller;"
(ii) the raw materials, work-in-process and finished goods, and stores,
supplies and spare parts, wherever located, which at the time of the Closing
are owned by Seller. These items are hereinafter referred to collectively
as the "Inventory of Seller;"
(iii) the Environmental Permits held by Seller which are assignable and
relate to the Purchased Assets or the business of Seller, including, without
limitation, those identified on Schedule 4.5. The term "Environmental
Permits" means all material federal, state and local governmental licenses,
permits, and other authorizations and approvals, whether foreign or
domestic, which relate to the environment or the public health and safety;
(iv) the Licenses and Permits held by Seller which are assignable and
relate to the Purchased Assets or the business of Seller, including, without
limitation, those identified on Schedule 4.6. The term "Licenses and
Permits" means all material federal, state and local governmental licenses,
permits, approvals and authorizations, whether foreign or domestic, other
than Environmental Permits;
(v) the Intellectual Property held or owned by Seller, including, without
limitation, that set forth on Schedule 4.14. The term "Intellectual
Property" means all rights and interests in all trade names, trademarks and
service marks, patents, patent rights, copyrights, whether domestic or
foreign (as well as applications, registrations or certificates for any of
the foregoing), inventions, trade secrets, proprietary processes, software
and other industrial and intellectual property rights;
(vi) all rights and interests of Seller in, to and under the Material
Contracts and Leases (including, without limitation, those set forth on
Schedules 4.15 and 4.12, respectively) and all rights and interests of
Seller in, to and under all other contracts and commitments which relate to
the Purchased Assets or the business of Seller;
(vii) all accounts receivable of Seller;
(viii) all books and records of Seller (or true and complete copies
thereof), including computerized records and any associated software owned
by Seller and documentation, including, without limitation, books and
records (or true and complete copies thereof) relating to or containing
production data, manufacturing and quality control information, sales or
marketing information, customer lists and information and personnel records
of employees of Seller;
(ix) all purchase orders, forms, labels, stationery, shipping materials,
catalogues, brochures, art work, photographs and advertising materials held
by Seller for use in its business;
(x) prepaid expenses and deferred charges of Seller as noted in Schedule
2.1(a)(x); and
(xi) all other tangible and intangible properties of Seller, including
goodwill, which are not included in the Excluded Assets listed in Schedule
2.2.
(b) At the Closing, Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, all of the outstanding stock of the Canadian
Subsidiary for the consideration hereinafter set forth in Section 2.4(b).
2.2 Excluded Assets. The assets listed on Schedule 2.2 (the "Excluded
Assets") are not included in the Purchased Assets.
2.3 Assumed Liabilities.
(a) Except as set forth in paragraph (b) below, at the Closing Buyer will
assume the following liabilities and obligations of Seller which relate to
the business of Seller and which are not paid or discharged at or before the
Closing:
(i) trade payables and accrued and unpaid expenses and Taxes (other than
income and payroll-related Taxes and Taxes payable in connection with
transactions between Seller and the Canadian Subsidiary) of Seller as of the
Closing Date, in each case which have arisen in the ordinary course of
Seller's business; provided that Buyer will assume the liabilities under
this section solely to the extent of such amounts as are properly accrued,
reserved and/or recorded in the Final Closing Date Balance Sheet;
(ii) all liabilities for and obligations of Seller relating to the
Purchased Assets or the business of Seller to be performed after the Closing
arising from the Material Contracts, Leases and other contracts and
commitments to be assigned to Buyer under Section 2.1(a)(vi), other than
liabilities and obligations arising from breaches thereof prior to the
Closing;
(iii) all employee-related liabilities and obligations with respect to
Transferred Employees (i) which relate to matters arising prior to Closing
to the extent they are accrued on the Final Closing Date Balance Sheet, or
(ii) which relate to matters or events arising from and after the Closing;
and
(iv) the liability of Seller arising in the normal course of business (i)
for returns of goods under warranty or (ii) with respect to end-of-season
unsold inventory returns from distributors, resellers or retailers (as set
forth on Schedule 2.3(a)(iv)), but solely to the extent such liability is
reserved for in the Final Closing Date Balance Sheet.
The liabilities and obligations herein above listed, and to be assumed by
Buyer, are hereinafter referred to collectively as the "Assumed Liabilities."
(b) Notwithstanding the provisions of paragraph (a) above, there are
expressly excluded from the Assumed Liabilities the following listed
liabilities and obligations of Seller:
(i) all liabilities for Taxes incurred or to be incurred by Seller, except
as otherwise specified in Section 2.3(a)(i);
(ii) all liabilities and obligations, whether civil or criminal in nature,
arising out of any actual or alleged violation by Seller of any federal,
state or local law, rule, regulation, judicial or administrative order,
judgment or decree, or governmental permit, license, approval or
authorization;
(iii) all liabilities and obligations of Seller arising from a breach by
Seller before Closing of any contract or commitment, including, without
limitation, Material Contracts and Leases or other agreements;
(iv) all liabilities and obligations arising under any contract or
commitment, including, without limitation, Material Contracts and Leases,
if the rights of Seller are, for any reason, not transferred to, or the
benefits thereunder are not otherwise made available to, Buyer at the
Closing;
(v) any liability or obligation in respect of severance or separation pay
or allowances for U.S. employees of Seller who are not Transferred Employees;
(vi) any liability or obligation related to any multiemployer plan (within
the meaning of Section 3(37) of ERISA) or the Frozen Plans;
(vii) any liability or obligation under the employment or severance
agreements between Seller and Michael Orfinik and Larry Trotter identified
on Schedule 2.3(b)(vii);
(viii) any legal, accounting or other professional fees incurred by Seller
in connection with the transactions contemplated hereby; and
(ix) any other liability or obligation not expressly assumed by Buyer
pursuant to Section 2.3(a).
2.4 Purchase Price.
(a) The consideration to be paid for the Purchased Assets (the "Purchase
Price") shall be the book value of the Purchased Assets as of the Closing
less the book value of the Assumed Liabilities as of the Closing, determined
in accordance with generally accepted accounting principles ("GAAP") applied
on a basis consistent with the manner in which the financial statements of
Seller have been prepared, except as otherwise required by the Schedule of
Adjustments attached hereto as Schedule 2.4(a).
As of the date of this Agreement, the Purchase Price is expected to be
approximately $13,335,327. At the Closing, Buyer shall pay Seller an amount
(the "Estimated Purchase Price") determined on the basis hereinabove set
forth using the July 31 Forecast Balance Sheet (as set forth in Schedule
4.8(C)), in immediately available funds, less the amount of $2,500,000
("Deferred Amount"), which shall be held in the escrow account (the "Escrow
Account") in accordance with the provisions of the Escrow Agreement (as
hereinafter defined).
(b) The estimated consideration to be paid at Closing in immediately
available funds by Buyer to Seller for the outstanding stock of the Canadian
Subsidiary (the "Stock Purchase Price") shall be $4,819,394, subject to
adjustment in accordance with the equity in the Canadian Subsidiary as
reflected on the Canadian Final Closing Date Balance Sheet. In addition,
at Closing the Buyer shall arrange for the Canadian Subsidiary to pay Seller
an amount equal to the estimated outstanding balance of the Intercompany
Loan on the Closing date based on the July 31 Forecast Balance Sheet (the
"Estimated Intercompany Loan Balance"). The final outstanding balance of the
Intercompany Loan as of the Closing Date, if any, to be paid to or refunded
by Seller shall be determined based on the Final Closing Date Balance Sheet
(the "Final Intercompany Loan Balance").
2.5 Adjustment to the Estimated Purchase Price.
(a) As promptly as practical, but in no event more than 60 days after the
Closing, Seller, with the cooperation of Buyer and the Transferred
Employees, shall prepare and deliver to Buyer a draft of a balance sheet for
Seller as of the commencement of business on the date on which the Closing
takes place (the "Preliminary Closing Date Balance Sheet"), which shall
reflect the book value of the Purchased Assets, the Assumed Liabilities and
the equity of the Canadian Subsidiary, and the Final Intercompany Loan Balance
as of such date. The Preliminary Closing Date Balance Sheet shall be prepared
in accordance with GAAP, except as otherwise required by the Schedule of
Adjustments.
(b) Prior to the preparation of the Preliminary Closing Date Balance Sheet,
Buyer or Buyer's auditors may, if Buyer so elects, review the manner in
which Seller plans to prepare the Preliminary Closing Date Balance Sheet,
including, but not limited to, the nature and extent of the procedures to be
applied. Buyer and Buyer's auditors shall be entitled to observe the taking
of the physical inventory.
(c) During the 20 business days following the receipt by Buyer of the draft
of the Preliminary Closing Date Balance Sheet, Buyer and Buyer's auditors
shall be permitted to review the working papers of Seller's auditors
relating to the draft of the Preliminary Closing Date Balance Sheet. Seller
shall cooperate with Buyer and Buyer's auditors in facilitating such review.
Buyer shall give any comments or objections it has with respect to the
draft of the Preliminary Closing Date Balance Sheet to Seller and Seller's
auditors. Such comments or objections, insofar as they relate to the
valuation of any assets or liabilities, shall be resolved by Seller without
regard to any materiality standard, and the Final Closing Date Balance Sheet
delivered to Buyer pursuant to the provisions of the next paragraph shall
reflect such resolution.
(d) Within 15 business days after the expiration of said 20-business-day
period, Seller shall deliver to Buyer a Final Closing Date Balance Sheet
(the "Final Closing Date Balance Sheet"). Within 10 business days after
receipt of such balance sheet, Buyer shall deliver a letter to Seller
stating whether it concurs with such balance sheet and its exceptions
thereto, if any, together with the reasons therefor. If such objections
cannot be resolved between Seller's auditors and Buyer's auditors within 15
business days after delivery of such letter by Buyer, the question or questions
in dispute shall then be submitted, as soon as practicable, to Ernst & Young
L.L.P., or if the parties otherwise agree, another mutually acceptable firm
of independent public accountants of recognized standing. The decision of
such accounting firm as to such question or questions in dispute shall be
final and binding upon the parties hereto. Such accounting firm shall make
its decision regarding such objections and shall communicate its decision
to Seller and Buyer within 10 business days after the submission of the
objections to such firm.
(e) If the Final Closing Date Balance Sheet, after the resolution of all
disputes, indicates that the Estimated Purchase Price was less than the
Purchase Price set forth in Section 2.4(a) and/or that the Estimated
Intercompany Loan Balance was less than the Final Intercompany Loan Balance,
Buyer shall promptly pay to Seller, in immediately available funds, but
without interest, the balance of the Purchase Price and shall arrange for
the Canadian Subsidiary to pay Seller the difference between the Estimated
Intercompany Loan Balance and the Final Intercompany Loan Balance. If the
Final Closing Date Balance Sheet, after the resolution of all disputes,
indicates that the Estimated Purchase price exceeded the Purchase Price set
forth in Section 2.4(a) and/or that the Estimated Intercompany Loan Balance
exceeded the Final Intercompany Loan Balance, Seller shall promptly pay to
Buyer and the Canadian Subsidiary, as applicable, in immediately available
funds, but without interest, the amount of such excess.
(f) The fees of Seller's auditors and Buyer's auditors incurred in
connection with the preparation of the Preliminary and Final Closing Date
Balance Sheets shall be borne by Seller and Buyer, respectively. The fees
of any independent accounting firm appointed pursuant to Section 2.5(d)
shall be borne equally by Seller and Buyer.
2.6. Royalty.
(a) Buyer shall pay into the Escrow Account not later than 45 days after
the first anniversary of the Closing Date, in immediately available funds,
a royalty equal to 50% of the Gross Margin on Sales by Buyer or any of its
Affiliates for the period from the Closing Date through the first
anniversary of the Closing Date of the products listed on Schedule 2.6(a) to
this Agreement, up to the lesser of (x) an aggregate of $2,500,000 or (y)
the pre-tax profits of the business conducted with the Purchased Assets and
the Canadian Subsidiary for the period from the Closing Date through the
first anniversary of the Closing Date (the "Royalty"). For purposes of this
Agreement, the terms "pre-tax profit" or "pre-tax loss" shall be determined
in accordance with GAAP, consistently applied and as recorded in the
unaudited consolidated and consolidating financial statements of Seller and
the Canadian Subsidiary for the years ended December 31, 1995 and 1996,
provided that Buyer shall:
(i) use actual sales returns and allowances for the period January 1, 1997
through the first anniversary of the Closing Date;
(ii) include interest on intercompany loans between Buyer and Gardena or
Gardena's Affiliates at reasonable interest rates, not to exceed the prime
rate of interest as published from time to time in The Wall Street Journal;
(iii) include intercompany purchases at arms length pricing;
(iv) exclude any intercompany overhead fees or allocations; and
(v) exclude any pre-tax profit or loss on (1) sales of products under the
"Gardena" brand name which are distributed through Buyer or the Canadian
Subsidiary, (2) sales of products designed (other than redesigns or
improvements to existing products of Seller and the Canadian Subsidiary) or
produced by Gardena and sold under the "Melnor" name by Buyer or the
Canadian Subsidiary, including, without limitation, the two new, high-end
oscillating sprinklers, and (3) the portion of the total sales revenue
generated from products produced by Buyer or the Canadian Subsidiary using
Gardena gears and related attachments that is equal in each case to (x) the
ratio of the costs of the Gardena gears and related attachments to the total
costs of the product, multiplied by (y) the total sales revenue of such product,
provided that Buyer's general administrative and overhead costs for the
products described in items (1) through (3) above are reasonably allocated
between the "Melnor" and "Gardena" brand products.
Buyer shall provide Seller with a quarterly unaudited statement setting
forth in reasonable detail the Royalty and the pre-tax profit or pre-tax
loss, if any, through the date of such statement calculated in accordance
with this Section 2.6. Buyer shall provide Seller with a written statement
setting forth in reasonable detail the basis for the Royalty, if any, at the
time Buyer pays the Royalty into the Escrow Account.
(b) Seller shall have the right, upon written notice delivered to Buyer
within 15 days of the payment of the Royalty by Buyer into the Escrow
Account or the receipt of the written statement indicating that no Royalty
is owed, to request a review or audit of Buyer's records and if necessary,
its Affiliates, solely with respect to the Royalty. Buyer shall, within
fifteen (15) days of receiving written request from Seller, make available
to Seller or its representatives, during ordinary business hours, all records
that Buyer and if necessary, its Affiliates, maintain for calculating the
Royalty for purposes of verifying the Royalty paid by Buyer hereunder. Seller
shall complete its audit within 15 days of obtaining access to such records and
Seller shall deliver to Buyer the results of said audit within said 15-day
period. The cost of such review or audit shall be borne by seller unless it
is determined that Buyer underpaid the Royalty by more than ten percent (10%),
in which case Buyer shall pay the cost of the review or audit.
(c) Within 15 days of its receipt of Seller's audit, Buyer shall deliver a
letter to Seller stating whether it concurs with the results of Seller's
audit and its exceptions thereto, if any, together with the reasons
therefor. If such objections cannot be resolved between Seller and Buyer
within 15 days after delivery of said letter to Seller, the matter shall be
submitted, as soon as practicable, to Ernst & Young L.L.P., or if the
parties otherwise agree, another mutually acceptable firm of independent
public accounts of recognized standing. The decision of the accounting firm
as to such matter shall be final and binding upon the parties hereto. Such
accounting firm shall make its decision within 10 business days after the
submission of the matter to the firm.
ARTICLE 3.
RELATED AGREEMENTS
3.1. Related Agreements.
(a) In connection with the sale and purchase of the Purchased Assets
contemplated by this Agreement, Seller and Buyer will enter into an escrow
agreement among Seller, Buyer, O'Sullivan Corporation and an escrow agent to
be determined (the "Escrow Agreement"), in substantially the form attached
hereto as Exhibit A, pursuant to which the Escrow Amount will be held in the
Escrow Account to cover the items referred to therein.
(b) O'Sullivan will enter into a commercial lease with Buyer at Closing,
in substantially the form attached hereto as Exhibit B, for the facilities
used by Seller in Winchester, Virginia (the "New Lease").
(c) The Escrow Agreement and the New Lease are hereinafter referred to
individually and collectively, as the "Related Agreements."
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and O'Sullivan represent and warrant to Gardena and Buyer the
following:
4.1 Organization; Qualification. Seller is or will be at Closing a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia and has the corporate power and
authority to own all of its properties and assets and carry on its business
as it is presently being conducted. O'Sullivan is the sole shareholder of
Seller. Seller is or will be at Closing duly qualified and in good standing
to do business in each jurisdiction (as identified on Schedule 4.1) in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary except in those
jurisdictions where the failure to be duly qualified would not have a material
adverse effect on the Purchased Assets or the business of Seller. Seller
has heretofore delivered to Buyer or Gardena complete and correct copies of
its Articles of Incorporation and Bylaws, as currently in effect.
The Canadian Subsidiary is or will be at Closing a corporation duly organized,
validly existing and in good standing under the laws of Canada and has the
corporate power and authority to own all of its properties and assets and
carry on its business as it is presently being conducted. The Canadian
Subsidiary is or will be at Closing duly qualified and in good standing to do
business in each jurisdiction (as identified on Schedule 4.1) in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary except in those
jurisdictions where the failure to be duly qualified would not have a
material adverse effect on the business of the Canadian Subsidiary.
The Canadian Subsidiary has heretofore delivered to Buyer or Gardena
complete and correct copies of its Articles and Bylaws, as currently in
effect, and all amendments thereto.
4.2. Authority Relative to this Agreement. O'Sullivan and Seller have the
corporate power and authority to execute and deliver this Agreement and the
Related Agreements to which they are a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
O'Sullivan and Seller of this Agreement and the Related Agreements to which
they are a party, and the consummation by them of the transactions
contemplated hereby and thereby, have been duly authorized by their respective
Boards of Directors and by the holder of all of Seller's outstanding shares of
common stock, and no other corporate proceedings on the part of O'Sullivan and
Seller are necessary with respect thereto. Assuming that Buyer and Gardena
have duly authorized the execution and delivery of this Agreement and the
Related Agreements to which they are a party, this Agreement constitutes,
and the Related Agreements when executed and delivered by O'Sullivan and
Seller and the other parties thereto will constitute, valid and binding
obligations of O'Sullivan and Seller, enforceable in accordance with their
terms except as the same may be limited by (i) any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally or (ii) general principles of equity, whether considered in a
proceeding in equity or at law.
4.3. Consents and Approvals. Except as set forth in Schedule 4.3, there is
no requirement applicable to Seller, O'Sullivan or the Canadian Subsidiary
to make any filing with, or to obtain any permit, authorization, consent or
approval of any public body as a condition to the lawful consummation of the
transactions contemplated by this Agreement (other than as may be required
by any applicable "bulk sales" law). Except as set forth in Schedule 4.3,
there is no requirement that any party to any Material Contract, Lease,
license or permit to which Seller or the Canadian Subsidiary is a party or
by which either of them is bound consent to the consummation of the
transactions contemplated by this Agreement.
4.4. Non-Contravention. Except as set forth in Schedule 4.4, the execution
and delivery by O'Sullivan and Seller of this Agreement and the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby will not (i) violate or result in a breach of any provision of the
Articles of Incorporation or Bylaws of O'Sullivan or Seller or the Articles
or Bylaws of the Canadian Subsidiary, (ii) result in a default (or give rise
to any right of termination, cancellation or acceleration) under the terms,
conditions or provisions of any Material Contract or Lease, or any note, bond,
mortgage, indenture, license, agreement, or other instrument or obligation to
which O'Sullivan, Seller or the Canadian Subsidiary is a party or by which
O'Sullivan, Seller or the Canadian Subsidiary or any of the Purchased Assets is
bound, or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to O'Sullivan, Seller or the Canadian Subsidiary or
any of the Purchased Assets or the business conducted by Seller, O'Sullivan or
the Canadian Subsidiary (other than any applicable "bulk sales" law), excluding
from the foregoing clauses (ii) and (iii) such defaults and violations which
do not have a material adverse effect on the Purchased Assets or the business
of Seller.
4.5 Environmental Matters. Except as set forth in Schedule 4.5, each of the
Seller and the Canadian Subsidiary has obtained all Environmental Permits
required to conduct its business as it is presently being conducted, including,
without limitation, those relating to (i) emissions, discharges or threatened
discharges of pollutants, contaminants, hazardous or toxic substances or
petroleum into the air, surface water, ground water or the ocean, or on or
into the land (Hazardous Emissions") and (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous or toxic substances, or petroleum
(Handling Hazardous Substances"). Schedule 4.5 contains a complete and
correct list of all such Environmental Permits, all of which are in full
force and effect and all of which are assignable except as noted on Schedule
4.5, each of Seller and the Canadian Subsidiary is in all material respects
in compliance with all of the terms and conditions set forth in such
Environmental Permits and is also in all material respects in compliance with
all of the terms and conditions contained in or required of it by any law,
regulation, order, judgement or decree of any federal, state, provincial,
local or foreign court or governmental authority applicable to or having
jurisdiction over Seller, the Canadian Subsidiary, the Purchased Assets, or
the business of Seller or the Canadian Subsidiary relating to the environment
or to public health. Except as set forth on Schedule 4.5 and to the best of
O'Sullivan's and Seller's knowledge, no conditions exist which (x) interfere
with, prevent, or, with the passage of time, could interfere with or prevent
continued compliance with any of Seller's or the Canadian Subsidiary's
Evironmental Permits or any of the aforementioned laws, regulations, orders,
judgements or decrees, (y) may give rise to any material liability (whether
based in contract, tort, implied or expressed warranty, criminal or civil
statute or otherwise) under any law or regulation relating to Hazardous
Emissions or Handling Hazardous Substances or (z) obligate Seller
or the Canadian Subsidiary or, with the passage of time, could cause
Seller or the Canadian Subsidiary to be obligated to clean up, remedy or
otherwise restore to a former condition, by itself or jointly with others,
any contaminated surface water, ground water, soil or any natural resources
associated therewith.
4.6. Licenses and Permits. Each of Seller and the Canadian Subsidiary has
all Licenses and Permits required to conduct its business as it is presently
being conducted. Schedule 4.6 contains a complete and correct list of all
such Licenses and Permits, all of which are in full force and effect and all
of which are assignable, except as set forth on Schedule 4.6. No notice of
a violation of any such License or Permit has been received by Seller or the
Canadian Subsidiary or, to the knowledge of O'Sullivan, Seller or the
Canadian Subsidiary, recorded or published, and no proceeding is pending or,
to the best of O'Sullivan's and Seller's knowledge, threatened, to revoke or
limit any of them. O'Sullivan And Seller have no reason to believe that the
Licenses or Permits held by Seller or the Canadian Subsidiary in effect on
the date hereof will not be renewed.
4.7. Compliance with Laws. Except as set forth in Schedule 4.7, and in
addition to, but separate from, the representations and warranties contained
in Section 4.5 relating to environmental matters and those contained in
Section 4.6 relating to Licenses and Permits, O'Sullivan and Seller
represent and warrant that Seller's business and the business of the
Canadian Subsidiary have been operated in compliance with all laws,
regulations, orders, judgments or decrees of any federal, state, provincial,
local or foreign court or governmental authority applicable to the Purchased
Assets or the business of Seller or the Canadian Subsidiary including, without
limitation, those related to antitrust, competition and trade matters,
civil rights, zoning and building codes, public health and safety, employment
standards, human rights, worker health and safety and labor and
nondiscrimination, except for such violations thereof as do not and cannot
reasonably be expected to have a material adverse effect on the Purchased
Assets or the business of Seller or the Canadian Subsidiary. Furthermore,
except as is disclosed in Schedule 4.7, neither O'Sullivan, Seller nor the
Canadian Subsidiary has received any notice alleging noncompliance with any
of the aforementioned laws, regulations, orders, judgements or decrees.
4.8. Financial Statements. O'Sullivan and Seller have previously furnished
Buyer with true and complete copies of the unaudited consolidated and
consolidating financial statements of Seller and the Canadian Subsidiary for
the years ended December 31, 1995 and 1996, and the unaudited consolidated
and consolidating financial statements of Seller and the Canadian Subsidiary
as of and for the five-month period ended May 31, 1997, attached hereto as
Schedule 4.8(A). Such financial statements present fairly the financial
position of Seller and the Canadian Subsidiary as of such dates and the
results of their operations and changes in their financial position for such
periods. O'Sullivan and Seller have also delivered to Buyer and Gardena a
copy of the July 31 Forecast Balance Sheet which is attached hereto as
Schedule 4.8(B). The calculation of the Estimated Purchase Price is set
forth on Schedule 4.8(C) attached hereto.
4.9. Litigation. Except as set forth in Schedule 4.9, there are no actions,
suits, claims, investigations or proceedings (legal, administrative or
arbitral) pending or, to the best of O'Sullivan's and Seller's knowledge,
threatened against Seller, O'Sullivan (in the case of O'Sullivan limited
solely to matters related directly or indirectly to the business or
operations of Seller or the Canadian Subsidiary) or the Canadian Subsidiary,
whether at law or in equity and whether civil or criminal in nature, before
any federal, state, provincial, municipal or other court, arbitrator,
governmental department, commission, agency or instrumentality outstanding
against Seller, O'Sullivan or the Canadian Subsidiary which have, or, if
adversely determined, would have a material adverse effect on the Purchased
Assets or the earnings, assets, financial condition or operations of the
business of Seller, O'Sullivan or the Canadian Subsidiary, or which seek
specifically to prevent, restrict or delay consummation of the transactions
contemplated hereby or fulfillment of any of the conditions of this Agreement
or the Related Agreements.
4.10. Absence of Change. Except as set forth in Schedule 4.10, since May
31, 1997 there has not been:
(i) any change, or development involving a prospective change, including,
without limitation, any damage, destruction or loss (whether or not covered
by insurance) which can reasonably be expected to affect, materially and
adversely, the Purchased Assets or the earnings, assets, financial condition
or operations of the business of Seller or the Canadian Subsidiary other
than changes in the economy generally;
(ii) any obligation or liability involving more than $20,000 (whether matured
or unmatured, absolute, accrued, contingent or otherwise) incurred by Seller
or by the Canadian Subsidiary other than any purchase order entered into in
the ordinary course of business and cancelable without penalty on not more
than 30 days notice;
(iii) any general uniform increase in the compensation of the employees of
Seller or the Canadian Subsidiary (including, without limitation, any
increase pursuant to any bonus, pension, profit sharing or other plan or
commitment);
(iv) any increase (other than normal increases consistent with past practices
and those required by law or collective bargaining agreements) in the
compensation payable to any employee (including officers) of Seller or the
Canadian Subsidiary;
(v) any amendment to any employment agreement to which any employee of
Seller or the Canadian Subsidiary is a party;
(vi) any sale of assets of Seller or the Canadian Subsidiary other than in
the ordinary course of business;
(vii) any deterioration of relations between Seller or the Canadian
Subsidiary and any of their respective suppliers or customers or any notice
from a customer that it intends to reduce purchases from Seller or the
Canadian Subsidiary by a material amount;
(viii) any direct or indirect redemption, purchase or other acquisition or
transfer of any shares of the capital stock of Seller or the Canadian
Subsidiary;
(ix) any split, combination or other similar change in the outstanding capital
stock of the Canadian Subsidiary;
(x) any declaration, setting aside or payment of any dividend (whether in cash,
capital stock or property) with respect to any shares of the capital stock of
Seller or the Canadian Subsidiary;
(xi) any issuance by the Canadian Subsidiary of any shares of its capital stock,
or any securities or obligations convertible into or exchangeable for, or
giving any person the right to acquire from it, any shares of its capital
stock;
(xii) any grant by Seller of any option, right or other security giving any
person the right to acquire from Seller any of the stock of the Canadian
Subsidiary; or
(xiii) any operation of the business of Seller or the Canadian Subsidiary
other than in the ordinary and usual course and in a manner consistent with
past practices.
4.11. Title to Properties.
(a) Schedule 4.11(a) contains a complete and correct list of all of the
Real Property of the Canadian Subsidiary. The Real Property is all of the
real property used in the conduct of the business of the Canadian
Subsidiary. Except for Permitted Exceptions, the Canadian Subsidiary has
good and marketable title to all of the Real Property free and clear of any
liens, charges, pledges, security interests or other encumbrances and no
Person has any written or oral agreement, option, understanding or commitment
or any right or privilege capable of becoming an agreement, for the purchase
from the Canadian Subsidiary of the Real Property or any part thereof. The
term "Permitted Exceptions" as used in this Agreement means statutory liens
for current taxes or assessments not yet due or delinquent; mechanics',
carriers', workers', repairers' and other similar liens arising or incurred
in the ordinary course of business relating to obligations as to which there
is no default on the part of Seller or the Canadian Subsidiary, provided that
the same shall be fully discharged before the Closing; exceptions shown on the
surveys furnished by Seller to Buyer or obtained by Buyer on or before the
date hereof and agreed to by Buyer; such other liens, imperfections in
title, charges, easements, restrictions and encumbrances as do not
materially and adversely affect the use by the Canadian Subsidiary of the
Real Property.
(b) Except as noted on Schedule 4.11(b), Seller has good title to the stock
of the Canadian Subsidiary, all of the personal property, tangible and
intangible, which is a part of the Purchased Assets, free and clear of any
liens, charges, pledges, security interests or other encumbrances and no
Person has any written or oral agreement, option, understanding or
commitment or any right or privilege capable of becoming an agreement, for
the purchase from Seller of the Purchased Assets or the stock of the Canadian
Subsidiary, or any part thereof. Except as noted on Schedule 4.11(b), the
Canadian Subsidiary has good title to all of the personal property, tangible
and intangible, which is used or held for use in the conduct of its business,
free and clear of any liens, charges, pledges, security interests or other
encumbrances.
4.12 Leases. Schedule 4.12 sets forth a complete list of each lease, agreement
or commitment to lease into which Seller or the Canadian Subsidiary has
entered, whether as lessor or lessee, which relates to either real or personal
property other than monthly leases of personal property which may be canceled
upon not more than 60 days notice and require the payment of not more than
$1,000 per month. The leases, agreements and commitments listed in Schedule
4.12 are referred to herein as "Leases." Except as set forth in Schedule 4.12,
neither O'Sullivan, Seller, the Canadian Subsidiary nor any other party thereto
has in any material way breached any such Lease and, to the best of
O'Sullivan and Seller's knowledge, no event has occurred which, with the
giving of notice or the passage of time, or both, would cause a default under,
or permit the termination or modification of any such Lease by any party
thereto. Complete copies of all of the Leases have been delivered to Buyer
or Gardena.
4.13 Inventory. Except as set forth in Schedule 4.13, the Inventory is usable
or saleable in the ordinary course of business (except as adjusted for
inventory writedowns in accordance with the Schedule of Adjustments), and is
reasonably sufficient to meet the near-term requirements for the conduct of the
business of Seller or the Canadian Subsidiary, as the case may be, as such
business is presently being operated. Schedule 4.13 sets forth a list of
locations of inventory not located on the Real Property or on real estate
subject to a Lease.
4.14 Intellectual Property. Schedule 4.14 sets forth a complete list of all
of the Intellectual Property Seller or the Canadian Subsidiary owns or is
licensed or otherwise has the right to use free and clear of any restrictions
listed in Schedule 4.14. All of the Intellectual Property which Seller does
not own is assignable except as set forth in Schedule 4.14. The Intellectual
Property includes all intellectual property and similar rights necessary for
or used in the conduct of the business of Seller and the Canadian Subsidiary
as it is presently being conducted. Except as set forth in Schedule 4.14,
there is no claim, suit, action or proceeding, pending or, to the best of
O'Sullivan's and Seller's knowledge, threatened, against either Seller or the
Canadian Subsidiary asseting that its use of any Intellectual Property
infringes upon the rights of any third party or otherwise contesting its rights
with respect to any of the Intellectual Property. Except as set forth on
Schedule 4.14 and to the best of O'Sullivan's and Seller's knowledge, no third
party is infringing upon the rights of Seller or the Canadian Subsidiary in
the Intellectual Property. Except as set forth on Schedule 4.14, all letters,
patents, registrations and certificates issued by any governmental agency
relating to the Intellectual Property are valid and subsisting and have been
properly maintained.
4.15 Material Contracts. Schedule 4.15 sets forth a complete and correct list
of each contract, agreement or commitment of Seller or the Canadian Subsidiary,
other than Leases:
(i) upon which any substantial part of the business of Seller or the
Canadian Subsidiary is dependent or which, if breached, would reasonably be
expected to affect, materially and adversely, the Purchased Assets or the
earnings, assets, financial condition or operations of the business of
Seller or the Canadian Subsidiary;
(ii) which provides for aggregate future payments by Seller or the Canadian
Subsidiary of more than $20,000 per contract, except for purchase orders or
sales orders arising in the ordinary and usual course of business, in which
case they are listed only if any party thereto is obligated to make payments
pursuant thereto aggregating more than $50,000 in any year, per contract;
(iii) which extends more than one year from the date hereof and is not
cancelable without penalty by either party on 30 days' notice;
(iv) which provides for the sale, after the date hereof and other than in
the ordinary course of business, of any of the Purchased Assets or of any of
the assets of the Canadian Subsidiary;
(v) which relates to the employment, retirement or termination of the
services of any officer or former officer of Seller or the Canadian
Subsidiary;
(vi) which contains covenants pursuant to which any person has agreed not
to compete with any business conducted by Seller or the Canadian Subsidiary
or not disclose to others information concerning the Purchased Assets or the
business of Seller or the Canadian Subsidiary; or
(vii) which prohibits or restricts Seller's or the Canadian Subsidiary's
ability to engage in any business competitive with any other person.
Each of the foregoing is referred to in this Agreement as a "Material
Contract." Except as set forth in Schedule 4.15, all of the Material
Contracts are in full force and effect and to the best of O'Sullivan and
Seller's knowledge there has not occurred, with respect to any Material
Contract, any default or event of default, or event which, with or without
due notice or lapse of time or both, would reasonably be expected to
constitute a default or event of default on the part of Seller or the
Canadian Subsidiary or any party thereto. Complete copies of all of the
Material Contracts have been delivered to Buyer.
4.16. Accounts Receivable. The accounts receivable of Seller as of May 31,
1997 are reflected in Schedule 4.16(a). The accounts receivable of the
Canadian Subsidiary, including intercompany accounts receivable, as of May
31, 1997 are reflected on Schedule 4.16(b). Except as reflected on Schedule
4.16(c), such accounts receivable of Seller and the Canadian Subsidiary and
those acquired by Seller or the Canadian Subsidiary subsequent to May 31,
1997 but prior to the Closing (and not collected prior to Closing), have or
will have arisen in the ordinary course of business. Each of such accounts
receivable, and those acquired after May 31, 1997 but prior to the Closing,
is not and will not be the subject of a pledge or assignment is and will be
free of any and all liens, encumbrances and charges whatsoever.
4.17. Existence and Maintenance of the Equipment. The Equipment identified
on Schedules 1.1 and 2.1(i) exists in the locations as indicated therein and
is accessible or recoverable upon request subject to ordinary course
dealings and any related disputes between Seller and its suppliers. The
Seller is not aware of any such disputes, except as set forth on Schedule
4.27. The Equipment has been maintained in good repair in accordance with
the usual and customary practices of Seller and the Canadian Subsidiary, is in
good condition, ordinary wear and tear excepted and except for defects which do
not materially and adversely affect the use of such Equipment, and is usable in
the ordinary course of the business of Seller and the Canadian Subsidiary
as it is presently being conducted. SELLER DISCLAIMS ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
EQUIPMENT.
4.18 Sufficiency of Purchased Assets. The Purchased Assets include all
material nonmonetary properties of Seller used by Seller in the conduct of its
business as it is presently being conducted.
4.19 Labor Matters. Schedule 4.19 sets forth a comlete and correct list of
each collective bargaining agreement covering employees of Seller or the
Canadian Subsidiary. Except as set forth on Schedule 4.19, there are no
controversies pending or, to the best of O'Sullivan and Seller's knowledge,
threatened between Seller or the Canadian Subsidiary and any of their
respective employees which affect, or would affect the earnings, assets,
financial conditions or operations of the business of Seller or the Canadian
Subsidiary or relate to any specific effort to prevent, restrict or delay
consummation of the transactions contempalted by this Ageement.
4.20. Employee Benefit Plans.
(a) Schedule 4.20 lists all "employee benefit plans" within the meaning of
section 3(3) of ERISA, and all employee benefit plans maintained or
contributed to by the Seller or by the Canadian Subsidiary currently or at
any time in the preceding five calendar years including, without limitation,
all retirement, savings and other pension plans, all health, severance,
insurance, disability and other employee welfare plans, programs or
arrangements providing health or other welfare benefits to employees after
a termination of employment and all incentive, vacation and other similar
plans, all plant closing benefits, all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and
other employee benefit plans, programs or arrangements, and all employment
or compensation agreements, in each case for the benefit of, or relating to,
current employees and former employees of Seller or the Canadian Subsidiary
(collectively, the "Employee Plans"). Schedule 4.20 also includes all
contracts, agreements or commitments which relate to the employment,
retirement or termination of the services of any officer, former officer,
key employee, former key employee, director or former director of Seller or
the Canadian Subsidiary.
(b) Except as disclosed on Schedule 4.20, none of the Employee Plans is a
"multiemployer plan" as defined in section 3(37) of ERISA.
(c) Except as set forth on Schedule 4.20, the Savings Plan, the Frozen
Plans and the Assumed Welfare Plans are in compliance in all material
respects with the requirements prescribed by applicable statutes, orders or
governmental rules or regulations currently in effect with respect thereto,
and Seller or the Canadian Subsidiary has performed all material obligations
required to be performed by it under, and is not in any material respect in
default under or in violation of, any of the Savings Plan, the Frozen Plans,
the Assumed Welfare Plans, and the Canadian Employee Plans.
(d) Except as set forth on Schedule 4.20, the Savings Plan and the Frozen
Plans are intended to be qualified under section 401(a) of the Internal
Revenue Code and have heretofore been determined by the Internal Revenue
Service to so qualify (as reflected in a favorable determination letter
current through the Tax Reform Act of 1986), and each trust created
thereunder has heretofore been determined by the Internal Revenue Service
to be exempt from tax under the provisions of section 501(a) of the Internal
Revenue Code and, to the knowledge of Seller, nothing has occurred since the
date of the most recent determination that would be reasonably likely to cause
the Savings Plan or the Frozen Plans or trusts thereunder to fail to qualify
under Section 401(a) or 501(a) of the Internal Revenue Code.
(e) Except as set forth on Schedule 4.20, neither Seller nor the Canadian
Subsidiary has incurred any material liability to the PBGC under section
4001 et seq. of ERISA (or equivalent provisions under Canadian federal or
provincial law), and no condition exists that could reasonably be expected
to result in Seller or the Canadian Subsidiary incurring any material
liability under Title IV of ERISA (or equivalent provisions under Canadian
federal or provincial law), either singly or as a member of any trade or
or business, whether or not incorporated, under common control of or
affiliated with or within Seller or the Canadian Subsidiary, within the
meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code (or
equivalent provisions under Canadian federal or provincial law). All premiums
payable to the PBGC have been timely paid.
(f) The Seller has made available to Buyer copies of all Employee Plans and,
where applicable, summary plan descriptions and annual reports required to be
filed within the last three years pursuant to ERISA or the Internal Revenue
Code with respect to the Employee Plans.
(g) No prohibited transaction, as defined in Section 4975 of the Internal
Revenue Code or Section 406 of ERISA, has occurred with respect to the
Savings Plan.
(h) Intentionally deleted.
(i) To the best of Seller's knowledge, there are no actions, suits,
investigations or claims pending, threatened or anticipated (other than
routine claims for benefits) with respect to the Savings Plan or the Assumed
Welfare Plans.
(j) No compensation or benefit that is or will be payable in connection with
the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment" within the meaning of Section 280G of the Internal
Revenue Code. Except as set forth on Schedule 2.3(b)(vii) or Schedule 4.20,
no Employee Plan contains any provision which would give rise to any severance,
termination or other payments or liabilities (including, without limitation,
any acceleration in benefits vesting or distribution) as a result of the
transactions contemplated by this Agreement.
(k) Except as set forth on Schedule 2.3(b)(vii) or Schedule 4.20, since May
31, 1997, neither Seller nor the Canadian Subsidiary has made any commitments
to establish any new Employee Plan, to modify any Employee Plan or to increase
or accelerate the vesting or payment of any benefits or compensation of
employees or former employees of Seller or the Canadian Subsidiary (except for
normal increases in compensation consistent with past practices or as disclosed
in Schedule 4.20), nor has any intention to do so been communicated to
employees or former employees of Seller or its Canadian Subsidiary.
(l) Except as set forth on Schedule 4.20, , neither Seller nor the Canadian
Subsidiary have established or maintain a welfare plan, as defined in
section 3(1) of ERISA, that provides benefits to an employee at the expense
of Seller or the Canadian Subsidiary after a termination of employment,
except as required by the Consolidated Omnibus Budget Reconciliation Act of
1985.
(m) Except as set forth on Schedule 4.20, no material changes have occurred
to the Employee Plans maintained or contributed to by the Canadian
Subsidiary or Seller in respect of employment with the Canadian Subsidiary
(collectively, the "Canadian Employee Plans") or are expected to occur
which would affect the actuarial reports or financial statements required
to be provided to Buyer under this Agreement. To the best of the knowledge
of O'Sullivan, Seller and the Canadian Subsidiary, all due inquiries and
investigations having been made of the officers of the Canadian Subsidiary
responsible for the administration of the Canadian Employee Plans, all of
the Canadian Employee Plans are and have been established, registered,
qualified, invested and administered, in all material respects, in accordance
with all laws, regulations, orders, or other legislative, administrative or
judicial promulgations applicable to the Canadian Employee Plans ("Applicable
Laws") and in accordance with all understandings, written or oral, between
Seller or the Canadian Subsidiary and the employees and former employees of
the Canadian Subsidiary, and no fact or circumstance exists that could
materially and adversely affect the tax-exempt status of a tax-exempt
Canadian Employee Plan. To the best of the knowledge of O'Sullivan, Seller
and the Canadian Subsidiary, all due inquiries and investigations having been
made of the officers of the Canadian Subsidiary responsible for the
administration of the Canadian Employee Plans, no Canadian Employee Plan, nor
any related trust or other funding medium thereunder, is subject to any
investigation, proceeding, action or claim. All contributions or premiums
required to be made by Seller or the Canadian Subsidiary under the terms of
each Canadian Employee Plan or by Applicable Laws have been made in a timely
fashion in accordance with Applicable Laws and the terms of the Canadian
Employee Plans, and, to the best of their knowledge after due inquiry and
investigation as indicated above, neither Seller nor the Canadian Subsidiary
will have any liability (other than liabilities accruing after the Closing
Date) with respect to any of the Canadian Employee Plans. Contributions or
premiums required to be paid by Seller in respect of the Canadian Employee
Plans will be paid by Seller on an accrual basis for the period up to Closing
even though not otherwise required to be made until a later date in respect of
the period that includes the Closing Date. To the best of the knowledge
of O'Sullivan, Seller and the Canadian Subsidiary, all due inquiries and
investigations having been made of the officers of the Canadian Subsidiary
responsible for the administration of the Canadian Employee Plans, there have
been no improper withdrawls, applications or transfers of assets from any
Canadian Employee Plan or the trusts or other funding media relating thereto,
and neither Seller nor the Canadian Subsidiary, or any of their agents, have
been in breach of any fiduciary obligation with respect to the
administration of the Canadian Employee Plans or the trusts or other funding
media relating thereto. Seller has furnished to Buyer or made available for
inspection by Buyer true, correct and complete copies of all of the Canadian
Employee Plans as amended as of the date hereof together with all related
documentation including, without limitation, funding agreements, actuarial
reports, funding and financial information returns and statements, all
professional opinions (whether or not internally prepared) in the possession
of the Canadian Subsidiary which relate to each of the Canadian Employee
Plans, all material internal memoranda in the possession of the Canadian
Subsidiary which relate to each of the Canadian Employee Plans, copies of
material correspondence with all regulatory authorities with respect to each
Canadian Employee Plan and plan summaries, booklets and personnel manuals.
Each Canadian Employee Plan is fully funded or fully insured based on
generally accepted actuarial methods and assumptions, except as disclosed in
Schedule 4.20. All employee data necessary to administer each Canadian
Employee Plan has been provided by Seller or the Canadian Subsidiary to Buyer
and is true and correct as of the date hereof and Seller will notify Buyer of
any changes thereto occurring prior to the Closing Date. No insurance policy
or any other contract or agreement affecting any Canadian Employee Plan
requires or permits a retroactive increase in premiums or payments due
thereunder. The level of insurance reserves under each insured Canadian
Employee Plan is reasonable and sufficient to provide for all incurred but
unreported claims. Except as disclosed in Schedule 4.20, none of the
Canadian Employee Plans provides benefits to retired or former employees or
the beneficiaries or dependents of retired or former employees. Except as
disclosed on Schedule 4.20, none of the Canadian Employee Plans is a
multiemployer plan under which any employer that is not affiliated with the
Canadian Subsidiary is required to contribute. To the best of the
knowledge of O'Sullivan, Seller and the Canadian Subsidiary, all due inquiries
and investigations having been made of the officers of the Canadian Subsidiary
responsible for the administration of the Canadian Employee Plans, all
amendments to a Canadian Employee Plan that are required to conform to a
requirement of Applicable laws have been made. The liability of the
Canadian Subsidiary under the Canada Wide Industrial Pension Plan is limited
to the defined contributions that are due and that have not been paid by the
Canadian Subsidiary under any applicable collective bargaining agreement to
which the Canadian Subsidiary is a party.
4.21. Insider Interests. Except as set forth on Schedule 4.21, no Affiliate
of Seller competes with, is involved with or has any direct or indirect
interest in any business entity which competes with the business conducted
by Seller or the Canadian Subsidiary, has any agreement of any type with
Seller or the Canadian Subsidiary, or has any interest, direct or indirect,
in any property, real or personal, tangible or intangible, including,
without limitation, Intellectual Property, used in or pertaining to the
business conducted by Seller or the Canadian Subsidiary, except as a
stockholder or employee of O'Sullivan, Seller or the Canadian Subsidiary.
4.22. Capitalization of the Canadian Subsidiary. The authorized capital of
the Canadian Subsidiary consists of an unlimited number of common shares and
an unlimited number of preferred shares, issuable in series. The one (1)
share of common stock of the Canadian Subsidiary owned by Seller constitutes
all of the issued and outstanding capital stock of the Canadian Subsidiary.
The aggregate paid-up capital of said single share of common stock for
purposes of the Income Tax Act (Canada) is $52,000 (Canadian). Said single
share of common stock has been duly authorized, is validly issued, fully paid
and nonassessable, and was not issued in violation of any preemptive rights.
The Canadian Subsidiary has no commitments to issue or sell any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any right to acquire from the
Canadian Subsidiary, any shares of its capital stock and no such securities
or obligations are outstanding. Upon delivery of the duly endorsed certificate
evidencing said single share of common stock to Buyer pursuant to this
Agreement, Buyer will have good title to said share free and clear of all
liens, charges, pledges, security interests or other encumbrances or adverse
claims.
4.23. Insurance. Schedule 4.23 sets forth a list of insurance policies and
self-insurance programs maintained by Seller and the Canadian Subsidiary.
Seller and the Canadian Subsidiary are not in default in any material respect
under any provision of any insurance policy nor has Seller or the Canadian
Subsidiary failed to give notice or present any material claim thereunder in
a timely manner so as to bar recovery of any valid claims.
4.24. Tax Matters.
(a) The Canadian Subsidiary has prepared and filed with all appropriate
governmental authorities all Returns and other documents required to be filed
on or prior to the Closing Date and all such Returns or other documents were
correct and complete in all material respects when filed. Seller will
cooperate with Buyer and the Canadian Subsidiary in preparing any Returns due
within six months after the Closing Date.
(b) The Canadian Subsidiary will have paid in full all Taxes (including,
without limiting the generality of the foregoing, all Taxes arising in relation
to any advances made by the Canadian Subsidiary to any shareholders of the
Canadian Subsidiary and all Taxes arising in relation to any indebtedness
incurred by any shareholder of the Canadian Subsidiary to the Canadian
Subsidiary), accruing and due on or before the Closing Date and, in the case
of Taxes accruing on or before the Closing Date that are not due on or before
the Closing Date, the Canadian Subsidiary will have made adequate provision
in its financial statements.
(c) The Canadian Subsidiary has withheld from each payment made to any of its
present or former employees, officers, directors, and to all persons who are
non-residents of Canada for purposes of the Income Tax Act (Canada) all
amounts required by law to be withheld or remitted and will continue to do
so until the Closing Date and furthermore has remitted such amounts within the
applicable periods to the appropriate governmental authority. The Canadian
Subsidiary has remitted all Canadian federal and provincial pension plan
contributions, unemployment insurance premiums, employer health taxes and
other Taxes payable by it in respect of its employees and has or will have
remitted such amounts to the appropriate governmental authority within the
time required under the applicable legislation. The Canadian Subsidiary has
charged, collected and remitted on a timely basis all Taxes as required
under applicable legislation on any sale, supply, or delivery whatsoever,
made by the Canadian Subsidiary.
(d) There are no assessments or reassessments of the Canadian Subsidiary's
Taxes that have been issued and are outstanding. No governmental authority
has challenged, disputed or questioned the Canadian Subsidiary in respect of
Taxes or of any returns, filings or other reports filed under any statute
providing for Taxes. Neither Seller nor the Canadian Subsidiary has
received any indication from any governmental authority that an assessment
or reassessment in respect of the Canadian Subsidiary is proposed. The
Canadian Subsidiary has not executed or filed any agreement extending the
period for assessment, reassessment or collection of any Taxes. All taxation
years of the Canadian Subsidiary up to and including the year ended
December 31, 1995 are considered closed by Canadian federal and provincial
governmental authorities for the purposes of Taxes.
4.25. Finders. No broker, finder or investment banker is entitled to any
fee or commission from Seller or the Canadian Subsidiary for services
rendered on behalf of Seller or the Canadian Subsidiary in connection with
the transactions contemplated by this Agreement.
4.26. Non-Arm's Length Loans. Except as set forth on Schedule 4.26, neither
Seller nor the Canadian Subsidiary has any loans or indebtedness for
borrowed money outstanding which have been made to or from current or former
directors, officers, shareholders or employees of either Seller or the
Canadian Subsidiary or to any person or corporation not dealing at
arm's-length (as such term is defined in the Income Tax Act (Canada)) with
any of the foregoing (other than advances to officers or employees in the
ordinary course of business).
4.27. No Undisclosed Liabilities. Except as set forth in Schedule 4.27,
neither Seller nor the Canadian Subsidiary has any liabilities or
obligations, whether absolute, contingent or otherwise, including, without
limitation, any uninsured liabilities (i) which were not accrued or reserved
against in the May 31, 1997 Balance Sheet, (ii) which were incurred after
May 31, 1997 other than in the ordinary course of business, or (iii) which,
in the aggregate, would have a material adverse effect upon the earnings,
assets, financial condition, operations or business of Seller or the
Canadian Subsidiary.
4.28. Full Disclosure. None of the representations and warranties of
O'Sullivan and Seller made in Article IV of this Agreement contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
* * *
Notwithstanding anything herein to the contrary, Seller and O'Sullivan shall
have the right to update the information contained in the schedules to this
Article 4 on or before the Closing by delivering updated schedules to Buyer
and Gardena. Buyer and Gardena hereby agree that any changes contained in
any such updated schedules shall not constitute a breach of the related
representation and warranties of O'Sullivan and Seller contained in this
Article 4; provided, however, that Buyer and Gardena shall have the right to
terminate this Agreement in the event they deem any such change(s) material,
as provided in Section 12.1(iv).
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Gardena and Buyer represent and warrant to O'Sullivan and Seller the
following:
5.1. Organization; Qualification. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has the
corporate power and authority to own all of its properties and assets and to
carry on its business as it is presently being conducted. Buyer is an
indirect, wholly-owned subsidiary of Gardena. Buyer is duly qualified and in
good standing to do business in each jurisdiction in which property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary except in those jurisdictions in which failure
to be duly qualified would not have a material adverse effect on the business
of Buyer. Buyer has heretofore delivered to Seller or O'Sullivan complete
and correct copies of its Certificate of Incorporation and Bylaws, as
currently in effect.
5.2. Authority Relative to this Agreement. Gardena and Buyer have the
respective corporate power and authority to execute and deliver this
Agreement and the Related Agreements to which they are a party, and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery by Gardena and Buyer of this Agreement and the Related
Agreements to which they are a party, and the consummation by them of the
transactions contemplated hereby and thereby, have been duly authorized by
the respective Boards of Directors of Gardena and Buyer and no other corporate
proceedings on the part of the Buyer or Gardena are necessary with respect
thereto. Assuming that Seller and O'Sullivan have duly authorized the
execution and delivery of this Agreement and the Related Agreements to which
they are a party, this Agreement and the Related Agreements, as applicable,
when executed and delivered by Gardena and Buyer and the other parties
thereto, will constitute valid and binding obligations of Gardena and Buyer,
enforceable in accordance with their terms except as the same may be limited
by any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally or general principles of
equity, whether considered in a proceeding in equity or at law.
5.3. Consents and Approvals. Except as set forth in Schedule 5.3, there is no
requirement applicable to Gardena or Buyer to make any filing with, or to
any permit, authorization, consent or approval of any public body as a
condition to the lawful consummation of the transactions comtemplated by this
Agreement (other than as may be required by any applicable "bulk sales" laws).
5.4. Non-Contravention. The execution and delivery by Gardena and Buyer of
this Agreement and the Related Agreements to which they are a party, and the
consummation of the transactions contemplated hereby and thereby will not
violate or result in a breach of any provision of the Certificate of
Incorporation or Bylaws (or equivalent documents) or Gardena or Buyer, result
in a default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligation to which Gardena or Buyer is a party or by which Gardena or Buyer,
or the business conducted by Gardena or Buyer, may be bound, or violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Gardena or Buyer or to the business conducted by Gardena or Buyer, excluding
from the foregoing such defaults and violations as do not have a material
adverse effect on the assets, earnings, financial condition, operations or
prospects of the business of Gardena or Buyer.
5.5. Finders. Except as set forth in Schedule 5.5, no broker, finder or
investment banker is entitled to any fee or commission from Buyer in
connection with the transactions contemplated by this Agreement.
5.6. Litigation. Except as set forth in Schedule 5.6, there are no actions,
suits, claims, investigations or proceedings pending or, to the knowledge of
(a) Buyer, threatened against Buyer, before any court, governmental body,
commission, agency or arbitration, domestic or foreign, which have or if
adversely determined, would have a material adverse effect on the assets,
earnings, financial condition, operations or prospects of the business of the
Buyer, or (b) Gardena or Buyer, threatened against Gardena or Buyer before any
court, governmental body, commission, agency or arbitrator, domestic or
foreign, which have or, if adversely determined, would have a material adverse
effect on the ability of Buyer or Gardena (i) to consummate the transactions
contemplated by this Agreement and the Related Agreements to which they are a
party or (ii) to perform their respective obligations hereunder or thereunder.
Furthermore, there are no judgements, orders or decrees of any such court,
governmental body, commission, agency or arbitrator which have or can
reasonably be expected to have any such effect.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1. Conduct of Business. Except as set forth on Schedule 6.1, from the
date hereof and until the Closing, Seller will, and will cause the Canadian
Subsidiary to, conduct its business only in the ordinary and usual course and
in a manner substantially consistent with past practices; maintain in good
repair, at its expense, normal wear and tear excepted, all of the Equipment
except for defects that do not materially and adversely affect the use of the
Equipment; and use its best efforts to preserve intact its present business
organization and operations, keep available the services of its officers and
employees (except as previously disclosed to Buyer) and preserve its
relationships with licensors, suppliers, dealers, customers and others
having business relationships with Seller or the Canadian Subsidiary. Seller's
management will meet with Buyer on a regular and frequent basis to discuss
the general status of the ongoing operations of Seller and the Canadian
Subsidiary and any material problems relating to the conduct of Seller's or the
Canadian Subsidiary's business. Seller will notify Buyer (w) of any
emergency or material change in the normal conduct of the business or
operations of Seller or the Canadian Subsidiary, (x) of the threat or
initiation of any material litigation against Seller or the Canadian
Subsidiary, (y) of the initiation of any investigation of Seller or the
Canadian Subsidiary or either of their businesses by any person, and (z) of
any budget revisions of Seller or the Canadian Subsidiary, and will keep
Buyer fully informed of developments with respect to such events and afford
Buyer's representatives access to all materials in its possession relating
thereto.
6.2. Forbearances by Seller. Except as specifically contemplated by this
Agreement or any of the Schedules hereto, from the date hereof until the
Closing, without the prior written consent of Buyer, O'Sullivan and Seller
will not, and Seller will not cause the Canadian Subsidiary to:
(i) sell, dispose of or transfer any of the Purchased Assets or any assets
of the Canadian Subsidiary, except in the ordinary course of business;
(ii) mortgage, pledge or otherwise encumber any of the Purchased Assets,
the stock of the Canadian Subsidiary, or any assets of the Canadian
Subsidiary;
(iii) amend, modify or cancel any Material Contract or Lease;
(iv) make any commitments for capital expenditures other than in the
ordinary course of business or consistent with past practices;
(v) increase in any manner the compensation of any of the officers of
Seller or the Canadian Subsidiary, pay or agree to pay any pension or
retirement allowance not required by an existing plan or agreement to any
such officer or employee, or enter into or amend any employment agreement or
any incentive compensation, profit sharing, savings, consulting, deferred
compensation, retirement, pension or other benefit plan or arrangement with
or for the benefit of any such officer, employee or other person on behalf of
Seller or the Canadian Subsidiary unless such action is required by an
existing agreement and such agreeement has been disclosed;
(vi) enter into any contract (other than purchase orders) which will
require an expenditure of more than $30,000 by Seller or the Canadian
Subsidiary or enter into any purchase order which will require an
expenditure of more than $150,000;
(vii) alter the manner in which it has regularly and customarily maintained
the books of account and records of Seller or the Canadian Subsidiary,
except as contemplated by the Schedule of Adjustments;
(viii) assume, guarantee, endorse or otherwise become responsible for the
obligations of any other individual or business entity, or make loans or
advances to any individual or business entity, except in the ordinary and
usual course of business and consistent with past practices;
(ix) declare, set aside or pay any dividend in cash or property with
respect to its capital stock;
(x) split, combine or otherwise similarly change its capital stock, or
redeem any of its capital stock;
(xi) authorize the creation or issuance of, or issue or sell any shares of
Seller's or the Canadian Subsidiary's capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person any
right to acquire from it, any shares of its capital stock;
(xii) merge or consolidate with any other corporation or acquire all of the
stock or business of any individual or business entity;
(xiii) amend its Articles of Incorporation or Bylaws;
(xiv) cancel or allow any of its existing insurance policies to lapse;
(xv) amend or enter into any collective bargaining agreement; or
(xvi) enter into any agreement to do any of the things described in clauses
(i) through (xv) above.
6.3. Negotiations with Others. From and after the date hereof until the
Closing, O'Sullivan and Seller will not, directly or indirectly, without the
written consent of Gardena and Buyer, initiate discussions or engage in
negotiations with any corporation, partnership, person or entity, other than
Buyer, concerning any proposal regarding the acquisition, other than in the
ordinary course of business, of part or all of the Purchased Assets, the
assets of the Canadian Subsidiary or the stock of Seller.
6.4. Investigation of Businesses and Properties. From and after the date
hereof until the Closing, Seller will afford Gardena and Buyer and their
attorneys, accountants, financial advisors and other representatives complete
access at all times to Ken Eaton, Michael Orfinik and Larry Trotter (the
"Contact Persons") and the properties, contracts, books and records of Seller
and the Canadian Subsidiary, provided that (i) such investigation shall not
disrupt the business of Seller, and (ii) all requests
for contacts with any of Seller's or the Canadian Subsidiary's employees
other than in the Contact Persons shall have been approved by a Contact Person,
in advance.
6.5. Confidentiality. Pursuant to the provisions of this Agreement,
O'Sullivan and Seller have supplied and will supply Gardena and Buyer with
certain documents and information for use in investigating the business of
Seller and the Canadian Subsidiary. Such material is hereinafter referred
to as "Evaluation Material." Gardena and Buyer agree to hold in confidence
any Evaluation Material they have received or will receive and not to use
any such material for any purpose not related to the transactions contemplated
by this Agreement nor to disclose all or any part of such material to anyone
except their officers, directors, employees or other representatives who need
such information to perform their respective duties and who have been
informed of the confidential nature of such material and directed to treat
it confidentially. If this Agreement is terminated, Gardena and Buyer will
promptly return to Seller or cause to be destroyed and will not retain the
originals or any copies of any documents constituting a part of the
Evaluation Material furnished to them and after termination Gardena and
Buyer will continue to honor their confidentiality agreement contained
herein, and will not use or disclose, directly or indirectly, any information
obtained from the Evaluation Material. The confidentiality agreement contained
in this Section 6.5 will terminate upon the earlier of five years after the
date hereof or upon consummation of the transactions contemplated hereby.
Notwithstanding the foregoing, Gardena and Buyer may use and disclose any
such information to the extent that (i) they acquired such information on a
non-confidential basis prior to receipt thereof from O'Sullivan or Seller,
(ii) such information has become generally available to the public other
than through the acts of Gardena or Buyer or (iii) such information is
provided to the party disclosing the same by a third party who has obtained
such information other than as a result of a breach of this Agreement.
Furthermore, Gardena and Buyer may disclose such information to the extent
that it is required to do so by law or in order to comply with a governmental
or judicial order or decree, but upon receiving notice that any such decree is
being sought, they will promptly notify O'Sullivan and Seller and will, at
O'Sullivan's and Seller's expense, cooperate with their efforts, if any, to
contest the issuance of such order or decree.
6.6. Taxes and Recording Fees.
(a) All sales and transfer taxes and fees (including filing fees, if any)
incurred in connection with this Agreement and the transactions contemplated
hereby will be borne by Buyer. Buyer will file all necessary Returns and
other documents required to be filed with respect to all such Taxes and
filing fees. O'Sullivan and Seller will cooperate with Buyer to the extent
necessary to enable it to make such filings and join in the execution of any
Returns or other documents as may be necessary to enable Buyer to comply with
the provisions of this Section.
(b) The parties agree to provide all information regarding the Purchased
Assets that any of them shall reasonably request in connection with the
preparation of any Returns, or any other information relevant to any Tax
liability of the requesting party to the extent relevant to the Purchased
Assets. The parties agree to cooperate fully as and to the extent reasonably
requested by any other party, in connection with any audit, litigation or
other proceeding with respect to Taxes to the extent relevant to the
Purchased Assets.
6.7. Allocation of Purchase Price.
(a) The Purchase Price shall be allocated (the "Allocation") among the
Purchased Assets in accordance with Internal Revenue Code Section 1060 and the
regulations thereunder ("Section 1060"), and such Allocation shall be set
forth in Schedule 6.7 to be attached hereto as promptly as practible after
the date hereof. Seller and Buyer agree to report, pursuant to Section 1060,
an allocation of such Purchase Price among the Purchased Assets in a manner
entirely consistent with the Allocation, and agree to act in accordance with
such Allocation in the preparation and filing of all Returns and in the course
of any audit, review or litigation relating thereto. Neither Seller nor
Buyer will assert that the Allocation was not separately bargained for at
arm's length and in good faith. Seller and Buyer further agree that the Stock
Purchase Price was separately established as a result of good faith
bargaining and agree to cooperate with each other in meeting any requirements
with respect to the Stock Purchase Price under the Income Tax Act (Canada)
or other applicable legislation.
(b) If an adjustment to the Purchase Price or the Stock Purchase Price is
required under Section 2.5 hereof, Seller and Buyer shall adjust the
Allocation set forth in Schedule 6.7 hereto and agree to file any additional
information required to be filed pursuant to Section 1060, the Income Tax
Act (Canada), or other applicable legislation. Any such adjustment shall be
treated in the manner described in Section 6.7(a).
6.8. Bulk Sales Laws. The parties waive compliance with applicable "bulk
sales laws."
6.9. Materials Received After Closing. Following the Closing Buyer may open
all mail, telegrams and other communications and packages it receives which
are addressed to Seller and deal with the contents thereof in its reasonable
discretion to the extent that the contents thereof relate to (i) the
Purchased Assets or the Assumed Liabilities, or the business related
thereto, or (ii) the Canadian Subsidiary. Buyer agrees to deliver to Seller
all other such material it receives which is addressed to Seller and does not
relate to such assets, business or liabilities.
6.10. Retention of Books and Records. For a period of seven years after the
Closing, the parties shall retain their books or records relating to the
Purchased Assets or the Assumed Liabilities. After such seven-year period,
any party shall provide not less than 45 nor more than 90 days prior written
notice to the other parties of any proposed destruction or disposition of
any such books and records. If a party desires to obtain any of such
documents held by the other party, it may do so by notifying the other party
in writing. The notice must specify the documents which the requesting party
wishes to obtain. The parties shall then promptly arrange for the delivery
of such documents. All out-of-pocket costs associated with the delivery of
the requested documents shall be paid by the requesting party.
6.11. HSR and Investment Canada Filings. Seller and Buyer have filed, or
will file, with the United States Federal Trade Commission and the Antitrust
Division of the United States Department of Justice, pursuant to the HSR
Act, all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. Buyer shall pay the filing fees
required in connection with such filings. Buyer shall comply with the
notice and filing provisions of the Investment Canada Act, including, without
limitation, filing the notice required to be filed within 30 days after
Closing, (b) the pre-merger notification provisions of the Competition Act
(Canada), if applicable, and (c) any other United States or foreign notice
or filing provisions required in connection with the transactions
contemplated by this Agreement.
6.12. Expenses. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses.
6.13. Public Announcements. Prior to the Closing, the parties will consult
with each other before issuing any press releases or otherwise making any
written public statements with respect to this Agreement and the
transactions contemplated hereby and will not issue any such press release
or make any written public statement without the consent in writing of the
other unless such action is required by law.
6.14. Subsequent Events. If any event shall occur prior to the Closing
which, had it occurred prior to the execution of this Agreement, should have
been disclosed by a party to this Agreement in one of its representations
and warranties, then, upon the happening of such event, such party shall
promptly disclose the happening of such event to the other party hereto.
6.15. Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including, but not
limited to, the obtaining of all necessary consents, waivers,
authorizations, orders and approvals of third parties, whether private or
governmental, required of it in order to comply
with the conditions precedent to consummating the transactions contemplated
by this Agreement. Each party agrees to cooperate fully with each of the
other parties in assisting them to comply with the provisions of this
Section and Seller and O'Sullivan agree to take such steps as may be
necessary to remove any liens, charges, pledges, security interests or other
encumbrances (other than Permitted Exceptions) which affect the Purchased
Assets or the stock of the Canadian Subsidiary. Notwithstanding the foregoing,
no party hereto shall be required to initiate any litigation, make any
substantial payment or incur any material economic burden (except for a
payment otherwise then required of it), to remove a lien, charge, pledge,
security interest or other encumbrance affecting any of the Purchased Assets
or the Stock of the Canadian Subsidiary, or to obtain any consent, waiver,
authorization, order or approval, and if, despite its efforts, any party is
unable to obtain any material consent, waiver, authorization, order of approval
or to remove any lien, charge, pledge, security interest or other encumbrance
affecting any of the Purchased Assets or the Stock of the Canadian Subsidiary,
the other party may terminate this Agreement and shall have no liability
therefor except as is provided in Section 12.2.
6.16. Further Assurances. O'Sullivan and Seller will use reasonable efforts
to implement the provisions of this Agreement, and for such purpose, at the
request and expense of Gardena and Buyer will, at or after the Closing,
without further consideration, promptly execute and deliver such additional
documents as Buyer may reasonably deem necessary or desirable in order to
consummate more effectively the transactions contemplated hereby and to vest
in Buyer title to the Purchased Assets and the stock of the Canadian
Subsidiary free and clear of any liens, charges, pledges, security interests
or other encumbrances, except Permitted Exceptions. Buyer will cooperate with
Seller and O'Sullivan to make available such books, records, accounts, papers,
information and employees to enable Seller to prepare the Preliminary Closing
Date Balance Sheet, the Final Closing Date Balance Sheet and any other
document required under Section 2.5 of the Agreement.
6.17. Proration of Rent, Utility Charges, etc.. Any installment of rent due
on any Lease to which Seller is a party and any utility or similar charge
payable with respect to the period in which the Closing occurs shall be
prorated, based on the actual number of days applicable to pre-Closing and
post-Closing occupancy or use.
6.18 Guarantees.
(a) O'Sullivan hereby guarantees the performance of all obligations of
Seller under this Agreement, the Related Agreements, and any other contracts
or agreements related to the transactions contemplated hereunder.
(b) Gardena hereby guarantees the performance of all obligations of Buyer
under this Agreement, the Related Agreements, and any other contracts or
agreements related to the transactions contemplated hereunder.
6.19 Name Change. In conjunction with the Closing, Seller shall change its
corporate name to a name which does not include "Melnor" or any name similar
thereto, will cooperate with Buyer in assuming the name "Melnor" in all
jurisdictions where Seller or its affiliates are incorporated or have
qualified to do business, and O'Sullivan, Seller and their affiliates will
refrain from using the name "Melnor" or any name similar thereto from and
after the Closing..
6.20 Covenant Not To Compete.
(a) In consideration of the acquisition by Buyer of the Purchased Assets
and the stock of the Canadian Subsidiary, and the assumption by Buyer of the
Assumed Liabilities and the business of Seller and the Canadian Subsidiary,
O'Sullivan and Seller, for themselves and their affiliates, agree that, for
a period of five years commencing on the Closing, they will not directly or
indirectly:
(i) engage in the business of developing, designing, manufacturing,
producing, marketing or selling any of the categories of products identified
in the catalogue of Gardena attached hereto as Schedule 6.20(a)(i)(A) or the
catalogue of Seller attached hereto as Schedule 6.20(a)(i)(B), except for
vinyl and vinyl-laminate products manufactured by O'Sullivan (the
"Restricted Business");
(ii) recruit, solicit or induce, or attempt to induce, any of the Transferred
Employees or the employees of the Canadian Subsidiary to terminate their
employment with, or otherwise cease their relationship with, Buyer or the
Canadian Subsidiary, respectively, or
(iii) solicit, divert or take away, or attempt to divert or to take away, the
business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of Buyer or the Canadian
Subsidiary related to the business of Gardena, Seller or the Canadian
Subsidiary as at the Closing Date.
(b) Nothing contained in Sections 6.20(a)(i), (ii) and (iii) shall prohibit
Seller and O'Sullivan from acquiring the business, properties, rights and
assets of any company partially engaged in the Restricted Business, whether
by asset or stock purchase, merger (or reverse merger), consolidation or
otherwise, provided that (x) the Restricted Business does not exceed ten
percent (10%) of the net revenues or equity of such company and (y) the
gross revenues of such company from the Restricted Business do not exceed
$15 million. Nothing contained herein shall prohibit O'Sullivan from being
acquired by any Person, whether by asset or stock purchase, merger,
consolidation or otherwise, or in any manner inhibit or limit an acquiring
Person or any of its Affiliates from making any further acquisitions in the
Restricted Business after the consummation of such acquisition.
(c) If any restriction set forth in this covenant not to compete is found by
any court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities or in
too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which
it may be enforceable.
(d) The restrictions contained in this covenant not to compete are necessary
for the protection of the business and goodwill of Buyer and are considered
by O'Sullivan and Seller to be reasonable for such purpose. O'Sullivan and
Seller expressly acknowledge the value of the consideration received by them
in connection with this covenant not to compete. O'Sullivan and Seller
agree that any breach of this covenant not to compete will cause Gardena and
Buyer substantial and irrevocable damage and therefore, in the event of any
such breach, in addition to such other remedies which may be available,
Gardena and Buyer shall have the right to seek specific performance and
injunctive relief without the requirement of posting a bond and without the
necessity of proving actual economic damages.
6.21. Capitalization. Gardena shall capitalize Buyer with $5 million in
equity on or before the Closing Date, the proceeds of which will be utilized
to pay a portion of the Purchase Price.
ARTICLE 7.
EMPLOYEES AND EMPLOYEE MATTERS
7.1. Transferred Employees. Seller has delivered to Buyer a list of all
of the employees of Seller who are employed by Seller as of the most recent
date for which such information is available. Buyer shall offer employment
on an at-will basis (or on such other terms as the Buyer may determine) to
all such persons who are employed by Seller immediately before the Closing.
Such employees who elect to become employees of Buyer are hereinafter
referred to as "Transferred Employees" and shall be deemed to have become
employees of Buyer as of the time the Closing becomes effective.
7.2. Employee Benefit Plans.
(a) Frozen Plans. Seller maintains the Melnor Inc. Retirement Income Plan
and the Melnor Inc. Cash or Deferred Plan (collectively, the "Frozen
Plans"). Buyer shall not assume any of Seller's obligations, liabilities or
responsibilities under the Seller's Frozen Plans. Buyer shall cause Buyer's
Defined Contribution Plan (as defined below) to accept transfers pursuant to
section 401(a)(31) of the Internal Revenue Code of amounts that are or may
become distributable to Transferred Employees under the Frozen Plans on or
after the Closing, but in no event shall any such transfer be or be construed
as a transfer pursuant to section 414(1) of the Internal Revenue Code.
(b) Savings Plan. As soon as practicable before the Closing Date, Buyer
shall establish a defined contribution plan and trust (or amend an existing
defined contribution plan) for Transferred Employees, which shall be
qualified under sections 401 and 501 of the Internal Revenue Code ("Buyer's
Defined Contribution Plan"). Buyer's Defined Contribution Plan shall
provide that each Transferred Employee shall be given credit under Buyer's
Defined Contribution Plan, for purposes of determining eligibility to
participate, eligibility for benefits, benefit calculations, benefit forms
and vesting, for the Transferred Employee's service with Seller, its Affiliates
and its predecessor companies, to the extent that Seller's Savings Plan (as
defined below) gave credit for such service. If Buyer amends one or more
existing defined contribution plans, Buyer shall ensure that all "section
411(d)(6) protected benefits" (as defined in Treasury Regulation 1.411(d)-4)
provided by Seller's Savings Plan are preserved in the Buyer's Defined
Contribution Plan. Transferred Employees shall not accrue additional benefits
after the Closing Date under defined contribution plans maintained by Seller
or its Affiliates.
(i) Assets of the O'Sullivan Corporation Retirement Savings Plan (the
"Savings Plan") equal to the account balances of the Transferred Employees
under the Savings Plan shall be transferred to Buyer's Defined Contribution
Plan as soon as practicable after the Closing. If practicable, the transfer
shall be made as of the last day of the first calendar quarter ending after
the Closing. The transfer shall be made in cash. Any outstanding plan
loans to Transferred Employees shall be transferred with the underlying
accounts. The account balances of the Transferred Employees shall be valued
as of the date on which the transfer is made. The account balances of
Transferred Employees in the Savings Plan shall share in the earnings,
appreciation and depreciation of the investment funds in which the accounts
are invested for the period between the Closing Date and the date on which the
transfer is made. Seller agrees upon Buyer's request to deposit in the
Savings Plan trust loan repayments that may be made by a Transferred Employee
to Buyer on or after Closing and prior to transfer of Transferred Employee's
account balances to Buyer's Defined Contribution Plan.
(ii) Any benefits that are payable to Transferred Employees from the
Savings Plan after the Closing Date and before assets are transferred shall
be paid from the Savings Plan in the ordinary course. The amount to be
transferred to Buyer's Defined Contribution Plan shall be reduced by the
amount of such payments.
(iii) The account balances to be credited under Buyer's Defined
Contribution Plan for Transferred Employees shall not be less than the
account balances of the Transferred Employees under the Savings Plan as of
the date on which the transfer is made. Effective on the date of the
transfer of Savings Plan assets, (i) Buyer's Defined Contribution Plan shall
assume all liabilities in connection with the account balances of
Transferred Employees under the Savings Plan, and (ii) Seller, its
Affiliates and the Savings Plan shall have no further liability with respect
to the account balances of Transferred Employees. Seller and its
Affiliates shall have no liability with respect to Buyer's Defined
Contribution Plan.
(iv) Buyer shall request that the Internal Revenue Service issue a
favorable determination letter with respect to the qualification under
sections 401 and 501 of the Internal Revenue Code of Buyer's Defined
Contribution Plan and the related trust. Buyer shall make such changes to
Buyer's Defined Contribution Plan as may be required by the Internal Revenue
Service in order for the Internal Revenue Service to issue a favorable
determination letter. Buyer shall provide Seller with a copy of the
determination letter received from the Internal Revenue Service with respect
to Buyer's Defined Contribution Plan as soon as the determination letter is
received.
(c) Filings and Other Matters. Seller and Buyer shall make the appropriate
filings required by law in connection with the transactions described in
Sections 7.2(a) and (b) as soon as practicable after the Closing Date.
Seller shall make any filings required under section 4043 of ERISA and
satisfy the requirements of section 4063 of ERISA (if and to the extent
that the PBGC determines that the requirements of section 4063 are
applicable to the Seller) with respect to any reportable events resulting
from the transactions contemplated by this Agreement.
(d) Service. Buyer shall treat service of each Transferred Employee with
Seller, its Affiliates and its predecessor companies before the Closing as
if such service had been with Buyer for purposes of determining eligibility
to participate, eligibility for benefits, benefit calculations, benefit
forms and vesting under Buyer's employee benefit plans (within the meaning
of section 3(3) of ERISA), including Buyer's Defined Contribution Plan.
(e) Welfare Benefit Plans. Buyer shall take any actions necessary under
its welfare benefit plans to ensure that Transferred Employees shall be
eligible for all welfare benefits which are provided to employees of Buyer
(each, a "Buyer Welfare Plan"). A welfare benefit plan is a plan defined in
section 3(1) of ERISA which provides medical, health, disability, accident,
life insurance, death, dental or other welfare benefits, including any
post-employment benefits or retiree medical, life insurance or other such
benefits. To the extent that Seller and Buyer can reasonably obtain the
consent of any affected insurance company, Buyer shall assume effective as of
the Closing, and Seller shall transfer and assign, all fully insured Seller
welfare benefit plans set forth in Schedule 7.2(e) ("Assumed Welfare Plans")
and all related insurance contracts to the extent that such Assumed Welfare
Plans and related insurance contracts pertain to Transferred Employees.
Transferred Employees shall not be subject to pre-existing conditions, proof
of insurability requirements, or any similar conditions or requirements under
Buyer's Welfare Plans that would delay commencement of a Transferred
Employee's participation in, or limit a Transferred Employee's level of
coverage under, any of Buyer's Welfare Plans, except to the extent that such
a provision, condition or requirement is a term of an Assumed Welfare Plan
and was acceptable under such a plan to a Transferred Employee immediately
prior to Closing. At Closing, Transferred Employees shall begin
participating in Buyer's Welfare Plans (including the Assumed Welfare Plans, to
the extent applicable) and shall cease participating in welfare benefit
plans maintained by Seller or its Affiliates. If either party pays any
welfare benefits that are a liability of the other party, such other party
shall reimburse the paying party for all such payments. Buyer shall give
Transferred Employees credit under Buyer's Welfare Plans for payments made
by Transferred Employees under Seller's health benefit plans for purposes
of deductibles and maximum out-of-pocket limits.
7.3. Worker's Compensation. Buyer will assume the responsibility for all
worker's compensation claims made by Transferred Employees arising from
events occurring after the Closing. Seller will retain the responsibility
for all worker's compensation claims made by its employees or former
employees (whether or not Transferred Employees) that arise from events that
occur before the Closing or events otherwise occurring while the employees
are employed by Seller.
7.4. Vacation Pay. Buyer will assume, solely to the extent of such amounts
as are properly accrued, reserved and/or recorded in the Final Closing Date
Balance Sheet, all liability for unpaid vacation or sick pay accrued by
Seller's employees who are Transferred Employees.
7.5. Administration and Transferred Employee Information. Buyer and Seller
will each make its appropriate employees available to the other at such
reasonable times as may be necessary for the proper administration by the
other of any and all matters relating to employee benefits and worker's
compensation claims affecting Transferred Employees and employees and former
employees of the Seller or the Canadian Subsidiary. Buyer will use
reasonable efforts to deliver to O'Sullivan written notice of any
Transferred Employee's termination of employment by Buyer not later than 30
days following the date of such termination. The notice shall state the name
of the Transferred Employee and the date on which his or her employment with
Buyer was terminated.
ARTICLE 8.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by this
Agreement shall be subject, to the extent not waived, to the following
conditions.
8.1. Representations and Warranties. The representations and warranties of
O'Sullivan and Seller contained in Article 4 of this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as
of the Closing, and O'Sullivan and Seller shall have delivered to Gardena
and Buyer a certificate to that effect signed by their respective Chairman
or President.
8.2. Performance of this Agreement. O'Sullivan and Seller shall have
performed all obligations and complied with all conditions required of it by
this Agreement and shall have delivered to Gardena and Buyer a certificate
to that effect signed by their respective Chairman or President.
8.3. Corporate Authorization. All corporate action required to be taken by
O'Sullivan, Seller and the Canadian Subsidiary (including receiving the
requisite approval of their shareholders) in connection with the
transactions contemplated by this Agreement shall have been taken, all
documents incident thereto shall be reasonably satisfactory in substance
and form to Gardena and Buyer and they shall have received such originals
or certified copies of such documents as they may reasonably request.
8.4. Consents and Approvals. All consents, authorizations, orders or
approvals of United States or foreign governmental or regulatory authorities
and of individuals or business entities which (i) O'Sullivan and Seller are
required to obtain in order to be able to transfer the Purchased Assets and
the stock of the Canadian Subsidiary to Buyer and (ii) Buyer must obtain in
order to purchase the Purchased Assets and the stock of the Canadian
Subsidiary and to be able to conduct the business of Seller and the Canadian
Subsidiary, shall have been obtained and all waiting periods specified by law
with respect thereto shall have passed.
8.5. Injunction, Litigation, etc. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of
the transactions contemplated by this Agreement, or which would limit or
affect the ability of Buyer to own or control the Purchased Assets or to
operate the business of Seller or the Canadian Subsidiary, and there shall
not have been threatened, nor shall there be pending, any action or
proceeding by or before any such court or governmental agency seeking to
prohibit or delay or challenging the validity of the transactions
contemplated by this Agreement.
8.6. Legislation. No statute, rule or regulation shall have been enacted
which prohibits, restricts or delays the consummation of the transactions
contemplated by this Agreement.
8.7. Title Insurance, Estoppel Certificates, etc. Buyer shall have received
commitments for title insurance, or other assurances satisfactory to it,
that the Canadian Subsidiary has good and marketable title to its Real
Property free and clear of all liens, charges, pledges and other
encumbrances, other than Permitted Exceptions. In addition, Seller shall
have obtained executed estoppel certificates, satisfactory in form and
substance to Buyer and such other information with respect to the Leases as
Buyer may reasonably request.
8.8. Opinion of Counsel for Seller. Buyer shall have received an opinion
from McGuire, Woods, Battle & Boothe, L.L.P., Counsel for O'Sullivan and
Seller, in form and substance reasonably satisfactory to Buyer and Gardena.
8.9. Section 116 Certificate. Seller shall have delivered to Buyer a
certificate issued by the Minister of National Revenue of Canada under
Section 116 of the Income Tax Act (Canada) in form satisfactory to Buyer
acting reasonably, in respect of the sale of the shares of the Canadian
Subsidiary, specifying therein as a "certificate limit" an amount no less
than the Canadian dollar equivalent of the Stock Purchase Price, or if such
certificate has not been issued by said Minister, Seller shall have taken
all actions necessary or appropriate on its part to obtain said certificate.
8.10 Canadian Collective Bargaining Agreement. The new collective
bargaining agreement of the Canadian Subsidiary covering its unionized
employees shall not contain any material increase in compensation or any
change in severance provisions (except as required by Canadian law).
ARTICLE 9.
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement shall be subject, to the extent not waived, to the following
conditions.
9.1. Representations and Warranties. The representations and warranties of
Gardena and Buyer contained in Article 5 of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing, and Gardena and Buyer shall have delivered to Seller a
certificate to that effect signed by their respective Chairman or President.
9.2. Performance of this Agreement. Gardena and Buyer shall have performed
all obligations and complied with all conditions required of it by this
Agreement and shall have delivered to Seller a certificate to that effect
signed by their respective Chairman and President.
9.3. Corporate Authorization. All corporate action required to be taken by
Gardena and Buyer in connection with the transactions contemplated by this
Agreement shall have been taken, all documents incident thereto shall be
reasonably satisfactory in substance and form to Seller and O'Sullivan, and
they shall have received all such originals or certified copies of such
documents as they may reasonably request.
9.4. Consents and Approvals. All consents, authorizations, orders or
approvals of United States or foreign governmental or regulatory authorities
and of individuals or business entities which Gardena and Buyer are required
to obtain in order to consummate the transactions contemplated by this
Agreement shall have been obtained by Buyer and Gardena and all waiting
periods specified by law with respect thereto shall have passed.
9.5. Injunction, Litigation, etc. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of
the transactions contemplated by this Agreement and there shall not have
been threatened, nor shall there be pending, any action or proceeding by or
before any such court or governmental agency seeking to prohibit or delay or
challenging the validity of the transactions contemplated by this Agreement.
9.6. Legislation. No statute, rule or regulation shall have been enacted
which prohibits, restricts or delays the consummation of the transactions
contemplated by this Agreement.
9.7. Opinions of Counsel for Buyer and Gardena. Seller shall have received
(a) an opinion from Piper & Marbury, Washington, D.C., counsel for Gardena
and Buyer, and (b) an opinion from German legal counsel for Gardena, each in
form and substance reasonably satisfactory to Seller and O'Sullivan.
9.8. COBRA. Buyer shall have established one or more welfare benefit
plans (within the meaning of Section 7.2(e)) that provide health care and
dental benefits to Transferred Employees effective as of the Closing, and
which shall not impose upon Transferred Employees any pre-existing condition
provisions, proof of insurability requirements, waiting periods or any
similar conditions or requirements that would delay commencement of
Transferred Employees' participation in, or limit Transferred Employees'
level of coverage under such welfare benefit plans providing health care and
dental benefits (except to the extent such provisions, conditions or
requirements are part of an Assumed Welfare Plan and were applicable under
such plan to a Transferred Employee immediately prior to Closing). Buyer shall
not assume any responsibilities, obligations or liabilities imposed by the
Consolidated Omnibus Budget Reconciliation Act of 1985 with respect to any
former or current employees of Seller who are not Transferred Employees.
9.9. Employment Agreements. Buyer shall have offered employment agreements
with Michael Orfinik and Larry Trotter that provide for their employment
with Buyer for a term of no less than two years from the Closing Date, and
which provide for management duties and compensation similar to the duties
assigned and compensation payable to such persons immediately prior to
Closing.
ARTICLE 10.
CLOSING
10.1. Time and Place of Closing. The closing (the "Closing") shall take
place (a) at 10:00 a.m. local time on or before July 31, 1997, (b) within
48 hours of the earlier to occur of (i) the early termination of, or (ii)
the expiration of, any applicable waiting period under the HSR Act (but in
no event on August 6 through August 13, 1997), or (c) such other date as may
be agreed upon by the parties (the "Closing Date") at the offices of counsel
for Buyer and Gardena in Washington, D.C. If the Closing takes place, the
Closing and all of the transactions contemplated by this Agreement shall be
deemed to have occurred simultaneously and become effective as of the close
of business on the Closing Date.
10.2. Deliveries by Seller. At the Closing Seller shall deliver to Buyer the
following:
(i) properly endorsed title certificates transferring the motor vehicles
which are a part of the Purchased Assets to Buyer;
(ii) a duly endorsed stock certificate transferring all of the outstanding
stock of the Canadian Subsidiary to Buyer;
(iii) a Bill of Sale and Assignment in form and substance satisfactory to
the parties;
(iv) the certificates required by Sections 8.1 and 8.2;
(v) evidence that the corporate action described in Section 8.3 has been
taken;
(vi) copies of the consents required by Section 8.4;
(vii) the estoppel certificates required by Section 8.7;
(viii) certificates from (i) the State Corporation Commission of the
Commonwealth of Virginia, and (ii) such other jurisdictions where Seller is
qualified to do business, of Seller's good standing in such jurisdictions
as of a date within 30 days of the Closing;
(ix) a certificate of status from the Ontario Minister of Consumer and
Commercial Affairs covering the Canadian Subsidiary as of a date within 10
days of the Closing;
(x) the Opinion of Counsel required by Section 8.8;
(xi) a certificate issued by the Minister of National Revenue of Canada
under Section 116 of the Income Tax Act (Canada) in form satisfactory to
Buyer acting reasonably, in respect of the sale of shares of the Canadian
Subsidiary specifying therein as a "certificate limit" an amount no less
than the Canadian dollar equivalent of the Stock Purchase Price, or evidence
reasonably satisfactory to Buyer and Gardena that Seller has taken all
actions necessary or appropriate on its part to obtain said certificate;
(xii) an acknowledgment by Seller of the payment of the Estimated
Intercompany Loan Balance, subject to adjustment pursuant to Section 2.5
hereof;
(xiii) an updated list of accounts receivable of Seller and the Canadian
Subsidiary as of a date not earlier than 15 days prior to the Closing Date;
and
(xiv) such additional documents as Buyer may reasonably request.
10.3. Deliveries by Buyer. At the Closing Buyer shall deliver the
following:
(i) the Estimated Purchase Price in immediately available funds;
(ii) the Stock Purchase Price in immediately available funds, and Buyer
shall cause the Canadian Subsidiary to pay the Estimated Intercompany Loan
Balance in immediately available funds;
(iii) an Instrument of Assumption of Liabilities in form and substance
satisfactory to the parties;
(iv) the certificates required by Sections 9.1 and 9.2;
(v) evidence that the corporate action described in Section 9.3 has been
taken;
(vi) copies of the consents required by Section 9.4;
(vii) a certificate of the Secretary of State of Delaware as to the good
standing of Buyer as of a date within 10 days of the Closing;
(viii) the Opinions of Counsel required by Section 9.7;
(ix) the amount of $2,500,000, to be deposited into the Escrow Account as
provided in Section 2.4(a); and
(x) such additional documents as Seller may reasonably request.
10.4. Deliveries by Seller, O'Sullivan and Buyer. At the Closing the
relevant parties shall execute and deliver the Related Agreements.
10.5 Deliveries by Seller and O'Sullivan After Closing. Within five
business days after the Closing, Seller and O'Sullivan shall deliver to
Buyer and Gardena an updated list of accounts receivable of Seller and the
Canadian Subsidiary as of a date not earlier than the Closing Date.
ARTICLE 11.
INDEMNIFICATION
11.1. Indemnification by Seller and O'Sullivan. Subject to the limitations
contained in this Article 11, O'Sullivan and Seller will indemnify and hold
Gardena and Buyer harmless from any damage, loss (including any diminution
in the value of the equity of the Canadian Subsidiary), liability or expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees) (collectively "Damages") to which Gardena and
Buyer become subject (regardless of whether or not such Damages relate to any
third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with:
(i) any misrepresentation contained in, omission from or breach of, a
representation and warranty made by O'Sullivan or Seller in this Agreement;
(ii) the breach of any agreement of Seller or O'Sullivan contained in this
Agreement (but not the Related Agreements, which will stand on their own);
(iii) any liability or obligation of Seller not specifically assumed by
Buyer pursuant to this Agreement, including, without limitation, (a) any
liability not properly accrued, reserved and/or recorded in the Final
Closing Date Balance Sheet, and (b) any liability arising out of the matters
listed on Schedule 11.1(iii), attached hereto;
(iv) any Tax of the Canadian Subsidiary attributable to (a) any taxation
year of the Canadian Subsidiary ending on or before the Closing Date, (b)
any taxation year not ended as of the Closing Date, but solely through the
Closing Date, or (c) any intercompany payables held by the Canadian
Subsidiary on or before the Closing Date, to the extent such Taxes are not
specifically reserved for in the Canadian Final Closing Date Balance Sheet;
(v) the inability to collect any account receivable of Seller or the
Canadian Subsidiary assumed by Buyer hereunder within the later to occur of
120 days after (a) the Closing or (b) the due date of the related invoice
(in the ordinary course of business); or
(vi) any pre-tax losses incurred by Buyer in the operation of the business
conducted with the Purchased Assets and the Canadian Subsidiary in the
ordinary course during the 12 month period commencing on the Closing Date,
including any pre-tax losses due to any extraordinary costs and expenses
incurred in connection with losses attributable to closing the Canadian
Subsidiary, provided that all such extraordinary pre-tax losses are
reasonably allocated over a minimum 12-month period and only the portion of
such extraordinary pre-tax losses allocable from the date of incurring such
losses through the end of the 12 months following the Closing Date is used
to claculate such pre-tax losses.
11.2. Indemnification by Buyer. Subject to the limitations contained in this
Article 11, Buyer and Gardena will indemnify and hold each of Seller and
O'Sullivan harmless from any Damages to which O'Sullivan or Seller become
subject (regardless of whether or not such Damages relate to any third-party
claim) and which arise from or as a result of, or are directly or indirectly
connected with:
(i) any misrepresentation contained in, omission from or breach of a
representation and warranty made by Gardena or Buyer in this Agreement;
(ii) the breach of any agreement of Buyer or Gardena contained in this
Agreement (but not the Related Agreements, which will stand on their own);
(iii) the operation by Buyer or any Affiliate of the business associated
with the Purchased Assets or by the Canadian Subsidiary of its business,
after the Closing Date; and
(iv) the failure of Buyer or Gardena to perform any obligation or pay any
Assumed Liability specifically assumed by Buyer or guaranteed by Gardena
pursuant to the terms of this Agreement.
11.3. Third Party Claims. The obligations and liabilities of a party from
which indemnification is sought (an "indemnifying party") by a party seeking
indemnification (an "indemnified party") under this Article 11 with respect
to claims resulting from the assertion of Damages by those not parties to
this Agreement shall be subject to the following conditions:
(i) The indemnified party shall give prompt written notice to the
indemnifying party of the nature of the assertion of Damages by a third
party and the amount thereof to the extent known, provided that the failure
to give such notice shall not release the indemnifying party from its
obligations hereunder unless such failure materially prejudices the
indemnifying party's ability to defend the claim;
(ii) If any action, suit or proceeding (a "Legal Action") is brought by a
third party against an indemnified party, the Legal Action shall be defended
by the indemnifying party and such defense shall include all appeals or
reviews which counsel for the indemnifying party shall deem appropriate.
Until the indemnifying party shall have assumed the defense of any such
Legal Action, or if the indemnified party shall have reasonably concluded
that there are likely to be defenses available to the indemnified party that
are different from or in addition to those available to the indemnifying
party (in which case the indemnifying party shall not be entitled to assume
the defense of such Legal Action and the defense may be handled by the
indemnified party at its sole expense), all legal or other expenses
reasonably incurred by the indemnified party shall be borne by the
indemnifying party;
(iii) In any Legal Action initiated by a third party and defended by the
indemnifying party (w) the indemnified party shall have the right to be
represented by advisory counsel and accountants, at its own expense, (x)
the indemnifying party shall keep the indemnified party fully informed as
to the status of such Legal Action at all stages thereof, whether or not
the indemnified party is represented by its own counsel, (y) the indemnified
party shall make available to the indemnifying party, and its attorneys and
accountants, all books and records of the indemnified party relating to such
Legal Action and (z) the parties shall render to each other such assistance
as may be reasonably required in order to ensure the proper and adequate
defense of such Legal Action;
(iv) In any Legal Action initiated by a third party and defended by the
indemnifying party, the indemnifying party shall not make any settlement of
any claim without the written consent of the indemnified party, which
consent shall not be unreasonably withheld. Without limiting the generality
of the foregoing, it shall not be deemed unreasonable to withhold consent
to a settlement involving injunctive or other equitable relief against the
indemnified party or its assets, employees or business.
(v) In any Legal Action initiated by a third party in which the
indemnifying party is not entitled to assume the defense and the
indemnified party handles the Legal Action as provided in Section 11.3(ii),
(w) the indemnifying party shall have the right to be represented by
advisory counsel and accountants, at its own expense, (x) the indemnified
party shall keep the indemnifying party fully informed as to the status of
such Legal Action at all stages thereof, whether or not the indemnifying
party is represented by its own counsel, (y) the parties shall render to each
other such assistance as may be reasonably required in order to ensure the
proper and adequate defense of such Legal Action, and (z) the indemnified
party shall not make any settlement of any claim without the written consent
of the indemnifying party, which consent shall not be unreasonably withheld.
11.4. Limitations on Indemnification.
(a) Notwithstanding the foregoing provisions of this Article 11, O'Sullivan
and Seller shall not be liable for the items set forth in Section 11.1,
unless and until the aggregate amount of liability under such Section
exceeds $50,000; and thereafter Gardena and Buyer shall be entitled to
indemnification thereunder only for the aggregate amount of such liability
in excess of $50,000. No liability of O'Sullivan or Seller for
indemnification under Section 11.1 shall in any event exceed the Escrow
Amount, except to the extent such liability arises (i) due to fraud on the
part of Seller or O'Sullivan, or (ii) as a result of the breach of any of the
Tax-related representations and warranties of Seller and O'Sullivan contained
herein, including, without limitation, those contained in Sections 4.20 and
4.24.
(b) Notwithstanding the foregoing provisions of this Article 11, Gardena
and Buyer shall not be liable for the items set forth in Section 11.2(i),
unless and until the aggregate amount of liability under such Section
exceeds $50,000; and thereafter O'Sullivan and Seller shall be entitled to
indemnification thereunder only for the aggregate amount of such liability
in excess of $50,000. No liability of Gardena or Buyer for indemnification
under Section 11.2(i) shall in any event exceed an amount equal to $1,000,000.
In addition, no liability of Gardena or Buyer for indemnification under
Sections 11.2(ii) or 11.2(iii) shall exceed the Escrow Amount then held in
the Escrow Account or subsequently received therein in payment of the
Royalty, except to the extent such liability arises due to (i) fraud, (ii)
deliberate failure to close as provided herein, or (iii) a failure to pay
any Assumed Liabilities as required by this Agreement.
11.5. Survival; Investigation.
(a) The representations and warranties (i) of O'Sullivan and Seller
contained in Sections 4.3, 4.4, 4.5, 4.6, 4.7, 4.9, 4.11, 4.14, 4.19, 4.27
and 4.28 of this Agreement, and (ii) of Gardena and Buyer contained in
Sections 5.3, 5.4, and 5.6, shall survive the Closing until December 31,
1999, except that the representations and warranties of O'Sullivan and
Seller contained in Section 4.24 and any other representations and
warranties related to Taxes shall survive in each case until the expiration
of the applicable statute of limitations, including, without limitation, all
Tax-related representations and warranties contained in Section 4.20 (the
"Survival Date"), at which time they shall lapse. All other representations
and warranties of the parties contained in this Agreement shall survive the
Closing until the first anniversary of the Closing (also, the "Survival
Date") at which time they shall lapse. Notwithstanding the provisions of the
preceding sentence, any representation or warranty in respect of which
indemnification may be sought under Sections 11.1(i) or 11.2(i) shall survive
its applicable Survival Date if written notice, given in good faith, of the
specific breach therof is given to the indemnifying party prior to the
Survival Date, whether or not Damages have actually been sustained.
(b) No investigation by any of the parties, heretofore or hereafter made,
shall affect the survival of any representation and warranty contained herein.
11.6. Notice of Claim for Indemnification. If Buyer or Gardena determines
that it is entitled to indemnification under this Article other than as a
result of a third party claim covered under Section 11.3, within sixty (60)
days of such determination, it shall give Seller and O'Sullivan a written
notice specifying the basis for the claim for indemnification, the nature
of the claim and the estimated amounts for which Buyer is entitled to be
indemnified. If Seller or O'Sullivan object to such claim within the thirty
(30) period, the parties shall attempt to agree upon their relative rights
with respect to such claim. Any written agreement reached by the parties
shall be final and binding on all parties. If the parties are unable to
settle the claim through negotiation, the claim shall be resolved in
accordance with Section 13.5.
ARTICLE 12.
TERMINATION, AMENDMENT AND WAIVER
12.1. Termination. This Agreement may be terminated at any time prior to
the Closing:
(i) by mutual consent of the Boards of Directors of Seller and Buyer;
(ii) by Seller if there has been a material breach by Buyer or Gardena of
a representation, warranty or agreement contained herein or if any material
condition contained in this Agreement which must be met by Buyer or Gardena
becomes impossible to fulfill;
(iii) by Buyer if there has been a material breach by Seller or O'Sullivan
of any representation, warranty or agreement contained herein or if any
material condition contained in this Agreement which must be met by Seller
or O'Sullivan becomes impossible to fulfill, or if Buyer is unable to obtain
such consents, authorizations, orders or approvals as may be necessary to
permit it to conduct the business of Seller or the Canadian Subsidiary;
(iv) by Buyer and Gardena if there has occurred any material change in the
representations and warranties of Seller and O'Sullivan as disclosed in any
updated schedules delivered to Buyer and Gardena on or before Closing
pursuant to Article 4; or
(v) by Seller or Buyer if the Closing has not occurred by August 31, 1997
for a reason other than a breach by the terminating party.
12.2. Effect of Termination. If this Agreement is terminated as provided
in Section 12.1, it shall become wholly void and of no further force and
effect and there shall be no further liability or obligation on the part of
any party hereto except to pay such expenses as are required of it and to
comply with the confidentiality provisions of Section 6.5, but such
termination shall not constitute a waiver by any party of any claim it may
have for damages caused by reason of a material breach of a representation,
warrant or agreement made by another party hereto.
12.3. Amendment. This Agreement and the Exhibits and Schedules hereto may be
amended at any time prior to Closing provided that any such amendment is
approved in writing by each of the parties hereto. All representations and
warranties which are true and correct as modified and approved shall be
deemed true and correct for the purposes of Sections 8.1 and 9.1.
12.4. Extension; Waiver. At any time prior to the Closing any party to this
Agreement which is entitled to the benefits thereof may (i) extend the time
for the performance of any of the obligations of another party hereto, (ii)
waive a breach of a representation or warranty of another party hereto, or
(iii) waive compliance of another party hereto with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if
set forth in a written instrument signed by the party giving the extension
or waiver.
ARTICLE 13.
GENERAL PROVISIONS
13.1. Notices.
(a) All notices required to be given hereunder shall be in writing and
shall be deemed to have been given if (i) delivered personally, (ii)
transmitted by telefax or (iii) delivered by recognized international
commercial courier to the following listed persons at the addresses and
telefax numbers specified below, or to such other persons, addresses or
telefax numbers as a party entitled to notice shall give, in the manner
hereinabove described, to the others entitled to notice:
(b) If to Seller or O'Sullivan:
O'Sullivan Corporation
1944 Valley Avenue
Winchester, VA 22601
Attention: C. Bryant Nickerson
Telefax No.: (540) 667-1191
and a copy to:
McGuire, Woods, Battle & Boothe, L.L.P.
One James Center
901 E. Cary Street
Richmond, VA 23219
Attention: Joseph C. Carter, III
Telefax No.: (804) 698-2028
(b) If to Buyer:
Prior to Closing:
GH Acquisition Corp.
c/o Piper & Marbury
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Jay Gary Finkelstein, Esq.
Telefax No.: 202-223-2085
After Closing:
GH Acquisition Corp.
2085 Shawnee Drive
Winchester, Virginia 22604
Attention: Eric Schefold
Telefax No. To be provided
with a copy to:
Gardena Holding AG
Hans-Lorenser-Strasse 40
D-89079 Ulm
Germany
Attention: Haje Plitt
Telefax No.: 011-49-731-490-709
and a copy to:
Piper & Marbury
1200 19th Street, N.W.
Washington, D.C. 20036-2430
Attention: Jay Gary Finkelstein, Esq.
Telefax No.: 202-223-2085
(c) If to Gardena:
Gardena Holding AG
Hans-Lorenser-Strasse 40
D-89079 Ulm
Germany
Attention: Haje Plitt
Telefax No.: 011-49-731-490-709
with a copy to:
Piper & Marbury
1200 19th Street, N.W.
Washington, D.C. 20036-2430
Attention: Jay Gary Finkelstein, Esq.
Telefax No.: 202-223-2085
Notice shall be deemed to have been delivered (i) on the date of receipt, if
by hand, (ii) on the date of receipt of correct electronic answer back, if
by telefax, and (iii) on the date of delivery, if by courier (as evidenced
by the records of the courier company).
13.2. Schedules. The representations and warranties included in Articles 4
and 5 of this Agreement are deemed to include, for the purposes of the
sections to which they are referenced, and not for the purposes of any other
sections, the matters disclosed in the schedules thereto.
13.3. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation
of this Agreement. The symbol "$" and all references to dollar amounts
shall be deemed to refer to United States Dollars, unless otherwise
specified.
13.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.5 Dispute Resolution; Arbitration; Legal Action. (a) If a dispute
arises under this Agreement, the senior officers of O'Sullivan and Buyer or
Gardena shall meet promptly to negotiate in good faith in an attempt to
resolve the dispute. Any party to the dispute may elect by written notice
to the others to utilize the services of a single, independent mediator to
assist in the resolution of the dispute, it being agreed that any such
mediation shall be non-binding. The mediator shall be mutually selected by
the parties, provided that if a mediator cannot be agreed upon, the
negotiations shall nevertheless continue as provided in this Section 13.5(a).
In the event that the negotiations are successful, the parties to the dispute
shall jointly pay for the costs of the mediator, unless the parties agree
otherwise in writing.
(b) If the dispute is not settled by the parties as provided in Section
13.5(a) within 60 days of the first meeting of the senior officers of
O'Sullivan and Buyer or Gardena (whether or not a mediator has been agreed
upon), the party making the claim (the "Claimant") shall have the right to
resolve the dispute by electing either of the following alternatives:
(i) The Claimant may, by notice to the others given within 30 days of the
end of the foregoing negotiation period, require the parties to resolve the
dispute by binding arbitration in accordance with the Commercial Rules of
the American Arbitration Association in effect at that time, except as
modified herein. All disputes shall be decided by a single arbitrator.
The arbitration shall take place in Winchester, Virginia or Washington, D.C.
The parties agree that the arbitration should be conducted on an accelerated
schedule to be established by the arbitrator and which shall not be modified
except by the mutual agreement of the parties. A decision shall be
rendered by the arbitrator as promptly as possible after the demand for
arbitration is filed, and the arbitrator shall state in writing the factual
and legal basis for the award. Judgment may be entered upon the award in
any U.S. or non-U.S. court having jurisdiction over the matter. The parties
intend that any award shall be enforceable outside of the United States in
accordance with the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards. As part of the award, the arbitrator will assess the costs
of the arbitration, including, without limitation. the reasonable legal fees
and other expenses of the prevailing party, against the losing party.
(ii) The Claimant may, within 30 days of the end of the foregoing
negotiation period, give notice to the other parties of its intention to
bring a legal action or proceeding to resolve the dispute and shall file
such legal action or proceeding as promptly as reasonably practicable
thereafter. Any action or proceeding hereunder shall be filed exclusively
in the United States District Court for the Eastern District of Virginia, or
if said court does not have jurisdiction over the matter, the Circuit Court
of the City of Richmond, Virginia, John Marshall Courts Building. In any such
legal action, each of the parties hereto hereby accept for themselves and in
respect of their property, generally and unconditionally, the jurisdiction of
the aforesaid courts, provided that the parties expressly acknowledge and
agree that Gardena accepts such jurisdiction solely for the resolution of the
specific dispute in controversy and for no other purpose. Each of the parties
hereto irrevocably consents to service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to their respective
addresses set forth in Section 13.5; provided, however, that Gardena hereby
appoints Edward R. Parker, Esq., 5511 Staples Mill Road, Richmond, Virginia,
23228, as its agent solely for accepting services of process issued by the
United States District Court for the Eastern District of Virginia or the
Circuit Court of the City of Richmond, Virginia, John Marshall Courts
Building, in connection with a legal action or proceeding arising pursuant to
this Section 13.5(b)(ii), and agrees to maintain Edward R. Parker, Esq. as its
agent at all times while this Agreement remains in force.
13.6. Miscellaneous. This Agreement (i) constitutes the entire agreement
and supercedes all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof; (ii)
is not intended to and shall not confer upon any other person or business
entity, other than the parties hereto, any rights or remedies with respect to
the subject matter hereof; (iii) shall not be assigned by any party hereto prior
to Closing without the prior written consent of the other parties and may be
assigned by any party hereto after Closing without the consent of the other
parties (provided that the assigning party gives prior written notice to the
other parties and represents in such notice that it has made adequate
arrangements for the assignee to pay and perform all of the assignor's
obligations and liabilities hereunder), and any such assignment shall be
binding on the successors and permitted assigns of the assigning party; and
(iv) shall be governed in all respects by the laws of the Commonwealth of
Virginia without regard to its laws or regulations relating to conflicts of
laws.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed and their corporate seals to be affixed and attested by their
duly authorized officers.
MELNOR INC.
By: /s/ C. Bryant Nickerson
Title: /s/ Secretary
O'SULLIVAN CORPORATION
By: /s/ James T. Holland
Title: /s/ President & C.E.O.
GARDENA HOLDING AG
By: /s/ Haje Plitt
Title: /s/ Director
By: /s/ Markues Kress
Title: /s/ Director
GH ACQUISITION CORP.
By: /s/ Haje Plitt
Title: /s/ Director
By: /s/ Markues Kress
Title: /s/ Director
July 16, 1997
O'Sullivan Corporation
1944 Valley Avenue
Winchester, VA 22601
Melnor Inc.
3085 Shawnee Drive
Winchester, VA 22604
Gentlemen:
In accordance with your request and in connection with the signing of the
Asset Purchase Agreement (the "Agreement") dated as of July 16, 1997 by and
among O'Sullivan Corporation, Melnor Inc. ("Melnor"), GH Acquisition Corp.
("GH") and Gardena Holding AG ("Gardena"), Gardena and GH acknowledge that
the managers of Melnor Canada Ltd. (the "Canadian Subsidiary") are currently
negotiating the terms of a collective agreement with National Automobile,
Aerospace, Transportation and General Workers Union of Canada (C.A.W.-
Canada) and its Local 397 (the "Union") that will cover employees of the
Canadian Subsidiary who are members of the Union. Gardena and GH further
acknowledge thast the final terms of the collective ageement will not be
finalized until after the date of the Agreement.
In recognition thereof, Gardena and GH agree that if the Canadian Subsidiary
enters into a collective agreement with the Union prior to the Closing, as
defined in the Agreement, such collective agreement shall not constitute a
material change in the business of the Canadian Subsidiary, a material
increase in compensation, or constitute a condition that would relieve
Gardena and GH of their obligation to consummate the transactions
contemplated under the Agreement, provided that (i) any wage increase agreed
to under the collective agreeent does not, in the aggregate, exceed 4.1%
(over a period of 2 years) of the wages currently being paid to employees who
will be covered under the collective agreement, and (ii) any provisions
concerning the payment of severance to terminated employees do not provide
for payment of amounts that exceed the amounts that would be required to be
paid under applicable Canadian law.
Melnor and O'Sullivan acknowledge and agree that GH will not assume the
Export Representative Agreement between Melnor and Dorian International
Inc., as amended through January 5, 1996 (the "Dorian Agreement"), in
connection with the transactions contemplated by the Agreement. Melnor and
O'Sullivan agree that they will use their best efforts to terminate the
Dorian Agreement as soon as possible (provided that O'Sullivan and Melnor
will not incur any expense with respect to such termination without the
sent of Gardena or Buyer which shall not be unreasonably withheld and GH and
Gardena agree to cooperate with Melnor and O'Sullivan in attempting to
terminate said agreement). Notwithstanding the foregoing, GH and Gardena agree
to indemnify and hold Melnor and O'Sullivan harmless from any loss, liability
or expense (including, without limitation, reasonable attorneys' fees) to
which Melnor or O'Sullivan become subject and which arise from or as a
result of, or is directly or indirectly connected with, the termination of
the Dorian Agreement, provided that Seller and O'Sullivan will not enter
into any settlement agreement with or incur expenses related to Dorian
International without the consent of Gardena or GH, which shall not be
unreasonably withheld. This indemnification is in addition to and independent
from the indemnification in Section 11.2 and is not subject to the limitation
in Section 11.4. Notwithstanding the first sentence of this paragraph, in
the event said agreement cannot be terminated by Seller and O'Sullivan prior
to the Closing, as defined in the Purchase Agreement, GH will assume said
agreement.
GH ACQUISITION CORP.
By: /s/ Haje Plitt
Title: /s/ Director
By: /s/ Markues Kress
Title: /s/ Director
GARDENA HOLDING AG
By: /s/ Haje Plitt
Title: /s/Director
By: /s/ Markues Kress
Title: /s/ Director
Acknowledged and Agreed to:
O'SULLIVAN CORPORATION
By: /s/ James T. Holland
Title: /s/ President & C.E.O.
MELNOR INC.
By: /s/ C. Bryant Nickerson
Title: /s/ Secretary
