FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 15, 1995
PENTAIR, INC.
(Exact name of Registrant as specified in its Charter)
MINNESOTA 0-4689 41-0907434
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
1500 County Road B2 West, Suite 400, St. Paul, Minnesota 55113
(Address of Principal Executive Offices) (Zip Code)
612-636-7920
(Registrant's Telephone Number, Including Area Code)
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On November 1, 1995, Pentair, Inc. (the Registrant) completed
the purchase of Fleck Controls, Inc. The sale price was approximately
$130 million. Fleck Controls designs, manufactures and markets control
valves which are major components in residential water softeners, and
commercial and industrial water conditioning systems. The headquarters
and main manufacturing facility of the company are located in the
Milwaukee suburb of Brookfield, Wisconsin. Fleck also operates a
manufacturing and distribution system located in Buc, France, about 35
miles southwest of Paris. The company employs about 260 people in
Brookfield and 50 in Buc.
Approximately $120 million of the purchase price is payable in
January 1996, pursuant to non-negotiable notes given to the selling
shareholders. The balance of the purchase price was paid using
revolving borrowings. The notes will be paid from remaining proceeds of
the Company's disposition of its Paper Products and Joint Venture
segments, receivable in January 1996, and from revolving borrowings.
Item 7: Financial Statements and Exhibits
The information supplied under this item is supplemented by the
following:
a. Financial Statements of Business Acquired (Fleck
Controls):
Fleck Controls, Inc. and Affiliates
COMBINED FINANCIAL STATEMENTS
as of December 31, 1994 with
Independent Auditors' Report
<PAGE>
Independent Auditors' Report
To the Board of Directors,
Fleck Controls, Inc.:
We have audited the accompanying combined balance shees of FLECK
CONTROLS, INC. (an S Corporation) and affiliates as of December 31, 1994,
and the related combined statements of income, owners' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Fleck Europe, S.N.C., the consolidated partnership, which
statements reflect total assets constituting 30 percent of the combined assets
at December 31, 1994 and net sales constituting 26 percent of combined net sales
for the year then ended. These statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Fleck Europe, S.N.C., is based solely upon
the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Fleck Controls, Inc. and affiliates
as of December 31, 1994 and the results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Vrakas, Blum and Co., S.C.
Brookfield, Wisconsin
February 10, 1995
<PAGE>
<TABLE>
<CAPTION>
FLECK CONTROLS, INC. AND AFFILIATES
COMBINED BALANCE SHEET - DECEMBER 31, 1994
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,894,112
Investments 1,396,387
Accounts receivable, net of allowance for
doubtful accounts of $75,500 6,354,681
Inventories 8,398,008
Other current assets 1,390,413
TOTAL CURRENT ASSETS 19,433,601
PROPERTY AND EQUIPMENT:
Tooling and molds 7,145,884
Shop equipment 2,551,431
Furniture and fixtures 1,396,939
Computer equipment 616,773
Vehicles 241,303
Land, buildings and improvements 2,946,216
14,898,546
Less - accumulated depreciation 10,265,154
NET PROPERTY AND EQUIPMENT 4,633,392
OTHER ASSETS 184,707
TOTAL ASSETS 24,251,700
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 0
Accounts payable 2,057,639
Accrued liabilities 2,607,921
TOTAL CURRENT LIABILITIES 4,665,560
OWNERS' EQUITY:
Common Stock 169,320
Retained earnings 16,271,092
Affiliate equity 1,522,920
Accumulated foreign currency
translation adjustment 1,622,808
TOTAL OWNERS' EQUITY 19,586,140
TOTAL LIABILITIES AND OWNERS' EQUITY 24,251,700
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
FLECK CONTROLS, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME
For the year ended December 31, 1994
<S> <C>
NET SALES 60,537,424
COST OF SALES:
Materials 26,156,655
Direct labor 4,203,600
Manjfacturing costs 5,295,093
TOTAL COST OF SALES 36,655,348
GROSS PROFIT 24,882,076
ENGINEERING EXPENSES 2,596,274
SELLING AND ADMINISTRATIVE EXPENSES 6,636,295
INCOME FROM OPERATIONS 15,649,507
OTHER INCOME, PRIMARILY ROYALTIES,
INTEREST AND DIVIDENDS 1,130,877
INTEREST EXPENSE 286,102
INCOME BEFORE INCOME TAXES 16,494,282
INCOME TAXES 0
NET INCOME 16,494,282
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
FLECK CONTROLS, INC. AND AFFILIATES
COMBINED STATEMENT OF OWNERS' EQUITY
For the year ended December 31, 1994
<CAPTION>
Common Stock
Voting Nonvoting Retained Affiliate FC
Shares Value Shares Value Earnings Equity Adj.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance , 12-31-93 10 282 5,992 169,038 7,712,402 1,713,849 948,437
Net income 16,249,777 244,505
Increase in equity
from foreign
currency trans-
lation adjustment 674,371
Partners' capital
distributed (435,434)
Dividends paid,
common stock (7,691,087)
Balance, 12-31-94 10 282 5,992 169,038 16,271,092 1,522,920 1,622,808
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
FLECK CONTROLS, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1994
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 16,494,282
Add (deduct):
Depreciation 1,670,633
Gain on sale in investments (288,796)
LIFO provision 222,993
Other (3,031)
Increase (decrease) in cash and
cash equivalents due to changes in:
Accounts receivable (486,634)
Inventories (2,165,109)
Other current assets 268,688
Other assets (800)
Accounts payable 161,090
Accrued liabilities (552,476)
NET CASH FLOW - OPERATING ACTIVITIES 15,320,840
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sale of investments 1,257,783
Purchases of property and equipment (2,252,174)
NET CASH FLOW - INVESTING ACTIVITIES (994,391)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock (7,691,087)
Partners' capital distributed (435,434)
Payments on long-term debt (7,079,596)
NET CASH FLOW - FINANCING ACTIVITIES (15,206,117)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS 201,657
NET DECREASE IN CASH AND CASH
EQUIVALENTS (678,011)
CASH AND CASH EQUIVALENTS:
Balance, beginning of year 2,572,123
Balance, end of year $1,894,112
ADDITIONAL INFORMATION:
Cash paid during the year for:
Interest 286,102
Income taxes, net of refunds 256,326
Transfer of tooling and molds from
deposits recorded in other current
assets to property and equipment 364,634
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FLECK CONTROLS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
For the year ended December 31, 1994
1. Summary of significant accounting policies
Basis of presentation - The combined financial statements include the accounts
of Fleck Controls, Inc. (referred to as the "parent"), its 99.32 percent owned
foreign partnership Fleck Europe S.N.C. (both collectively referred to "Fleck")
and a domestic sole proprietorship (referred to as the "affiliate") owned by a
shareholder. These entities are collectively referred to as the "company".
Fleckenstein Family (France) corporation, an S Corporation owned by a minority
shareholder of the parent, owned .68 percent of Fleck Europe S.N.C. This
insignificant minority interest has not been considered in the combined
financial statements.
All significant intercompany transactions and balances have been eliminated.
Separate information (included in the combined totals), with respect to Fleck
Europe S.N.C. as of December 31, 1994 is as follows:
Assets $7,261,140
Liabilities 1,925,965
Owners' equity 5,335,175
Net sales 16,004,202
Net income 4,419,189
Cash and cash equivalents and investments - For purposes of the statement of
cash flows, the company considers checking accounts and repurchase
agreements to be cash and cash equivalents. The company considers
certificates of deposits, money market funds and mutual funds to be investment.
The cost of the mutual funds approximated market value at December 31, 1994.
The company's policy is to hold certificates of deposit to maturity at which
time they are reinvested in similar instruments.
The domestic cash and cash equivalents and investments are held at the bank
where the parent maintains its bank accounts.
Inventories - Inventories are stated at cost using the last-in, first-out
method for the parent (79 percent of combined inventories) and the first-in,
first-out method for Fleck Europe S.N.C. both of which are not in excess of
market. Market is defined as net realizable value.
Depreciation - Depreciation is computed using accelerated and straight-line
methods over the estimated useful lives of the assets.
Income taxes - By unanimous consent of its shareholders, the parent elected S
Corporation status under the provisions of the Internal Revenue Code effective
January 1, 1994. Under those provisions and most state laws, the parent
generally does not pay federal or state income taxes on its taxable income.
However, corporate taxes may be imposed in the event of the disposal of certain
corporate assets. As an S Corporation, any taxable income or loss of the parent
is includable in the individual income tax returns of the shareholders.
It is the intent of the shareholders to withdraw amounts as dividends at least
equivalent to the income taxes that will be payable by them on S Corporation
earnings. As of December 31, 1994, the amount of accumulated earnings
taxable to the shareholders but not distributed by the parent was approximately
$8,600,000.
No income tax provision has been recorded for the partnership and sole
proprietorship, as taxable income or loss will be includable in the individual
income tax returns of the owners.
Foreign currency translation - The accounts of the foreign partnership were
translated into U.S. dollars in accordance with the provisions of Statement of
Financial Accounting Standards No. 52 (the "statement"). Management has
determined that the French franc is the functional currency. In accordance with
the provisions of the statement, foreign currency transaction gains and losses
are included in the determination of income. Adjustments resulting from the
translation of the foreign assets and liabilities to U.S. dollars are accum-
ulated as a separate component of owners' equity and have not been included in
the determination of income. There are no deferred income tax requirements with
respect to the accumulated foreign currency translation adjustment. The
cumulative translation adjustment increased equity by $1,622,808 at December
31, 1994. Gains and losses on foreign currency translations included in the
determination of income were insignificant.
Research and development - Research and development expenses are
charged to operations when incurred and are included in engineering expenses.
Such expenses in 1994 were approximately $1,570,000.
2. Nature of business
The company is a manufacturer of water softener control valves for commercial
and residential markets. The company's products are sold worldwide.
3. Inventories
Inventories as of December 31, consist of the following:
Raw materials $6,713,228
Subassemblies 805,686
Finished goods 879,094
8,398,088
If the parent had costed its inventories using the first-in, first-out method
which approximates replacement cost, the inventories would have been greater by
approximately $638,000 as of December 31, 1994.
4. Long-term debt
The parent has an available $1,000,000 line of credit from its bank bearing
interest at prime plus .25%. There was no outstanding balance on this line at
December 31, 1994.
5. Operating lease
Beginning August 1993, the company leases its European facility from a former
minority shareholder. Rent expense for 1994 totaled approximately $240,000.
The lease includes an annual inflation adjustment. Future minimum lease
payments, based on expiration in September 1998, are as follows:
1995 $240,000
1996 240,000
1997 240,000
1998 180,000
6. Benefit plans
The parent has a profit sharing plan to which it makes a contribution based on
amounts as determined by the board of directors. The amount approved for
1994 was approximately $506,000.
The foreign partnership operates in a country which has various mandated
government programs, including national insurance and retirement plans. Such
costs are expensed as paid.
<PAGE>
<TABLE>
<CAPTION>
FLECK CONTROLS, INC AND AFFILIATES
COMBINED BALANCE SHEET - AUGUST 31, 1995
(unaudited)
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $6,150,603
Accounts receivable, net 8,141,022
Inventories 9,301,180
Other current assets 2,004,694
TOTAL CURRENT ASSETS 25,597,500
PROPERTY AND EQUIPMENT 16,650,297
Less - accumulated depreciation 10,977,063
NET PROPERTY AND EQUIPMENT 5,673,233
OTHER ASSETS 63,353
TOTAL ASSETS 31,334,086
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 4,384,760
Accrued liabilities 4,187,456
TOTAL CURRENT LIABILITIES 8,572,216
OTHER LIABILITIES 426,827
OWNERS' EQUITY 22,335,043
TOTAL LIABILITIES
AND OWNERS' EQUITY 31,334,086
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
FLECK CONTROLS, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME
(unaudited)
For the eight months ended August 31, 1995
<S> <C>
NET SALES: 45,622,297
COST OF SALES 27,320,040
GROSS PROFIT 18,302,257
ENGINEERING EXPENSES 1,974,277
SELLING AND ADMINISTRATIVE EXPENSES 4,573,464
INCOME FROM OPERATIONS 11,754,516
OTHER INCOME, PRIMARILY ROYALTIES,
INTEREST AND DIVIDENDS 338,889
INTEREST EXPENSE 25,192
INCOME BEFORE INCOME TAXES 12,068,213
INCOME TAXES 0
NET INCOME 12,068,213
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FLECK CONTROLS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(unaudited)
For the eight months ended August 31, 1995
1. Summary of significant accounting policies
The accompanying unaudited condensed combined financial statements do not
inlcude all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included.
These statements should be read in conjunction with the financial statements
and footnotes included elsewhere in this From 8-K filing.
The results of operations for the eight months ended August 31, 1995 are not
necessarily indicative of the operating results to be expected for the full
year.
2. Subsequent event
Effective November 1, 1995, the company was sold to Pentair, Inc.
<PAGE>
b. Pro Forma Financial Information:
The unaudited pro forma condensed statement of income for
the nine months ended September 30, 1995 (eight months
ended August 31 1995 for Fleck), and the year ended December
31, 1994, set forth the results of operations of the Registrant as
restated for discontinued operations, and as adjusted as though
the purchase of Fleck Controls had been completed at the
beginning of the periods presented. The unaudited condensed
statements of income reflect the incremental interest expense on
the additional debt due to funding the acquisition as well as the
amortization of the goodwill recorded as a result of the
transaction.
The unaudited pro forma condensed balance sheet as of
September 30, 1995 (August 31 1995 for Fleck), also reflects the
financial position of the Registrant as restated for discontinued
operations, and as adjusted as though the purchase of Fleck
Controls had been completed at September 30, 1995. The
unaudited pro forma condensed balance sheet reflects the
addition of the fair value of net assets acquired, the net
additional borrowings of long-term debt, certain accruals
recorded by Registrant, and the recording of goodwill - the
excess purchase price paid over net assets of the business
acquired.
These unaudited pro forma condensed financial statements
have been prepared by the Registrant based upon assumptions
deemed appropriate for fair presentation of financial information.
See the accompanying notes to unaudited pro forma condensed
financial statements. The accompanying pro forma condensed
financial statements should be read in conjunction with the
historical financial statements and notes thereto included in the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and Annual Report on Form 10-K for
the year ended December 31, 1994.
These unaudited pro forma financial statements are
presented for illustrative purposes only and are not necessarily
indicative of the financial position or results of operations which
would actually have been reported had the transactions been in
effect during the period reported or which may be reported in the
future.
<PAGE>
<TABLE>
PENTAIR, INC.
Unaudited Pro Forma Statement of Income
for the Year Ended December 31, 1994
(All amounts in thousands, except per share amounts)
<CAPTION>
Historical Fleck Plus
Continuing Pro Forma Pro Forma
Operations Adjustments Results
<S> <C> <C> <C>
Net Sales 1,261,705 60,537 1,322,242
Operating costs
Cost of goods sold 892,231 <F3> 37,781 930,102
Selling, general, admin 263,810 <F2> 11,791 275,601
Total operating costs 1,156,131 49,572 1,205,703
Operating income 105,574 10,965 116,539
Interest expense (net) 22,069 <F1> 8,771 30,840
Income before income taxes 83,505 2,194 85,699
Provision for income taxes 33,402 1,097 34,499
Income from
continuing operations 50,103 1,097 51,200
Discontinued operations:
Earnings 3,497 3,497
Gain on sale 0 0
Net Income $53,600 $54,697
Earnings per common and
common equivalent share:
Primary
Continuing Operations $2.43 $2.49
Discontinued Operations
Earnings .19 .19
Gain on Sale .00 .00
Total $2.62 $2.68
Diluted
Continuing Operations $2.35 $2.40
Discontinued Operations
Earnings .17 .17
Gain on Sale .00 .00
Total $2.52 $2.57
Weighted average common and
common equivalent shares
Primary 18,422 18,422
Diluted 21,040 21,040
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
Unaudited Pro Forma Statement of Income
for the Nine Months Ended September 30, 1995
(eight months ended August 31 1995 for Fleck)
(All amounts in thousands, except per share amounts)
<CAPTION>
Historical Fleck Plus
Continuing Pro Forma Pro Forma
Operations Adjustments Results
<S> <C> <C> <C>
Net sales 1,025,377 45,622 1,070,999
Operating costs
Cost of goods sold 727,288 <F3> 28,945 756,233
Selling, general, admin 214,047 <F2> 8,609 222,646
Total operating costs 941,335 37,554 978,879
Operating income 84,042 8,068 92,110
Interest expense (net) 12,530 <F1> 6,150 18,680
Income before income taxes 71,512 1,918 73,430
Provision for income taxes 29,012 959 29,971
Income from
continuing operations 42,500 959 43,459
Discontinued operations:
Earnings 4,566 4,566
Gain on sale 12,134 12,134
Net Income $59,200 $60,159
Earnings per common and
common equivalent share:
Primary
Continuing Operations $2.07 $2.14
Discontinued Operations
Earnings .25 .25
Gain on Sale .65 .65
Total $2.97 $3.04
Diluted
Continuing Operations $1.98 $2.03
Discontinued Operations
Earnings .22 .22
Gain on Sale .57 .57
Total $2.77 $2.82
Weighted average common and
common equivalent shares
Primary 18,619 18,619
Diluted 21,173 21,173
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
Unaudited Pro Forma Balance Sheet
as of September 30, 1995
(August 31 1995 for Fleck)
(All amounts in thousands, except per share amounts)
<CAPTION>
Historical Fleck Plus
Continuing Pro Forma Pro Forma
Operations Adjustments Results
ASSETS
Current assets
<S> <C> <C> <C>
Cash and temp investments 26,623 2,451 29,074
Accounts receivable - net 364,429 8,141 372,570
Inventory 226,032 9,301 235,333
Other current assets 35,914 2,004 37,918
Total current assets 652,998 21,897 674,895
Property, plant
and equipment - net 239,936 <F3> 9,673 249,609
Other assets 220,182 <F2> 111,429 331,611
Total assets $1,113,116 142,999 $1,256,115
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 76,322 4,385 80,707
Accrued liabilities 159,627 4,187 163,814
Income taxes 9,647 0 9,647
Current maturities of
long-term debt 2,447 0 2,447
Total current liabilities 248,043 8,572 256,615
Long-term debt 242,398 <F1> 133,000 375,398
Other liabilities 123,345 427 123,772
Deferred income taxes 8,600 1,000 9,600
Shareholders' equity 490,730 0 490,730
Total liabilities and
shareholders' equity $1,113,116 142,999 $1,256,115
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
<PAGE>
Notes to Unaudited Pro Forma Condensed Financial Statements
[FN]
(1) Adjustments were made to interest expense to
reflect the incremental borrowings of approximately
$133 million to purchase Fleck Controls on January
1, 1994. The borrowings were weighted over the
year to take into account cash flows of Fleck used
to reduce borrowings. The average annual interest
rate used in 1994 and 1995 was 7.0 percent.
(2) Goodwill of approximately $110 million will be
recorded as part of the transaction. Adjustments
were made to reflect amortization of goodwill over a
period of 25 years.
(3) Write-ups to fair value of equipment and tooling of
$4 million will be recorded as part of the transaction.
A majority will be depreciated over a 3 year period.
c. Exhibits
(2.1) Stock Purchase Agreement By and Among
Pentair, Inc. and Fleck Controls, Inc. and all
the shareholders of the company dated
October 16, 1995
(2.2) First Amendment to Stock Purchase
Agreement By and among Pentair, Inc.,
Fleck Controls, Inc. and Shareholders dated
November 1, 1995
(4.1) Form Non-Negotiable Promissory Note given
to sellers regarding the above transaction.
(99) Press Release dated November 1, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
PENTAIR, INC.
By: David D. Harrison
Executive Vice President &
Chief Financial Officer
Dated: November 15, 1995
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
By and Among
PENTAIR, INC.
("Buyer"),
FLECK CONTROLS, INC.
("Company")
and
ALL THE SHAREHOLDERS
OF COMPANY
("SHAREHOLDERS")
October 16, 1995
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
1. PURCHASE AND SALE OF SHARES . . . . . . . . . . . .. . 1
2. PURCHASE PRICE - PAYMENT. . . . . . . . . . . . . .. . 2
2.1. Purchase Price . . . . . . . . . . . . . . .. . 2
2.2. Payment of Purchase Price. . . . . . . . . .. . 2
2.3. Determination of Net Book Value. . . . . . .. . 3
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
COMPANY AND SHAREHOLDERS . . . . . . . .. . . . . . . 6
3.1. Corporate. . . . . . . . . . . . .. . . . . . . 6
3.2. Shareholders . . . . . . . . . . .. . . . . . . 9
3.3. No Violation . . . . . . . . . . .. . . . . . . 9
3.4. Financial Statements . . . . . . .. . . . . . . 10
3.5. Tax Matters. . . . . . . . . . . .. . . . . . . 11
3.6. Affiliates' Relationships to Company. . . . . . 13
3.7. Inventory. . . . . . . . . . . . . . . . . . . 14
3.8. Absence of Certain Changes . . . . . . . . . . 14
3.9. Bank Accounts. . . . . . . . . . . . . . . . . 15
3.10. No Litigation. . . . . . . . . . . . . . . . . 16
3.11. Compliance With Laws and Orders. . . . . . . . 16
3.12. Title to and Condition of Properties . . . . . 18
3.13. Insurance. . . . . . . . . . . . . . . . . . . 20
3.14. Contracts and Commitments. . . . . . . . . . . 21
3.15. Labor Matters. . . . . . . . . . . . . . . . . 22
3.16. Employee Benefit Plans . . . . . . . . . . . . 23
3.17. Employment Compensation. . . . . . . . . . . . 26
3.18. Trade Rights . . . . . . . . . . . . . . . . . 26
3.19. Major Customers and Suppliers. . . . . . . . . 26
3.20. Product Warranty and Product Liability . . . . 27
3.21. No Brokers or Finders. . . . . . . . . . . . . 27
3.22. Disclosure . . . . . . . . . . . . . . . . . . 27
4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . 28
4.1. Corporate. . . . . . . . . . . . . . . . . . . 28
4.2. Authority. . . . . . . . . . . . . . . . . . . 28
4.3. No Brokers or Finders. . . . . . . . . . . . . 28
4.4. Investment Intent. . . . . . . . . . . . . . . 29
4.5. Disclosure . . . . . . . . . . . . . . . . . . 29
5. COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . 29
5.1. Actions Pending Closing. . . . . . . . . . . . 29
5.2. Other Agreements . . . . . . . . . . . . . . . 32
5.3. Tax Matters Agreements; Payment of Taxes . . . 33
5.4. Special Matters. . . . . . . . . . . . . . . . 34
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS . . . . . 35
6.1. Representations and Warranties
True of the Closing Date . . . . . . . . . . . 35
6.2. Compliance With Agreement. . . . . . . . . . . 35
6.3. Absence of Litigation. . . . . . . . . . . . . 35
6.4. Consents and Approvals . . . . . . . . . . . . 36
6.5. HSR Act Waiting Period . . . . . . . . . . . . 36
6.6. Environmental Due Diligence. . . . . . . . . . 36
6.7. Repayment of Indebtedness. . . . . . . . . . . 36
6.8. Ancillary Instruments and Proceedings.. . . . . 36
7. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS .. . 37
7.1. Representations and Warranties
True on the Closing Date . . . . . . . . . . . 37
7.2. Compliance With Agreement. . . . . . . . . . . 37
7.3. Absence of Litigation. . . . . . . . . . . . . 37
7.4. HSR Act Waiting Period . . . . . . . . . . . . 37
7.5. Repayment of Indebtedness. . . . . . . . . . . 37
7.6. Ancillary Instruments and Proceedings. . . . . 37
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 37
8.1. By Shareholders. . . . . . . . . . . . . . . . 37
8.2. By Buyer . . . . . . . . . . . . . . . . . . . 38
8.3. Indemnification of Third-Party Claims. . . . . 38
8.4. Payment. . . . . . . . . . . . . . . . . . . . 39
8.5. Limitations on Indemnification . . . . . . . . 40
9. CLOSING . . . . . . . . . . . . . . . . . . . . . . . 41
9.1. Documents to be Delivered by Shareholders . . . 41
9.2. Documents to be Delivered by Buyer . . . . . . 43
9.3. Documents to be Delivered by the Parties. . . . 43
10. TERMINATION . . . . . . . . . . . . . . . . . . . . . 44
10.1. Right of Termination Without Breach. . . . . . 44
10.2. Termination for Breach . . . . . . . . . . . . 44
11. ARBITRATION OF DISPUTES . . . . . . . . . . . . . . . 45
11.1. Arbitration Required . . . . . . . . . . . . . 45
11.2. Arbitrators. . . . . . . . . . . . . . . . . . 45
11.3. Arbitral Award . . . . . . . . . . . . . . . . 45
12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 46
12.1. Disclosure Schedule. . . . . . . . . . . . . . 46
12.2. Further Assurance. . . . . . . . . . . . . . . 46
12.3. Disclosures and Announcements. . . . . . . . . 46
12.4. Assignment; Parties in Interest. . . . . . . . 46
12.5. Law Governing Agreement. . . . . . . . . . . . 47
12.6. Amendment and Modification . . . . . . . . . . 47
12.7. Notice . . . . . . . . . . . . . . . . . . . . 47
12.8. Expenses . . . . . . . . . . . . . . . . . . . 48
12.10. Counterparts . . . . . . . . . . . . . . . . . 49
12.11. Headings . . . . . . . . . . . . . . . . . . . 49
12.12. Waiver . . . . . . . . . . . . . . . . . . . . 49
12.13. Severability . . . . . . . . . . . . . . . . . 50
12.14. Glossary of Terms. . . . . . . . . . . . . . . 50
<PAGE> LIST OF SCHEDULES
Schedule 2.1 - Sample Purchase Price
Schedule 2.2 - Sample Flow of Funds
Schedule 2.3(c)(ii) - October 12 letter
Schedule 3.1.(d) - Subsidiary
Schedule 3.1.(f) - Shareholder List
Schedule 3.3 - Violation, Conflict, Default
Schedule 3.4.(a) - Fleck U.S. Financial Statements
Schedule 3.4.(b) - Fleck Europe Financial
Statements
Schedule 3.4.(c) - Contingent Liabilities
Schedule 3.5.(b) - Tax Returns (Exceptions to
Representations)
Schedule 3.5.(c) - Tax Audits
Schedule 3.5.(d) - Consolidated Tax Returns
Schedule 3.5.(e) - Tax, Other
Schedule 3.6.(b) - Contracts with Affiliates
Schedule 3.6.(d) - Obligations
Schedule 3.7 - Inventory Off Premises
Schedule 3.8. - Dividends - 1995
Schedule 3.8. - Loans and Advance
Schedule 3.9 - Bank Accounts
Schedule 3.10 - Summary of Litigation 1991-95
Schedule 3.11.(a) - Non-Compliance with Laws
Schedule 3.11.(b) - Licenses and Permits
Schedule 3.11.(c) - Environmental Matters
(Exceptions to Representations)
Schedule 3.12.(a) - Liens
Schedule 3.12.(c) - Real Property
Schedule 3.13 - Insurance
Schedule 3.14.(b) - Personal Property Leases
Schedule 3.14.(c) - Purchase Commitments
Schedule 3.14.(d) - Sales Commitments
Schedule 3.14.(e) - Contracts with Affiliates and
Certain Others
Schedule 3.14.(g) - Loan Agreements, etc.
Schedule 3.14.(h) - Guarantees
Schedule 3.14.(i) - Restrictive Agreement
Schedule 3.14.(j) - Personal Contracts
Schedule 3.15 - Labor Matters
Schedule 3.16.(a) - Employee Benefit Plans (US)
Schedule 3.16.(a) - Employee Benefit Plans (Europe)
Schedule 3.17 - Employment Compensation
Schedule 3.18 - Trade Rights
Schedule 3.19.(a) - Major Customers - 1995
Schedule 3.19.(a) - Major Customers - 1994
Schedule 3.19.(b) - Major Suppliers - 1995
Schedule 3.19.(b) - Major Suppliers - 1994
Schedule 3.19.(c) - Dealers and Distributors
Schedule 3.20 - Product Warranty and Warranty Product
Liability
Schedule 8.1 - Certain Specific Accruals/Reserves
<PAGE>
EXHIBIT LIST
A Shareholders' Agreements
B Form of Shareholders' Accountants' Report
C Form of Escrow Agreement
D Form of Consulting Agreement
E Form of Non-Competition Agreement
F Form of Stock Purchase Agreement
G Form of Shareholder Release
H Form of Foley & Lardner Opinion of Counsel
I Form of Henson & Efron, P.A. Opinion of Counsel
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated
October 16, 1995, by and among Pentair, Inc., a Minnesota
corporation ("Buyer"), Fleck Controls, Inc., a Wisconsin
corporation ("Company"), and the Individuals and Trusts listed
on the signature page hereof (individually "Shareholder" and
together the "Shareholders").
RECITALS
A. Company is engaged in the design, manufacture and
distribution of control valves, timers and meters for the
water treatment industry (the "Business").
Shareholders own all of the issued and outstanding shares (the
"Shares") of capital stock of Company.
B. Company's facilities consist of administrative
and manufacturing facilities located in Brookfield, Wisconsin
(the "Brookfield Facility").
C. A related company, Fleck Europe, S.N.C., a
societe en nom collectif organized under French law, owns
manufacturing facilities in Buc, France (the "Buc Facility"
and with the "Brookfield Facilities," the "Facilities") and
all the parts of which are owned by the Company and
Fleckenstein Family (France) Corporation, a Wisconsin
corporation ("Family Corp.").
D. Buyer desires to purchase the Shares from
Shareholders and Shareholders desire to sell the Shares to
Buyer, upon the terms and conditions herein set forth.
E. Shareholders have designated Andrew J.
Fleckenstein (the "Shareholders' Agent") as their agent and
attorney-in-fact with the authority to act on their behalf in
connection with the sale of the Shares to Buyer, pursuant to
Shareholders' Agreements, copies of which are attached hereto
as Exhibit A.
NOW THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants,
agreements and conditions hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as
follows.
1. PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement, on
the Closing Date (as hereinafter defined) Shareholders shall
sell to Buyer and Buyer shall purchase from Shareholders all
the Shares.
2. PURCHASE PRICE - PAYMENT
2.1. Purchase Price. The purchase price (the "Purchase
Price") payable forthe Shares shall be the sum of:
2.1.(a) the Net Book Value on the Recent Balance
Sheet (each as hereinafter defined),
2.1.(b) plus/minus the increase/decrease in the
Net Book Value from the Recent Balance Sheet to the Statement
of Net Book Value (hereinafter defined),
2.1.(c) plus $99,349,957,
2.1.(d) minus the amount, if any, by which
payments made by the Company to its employees in connection
with the sale of the Company, including payments made under
any Change of Control Agreements, exceed US$385,740 and
FF985,541.
All payments of Purchase Price, including any
adjustments thereto, are to be made (whether to the Escrow
Agent as hereinafter defined or the Shareholders' Agent) for
pro rata distribution among the Shareholders in accordance
with their respective shareholdings in the Company. Attached
as Schedule 2.1 is a sample calculation of the Purchase Price
as of the date hereof.
2.2. Payment of Purchase Price. The Purchase Price shall
be paid by Buyer as follows:
2.2.(a) Cash to Escrow Agent. At the Closing,
Buyer shall deliver to the Escrow Agent, under the Escrow
Agreement (as defined in Section 5.2.(a)), the sum of Ten
Million Dollars ($10,000,000).
2.2.(b) Cash to Shareholders' Agent. At the
Closing, Buyer shall deliver to the Shareholders' Agent the
sum of:
(1) the Net Book Value on the Recent Balance
Sheet,
(2) plus/minus the increase/decrease in the Net
Book Value from the Recent Balance Sheet to the Estimated
Closing Balance Sheet (as hereinafter defined),
(3) plus $99,349,957,
(4) less the amount paid to the Escrow Agent
pursuant to Subsection 2.2(a) above.
2.2.(c) Adjustment of Final Cash Purchase Price.
On or before the fifth business day following the final
determination of the Statement of Net Book Value (as
hereinafter defined) (such date being hereinafter referred to
as the "Settlement Date"), either (i) the Escrow Agent shall
pay to Buyer the amount, if any, by which the Net Book Value,
as reflected on the Estimated Closing Balance Sheet exceeds
the Net Book Value, as reflected on the Statement of Net Book
Value, or (ii) Buyer shall pay to the Shareholders' Agent the
amount, if any, by which the Net Book Value, as reflected on
the Statement of Net Book Value, exceeds the Net Book Value,
as reflected on the Estimated Closing Balance Sheet.
All payments shall bear interest on the amount being paid
from the Closing Date to the date of the payment at a rate per
annum equal to the rate announced by M&I Marshall & Ilsley
Bank, Milwaukee, Wisconsin, as its prime rate.
2.2.(d) Method of Payment. All payments under
this Section 2.2 shall be made by wire transfer of immediately
available funds to an account designated by the recipient.
Attached as Schedule 2.2(d) is a sample Flow of Funds
Memorandum as of the date hereof.
2.3. Determination of Net Book Value.
2.3.(a) Definition of Net Book Value. The term
"Net Book Value" shall mean the dollar amount by which the
consolidated net book value of the tangible assets of Company
exceeds the consolidated net book value of all the liabilities
of Company on the applicable balance sheet or statement.
2.3.(b) Estimated Closing Balance Sheet. For
purposes of determining the Net Book Value and the Purchase
Price payable by the Buyer at the Closing, not less than five
(5) business days prior to the Closing Date, Company shall
prepare and deliver to Buyer a projected balance sheet of
Company as of the close of business on the business day
immediately prior to the Closing Date (hereinafter the
"Effective Time") which shall represent Company's reasonable
estimate of the Statement of Net Book Value; such balance
sheet to be consistent with, in form and use of accounting
principles, the Recent Balance Sheet as defined in Section 3.4
hereof and accompanied by schedules setting forth in
reasonable detail all assets and liabilities included therein.
The estimated balance sheet as delivered by Shareholders
pursuant to this subsection is herein referred to as the
"Estimated Closing Balance Sheet," provided that (i) any
obligation to make payments under any Change In Control
Agreements of $385,740 and FF 985,541 or less and (ii) the
bank loan in the principal amount of $10,000,000 for the
establishment of the Fleckenstein Family Foundation shall not
be set forth on the Estimated Closing Balance Sheet.
2.3.(c) Statement of Net Book Value. The
Statement of Net Book Value of Company prepared as of the
Effective Time and certified by Vrakas, Blum & Co. S. C.,
Company's independent accountants ("Shareholders'
Accountants"), shall be prepared as follows:
(i) Shareholders shall prepare and deliver to
Buyer, within 60 days following the Closing Date, the
Statement of Net Book Value. There shall be attached to the
Statement of Net Book Value an annex setting forth in
reasonable detail the computation of the adjustment of the
final cash purchase price provided for in Section 2.2.(c) and
the report of Shareholders' Accountants in the form of Exhibit
B, accompanied by a sample format for the Statement of Net
Book Value.
Shareholders shall cause the Statement of Net Book
Value to be audited by Shareholders' Accountants, and the
report of such auditors thereon shall be delivered to Buyer
within the 60 day period. Shareholders' Accountants will
observe a physical inventory of the inventories of the
Company as of the close of business on the day immediately
preceding the Closing Date. The taking of such inventory
shall be observed by Buyer and by Buyer's auditors.
(ii) To the extent permitted by generally
accepted accounting principles, the assets and liabilities set
forth in the Statement of Net Book Value shall be determined
using the same accounting methods, policies, principles,
practices, and procedures, with consistent classification,
judgments, and estimation methodology, as used in determining
assets and liabilities included in the Recent Balance Sheet
and Company's Audited Financial Statements (as hereinafter
defined), provided that (i) any obligation to make payments
under any Change In Control Agreements of $385,740 and FF
985,541 or less and (ii) the bank loan in the principal amount
of $10,000,000 for the establishment of the Fleckenstein
Family Foundation shall not be set forth on the Statement of
Net Book Value, and further provided that no adjustments for
accruals shall be made for the items discussed in Buyer's
October 12, 1995 letter contained in Schedule 2.3.(c)(ii).
(iii) Shareholders shall afford Buyer
(including its employees, auditors, agents, and professional
advisors) the opportunity to review and comment upon drafts of
the Statement of Net Book Value (and the computation of the
purchase price adjustment annexed thereto)prior to the
finalization of the same, and Shareholders and Buyer shall
attempt in good faith to resolve any disputes with respect to
the calculations therein before the final statement is
rendered. In connection therewith, Shareholders shall arrange
for the work papers of Shareholders' Accountants to be made
available to Buyer and Buyer's auditors, and they may make
inquiries of representatives of Shareholders and Shareholders'
Accountants to the extent deemed necessary by Buyer.
Buyer agrees to provide access to employees of the
Company, as well as representatives of Buyer, to the extent
reasonably necessary to enable Shareholders and Shareholders'
Accountants to prepare and audit the Statement of Net Book
Value.
(iv) The Statement of Net Book Value delivered
by Shareholders to Buyer (and the computation of the purchase
price adjustment annexed thereto) shall be conclusive and
binding upon the parties unless Buyer, within 30 days after
the delivery to Buyer of the Statement of Net Book Value,
notifies Shareholders in writing that Buyer disputes any of
the amounts set forth therein, specifying the nature of the
dispute and the basis therefor. The parties shall in good
faith attempt to resolve any dispute, in which event the
Statement of Net Book Value and the computation of the
purchase price adjustment, as amended to the extent necessary
to reflect the resolution and the dispute, shall be
conclusive and binding upon the parties. Buyer and
Shareholders agree that the level of accruals or lack of
accruals for each of the items on Schedule 2.3.(c)(ii) have
been taken into account in determining the Purchase Price for
the Shares. Buyer may not challenge the provision for or lack
of provision for the items raised on Schedule 2.3.(c)(ii),
provided that Shareholders' Accountants use the same
accounting methods,policies, principles, practices, and
procedures, with consistent classifications, judgments and
estimation methodology, as used in preparing the Recent
Balance Sheet and Company's Audited Financial Statements. If
the parties do not reach agreement resolving the dispute
within 15 days after notice is given by Buyer to Shareholders,
the parties shall submit the dispute to a nationally
recognized independent accounting firm mutually agreeable to
the parties, which firm shall not have had a material
relationship with either Buyer or Shareholders or their
respective affiliates within the two years preceding the
appointment (the "Arbiter"),for resolution. If the parties
cannot agree on the selection of the independent accounting
firm to act as Arbiter, the parties shall request the
American Arbitration Association in Chicago, Illinois, to
appoint such a firm, and such appointment shall be conclusive
and binding upon the parties. Promptly, but no later than 30
days after its acceptance of its appointment as Arbiter, the
Arbiter shall make a determination, based solely on
presentations by Buyer and Shareholders, and not by
independent review, and shall render a report as to the
dispute and the resulting computation of the Statement of Net
Book Value and the purchase price adjustment, if any, which
shall be conclusive and binding upon the parties. In
resolving any disputed item, the Arbiter (x) shall be bound by
the provisions of Section 2.3.(c)(ii) and (y) may not assign a
value to any item greater than the greatest value for such
item claimed by either party or less than the smallest value
for such item claimed by either party. The fees, costs, and
expenses of the Arbiter (A) shall be borne by Buyer in the
proportion that the aggregate dollar amount of such disputed
items so submitted that are unsuccessfully disputed by Buyer
(as finally determined by the Arbiter) bears to the aggregate
dollar amount of such items so submitted and (B) shall be
borne by Shareholders in the proportion that the aggregate
dollar amount of such disputed items so submitted that are
successfully disputed by Buyer (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so
submitted. Buyer and Shareholders each shall make available
to the other (upon the request of the other) their respective
work papers generated in connection with the preparation or
review of the Statement of Net Book Value.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF
COMPANY AND SHAREHOLDERS
Company and Shareholders, jointly and severally, make the
following representations and warranties to Buyer, each of
which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date in all
material respects, shall be unaffected by any investigation
heretofore or hereafter made by Buyer,or any knowledge of
Buyer other than as specifically disclosed in the Disclosure
Schedule delivered to Buyer at the time of the execution of
this Agreement, and shall survive the Closing of the
transactions provided for herein.
3.1. Corporate.
3.1.(a) Organization. Company is a corporation
duly organized,validly existing and in good standing under the
laws of the State of Wisconsin.
3.1.(b) Corporate Power. Company has all
requisite corporate power and authority to own, operate and
lease its properties and to carry on the Business as and where
such is now being conducted.
3.1.(c) Qualification. Company is duly licensed
or qualified to do business as a foreign corporation, and is
in good standing, in each jurisdiction wherein the character
of the properties owned or leased by it, or the nature of its
business, makes such licensing or qualification necessary.
The states in which Company is licensed or qualified to do
business are listed in Schedule 3.1.(c).
3.1.(d) Subsidiaries. Schedule 3.1.(d) sets
forth the jurisdiction of incorporation, capitalization,
ownership and officers and directors of Fleck Europe, S.N.C.,
the sole entity in which the Company has a direct and
substantial equity interest ("Subsidiary") and the
jurisdictions in which Subsidiary is qualified or licensed to
do business as a foreign corporation. Except for Subsidiary,
the Company does not own, directly or indirectly, any capital
stock or other equity securities of any corporation or have
any direct or indirect equity or other ownership interest in
any entity or business. All of the outstanding shares of
capital stock of each Subsidiary owned by the Company are free
and clear of any security interest, restriction, option,
voting trust or agreement, proxy, encumbrance, claim or charge
of any kind whatsoever, and are validly issued, fully paid and
nonassessable.
Subsidiary (i) is a societe en nom collectif duly
organized, validly existing and in good standing under the
laws of France, (ii) has full corporate power and authority to
carry on its business as it is now being conducted and to own
and lease the properties and assets it now owns and leases,
and (iii) is in good standing and is duly qualified or
licensed to do business as a foreign corporation in each of
the jurisdictions listed in Schedule 3.1.(d), which are the
only jurisdictions in which such Subsidiary is required to be
so qualified or licensed. Subsidiary does not own, directly
or indirectly, any capital stock or other equity securities of
any corporation or have any direct or indirect equity or other
ownership interest in any entity or business. There are no
(i) securities convertible into or exchangeable for any of the
Subsidiary's ownership interests, (ii) options, warrants or
other rights to purchase or prescribe to ownership interests
of the Subsidiary or securities which are convertible into or
exchangeable for ownership interests of the Subsidiary, or
(iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or
transfer of any ownership interests of the Subsidiary, any
such convertible or exchangeable securities or any such
options, warrants or other rights.
The authorized capital of the Subsidiary is 3,665,000
FF and all of the ownership interests in the Subsidiary are
owned of record and beneficially by the Company, which owns
4966 parts, and by Family Corp., which owns 34 parts. All
such ownership interest in the Subsidiary are validly issued,
fully paid and nonassessable.
The term "Company" as used hereinafter means the
Company and the Subsidiary, except where the context or
specific provisions provide otherwise.
3.1.(e) Corporate Documents, etc. The copies of
the Articles of Incorporation and By-Laws of the Company and
the governing statutes of the Subsidiary, including any
amendments thereto, which have been delivered by Shareholders
to Buyer are true, correct and complete copies of such
instruments as presently in effect. The corporate minute book
and stock records of the Company and the Subsidiary which have
been furnished to Buyer for inspection are true, correct and
complete and accurately reflect all corporate action taken
respectively by each of them.
3.1.(f) Capitalization of the Company. The
authorized capital stock of the Company (not including
Subsidiary) consists entirely of 9,000 shares of common stock,
no par value. No shares of such capital stock are issued or
outstanding except for 6,002 shares of common stock of the
Company which are owned of record and beneficially by
Shareholders in the respective numbers set forth in Schedule
3.1.(f). All such shares of capital stock of the Company are
validly issued, fully paid and nonassessable.
There are no (i) securities convertible into or
exchangeable for any of the Company's capital stock or other
securities, (ii) options, warrants or other rights to purchase
or subscribe to capital stock or other securities of the
Company or securities which are convertible into or
exchangeable for capital stock or other securities of the
Company, or (iii) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the
issuance, sale or transfer of any capital stock or other
equity securities of the Company, any such convertible or
exchangeable securities or any such options, warrants or other
rights.
3.1.(g) Power and Validity. The Company has full
power, legal right and authority to enter into, execute and
deliver this Agreement and the other agreements, instruments
and documents contemplated hereby (such other documents
sometimes referred to herein as "Ancillary Instruments") and
to carry out the transactions contemplated hereby and thereby.
No other corporate act or proceeding on the part of the
Company or the Shareholders is necessary to authorize this
Agreement or the other documents and instruments to be
executed and delivered by the Company pursuant hereto or the
consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly and validly executed
and delivered by the Company and is, and when executed and
delivered each Ancillary Instrument will be, the legal, valid
and binding obligation of the Company, enforceable in
accordance with its terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable
principles.
3.2. Shareholders.
3.2.(a) Power. Each Shareholder has full power,
legal right and authority to enter into, execute and deliver
this Agreement and the Ancillary Instruments (as defined
below) and to carry out the transactions contemplated hereby.
3.2.(b) Validity. This Agreement has been duly
and validly executed and delivered by each Shareholder and is,
and when executed and delivered each Ancillary Instrument will
be, the legal, valid and binding obligation of such
Shareholder, enforceable in accordance with its terms, except
as such may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights
generally, and by general equitable principles.
3.2.(c) Title. Each Shareholder has, and at
Closing Buyer will receive, good and marketable title to the
Shares to be sold by such Shareholder hereunder, free and
clear of all Liens (as defined in Section 3.12) including,
without limitation, voting trusts or agreements, proxies or
marital or community property interests.
3.2.(d) Obligations. Company does not have any
obligation or liability arising out of any obligation or
liability of Shareholder or an Affiliate (other than the
Company and Subsidiary), with the exception of obligations and
liabilities arising in connection with Shareholder's
participation in or operation of the Company.
3.3. No Violation. Except as set forth on Schedule 3.3,
neither the execution and delivery of this Agreement or the
Ancillary Instruments nor the consummation by Company and
Shareholders of the transactions contemplated hereby and
thereby (a) will violate any statute, law, ordinance, rule or
regulation (collectively, "Laws") or any order, writ,
injunction, judgment, plan or decree (collectively, "Orders")
of any court, arbitrator, department, commission, board,
bureau, agency, authority, instrumentality or other body,
whether federal, state, municipal, foreign or other
(collectively, "Government Entities"), (b) except for
applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), will require any
authorization, consent, approval, exemption or other action by
or notice to any Government Entity (including, without
limitation, under any "plant-closing" or similar law), or (c)
subject to obtaining the consents referred to in Schedule 3.3,
will violate or conflict with, or constitute a default (or an
event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination
of, or accelerate the performance required by, or result in
the creation of any Lien upon any of the assets of Company (or
the Shares) under, any term or provision of the Articles of
Incorporation or By-Laws of Company or of any contract,
commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Company or any
Shareholder is a party or by which Company or any Shareholder
or any of its or their assets or properties may be bound or
affected.
3.4. Financial Statements.
3.4.(a) Company Financial Statements. Included
as Schedule 3.4 are true and complete copies of the financial
statements of Company consisting of (i) balance sheets of
Company as of December 31, 1991, 1992, 1993 and 1994, and the
related statements of income and cash flows for the years then
ended (including the notes contained therein or annexed
thereto), which financial statements have been reported on,
and are accompanied by, the signed, unqualified opinions of
Vrakas Blum & Co. S.C., independent auditors for Company for
such years (the"Audited Financial Statements"), and (ii) an
unaudited balance sheet of Company as of August 31, 1995 (the
"Recent Balance Sheet"), and the related unaudited statements
of income and cash flows for the interim periods then ended
and for the corresponding period of the prior year (including
the notes and schedules contained therein or annexed thereto).
All of such financial statements (including all notes and
schedules contained therein or annexed thereto) are true,
complete and accurate, have been prepared in accordance with
generally accepted accounting principles (except, in the case
of unaudited statements, for the absence of footnote
disclosure) applied on a consistent basis, have been prepared
in accordance with the books and records of Company (in which
have been recorded all financial transactions of the Company),
and fairly present, in accordance with generally accepted
accounting principles, the assets, liabilities and financial
position, the results of operations and cash flows of Company
as of the dates and for the years and periods indicated. The
Estimated Closing Balance Sheet and Statement of Net Book
Value shall be prepared in accordance with the specifications
set forth in Article 2; the Statement of Net Book Value shall
be true, complete and accurate and fairly present, in
accordance with generally accepted accounting principles, the
assets, liabilities and financial position of the Company as
of the date thereof. All such financial statements reflect
the accounting treatment required under the Statements of
Financial Accounting Standard No. 87, "Employers' Accounting
for Pensions," No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 112,
"Employers' Accounting for Postemployment Benefits."
3.4.(b) Subsidiary Financial Statements.
Included in Schedule 3.4 are true and complete copies of the
financial statements of Subsidiary consisting of (i) balance
sheets of Subsidiary as of December 31, 1991, 1992, 1993 and
1994, and the related statements of income and cash flows for
the years then ended (including the notes contained therein or
annexed thereto), which financial statements have been
reported on, and are accompanied by, the signed, unqualified
opinions of Fiduciaire Expertises Conseils, independent
auditors for Subsidiary for such years (the "Subsidiary
Audited Financial Statements"), and (ii) an unaudited balance
sheet of Subsidiary as of August 31, 1995, and the related
unaudited statements of income and cash flows for the interim
periods then ended and for the corresponding period of the
prior year (including the notes and schedules contained
therein or annexed thereto). All of such financial statements
(including all notes and schedules contained therein or
annexed thereto) are true, complete and accurate, have been
prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, for
the absence of footnote disclosure) applied on a consistent
basis, have been prepared in accordance with the books and
records of Subsidiary (in which have been recorded all
financial transactions of the Subsidiary), and fairly present,
in accordance with generally accepted accounting principles,
the assets, liabilities and financial position, the results of
operations and cash flows of Subsidiary as of the dates and
for the years and periods indicated.
3.4.(c) Contingent Liabilities. Schedule 3.4.(c)
identifies all contingent liabilities that are not reflected
in the Audited Financial Statements or the Statement of Net
Book Value.
3.5. Tax Matters.
3.5.(a) Provision For Taxes. The provision made
for taxes on the Recent Balance Sheet, and to be made for
taxes on the Statement of Net Book Value, is sufficient for
the payment of all federal, state, foreign, county, local and
other income, ad valorem, excise, profits, franchise,
occupation, property, payroll, sales, use, gross receipts and
other taxes, duties, assessment or charges of any kind
whatsoever (and any interest, penalties and additions to tax)
and assessments, ("Taxes"), whether or not disputed, at the
date of the Recent Balance Sheet, and the Statement of Net
Book Value, and for all years and periods prior thereto.
Since the date of the Recent Balance Sheet, Company has not
incurred any Taxes other than Taxes incurred in the ordinary
course of business consistent in type and amount with past
practices of Company.
3.5.(b) Tax Returns Filed. Except as set forth
on Schedule 3.5.(b), all federal, state, foreign, county,
local and other tax returns or reports required to be filed by
or on behalf of Company have been timely filed and when filed
were true and correct in all material respects, and the taxes
shown as due thereon were paid or adequately accrued. Company
has duly withheld and paid all taxes which it is required to
withhold and pay relating to salaries and other compensation
heretofore paid to the employees or other service providers of
Company.
3.5.(c) Tax Audits. The federal and state income
tax returns of Company have been audited by the Internal
Revenue Service and appropriate foreign, state, local or other
taxing authorities for the periods and to the extent set forth
in Schedule 3.5.(c), and Company has not received from the
Internal Revenue Service or from the tax authorities of any
foreign, state, county, local or other jurisdiction any notice
of underpayment of taxes or other deficiency which has not
been paid nor any objection to any return or report filed by
Company. There are outstanding no agreements or waivers
extending the statutory period of limitations applicable to
any tax return or report. Except as disclosed in Schedule
3.5.(c), no notice of claim has ever been made by a
governmental authority in a jurisdiction where Company does
not file tax returns or reports that it is or may be subject
to Taxes in that jurisdiction, there are no liens for Taxes
upon the assets of Company except liens for Taxes not yet due,
no amended returns or refund claims have been or are scheduled
to be filed by or on behalf of Company, there are no pending
appeals or other administrative proceeding with respect to any
tax return of Company, and there is no deficiency or refund
litigation with respect to any tax return of Company. No
material issues have been raised by any relevant taxing
authorities on audit of the tax returns of Company.
3.5.(d) Consolidated Group. Schedule 3.5.(d)
lists every year Company was a member of an affiliated group
of corporations that filed a consolidated tax return on which
the statute of limitations does not bar a federal tax
assessment, and each corporation that has been part of such
group. Except as set forth on Schedule 3.5.(d), no affiliated
group of corporations of which Company has been a member has
discontinued filing consolidated returns during the past five
years.
3.5.(e) S Status. Except as set forth in
Schedule 3.5.(e), the Company (but not Subsidiary) has validly
elected to be taxed as a Subchapter S corporation for federal
income tax purposes, and for all relevant state or local
income tax purposes which recognize such status, for its tax
year beginning January 1, 1994 and such status shall not
terminate before the Closing Date.
3.5.(f) Other. Except as set forth in Schedule
3.5.(f), Company has not (i) filed any consent or agreement
under Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) applied for any tax ruling, (iii)
entered into a closing agreement with any taxing authority,
(iv) filed an election under Section 338(g) or Section
338(h)(10) of the Code (nor has a deemed election under
Section 338(e) of the Code occurred), (v) made any payments,
or been a party to an agreement (including this Agreement)
that under any circumstances could obligate it to make
payments that will not be deductible because of Section 280G
of the Code, or (vi) been a party to any tax allocation or tax
sharing agreement or any contractual obligation requiring the
indemnification or reimbursement of any person with respect to
the payment of any Taxes. Company is a "United States
person" within the meaning of the Code. Company has not been
a United States real property holding corporation within the
meaning of section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
The transactions contemplated herein are not subject to
the tax withholding provisions of Section 3406 of the Code, or
of Subchapter A of Chapter 3 of the Code, or of any other
provision of law. Company does not have and did not have a
branch in any foreign country. Except as disclosed in
Schedule 3.5.(f), Company is not a party to any joint venture,
partnership, or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
3.6. Affiliates' Relationships to Company.
3.6.(a) Definition of Affiliate. For purposes of
this Agreement, the term "Affiliate" shall mean and include
all Shareholders, directors and officers of Company; the
spouse of any such person; any person who would be the heir or
descendant of any such person if he or she were not living;
and any entity in which any of the foregoing has a direct or
indirect interest, except through ownership of less than 5% of
the outstanding shares of any entity whose securities are
listed on a national securities exchange or traded in the
national over-the-counter market.
3.6.(b) Contracts With Affiliates. All leases,
contracts, agreements or other arrangements between Company
and any Affiliate are described on Schedule 3.6.
3.6.(c) No Adverse Interests. No Affiliate has
any direct or indirect interest in (i) any entity which does
business with Company or is competitive with the Business, or
(ii) any property, asset or right which is used by Company in
the conduct of the Business.
3.6.(d) Obligations. All obligations of any
Affiliate to Company, and all obligations of Company to any
Affiliate, are listed on Schedule 3.6.(d).
3.7. Inventory. All inventories reflected on the Audited
Financial Statements and the Recent Balance Sheet were, and
all inventories reflected on the Statement of Net Book Value
will be, properly valued at the lower of cost (on a LIFO basis
for Company and FIFO basis for Subsidiary) or market value in
accordance with generally accepted accounting principles
applied consistently and used by the Company in the
preparation of its financial statements. Inventories of
finished goods so reflected were and will be of a quality and
quantity useable and saleable in the ordinary course of
business and had and will have a commercial value at least
equal to the value shown thereon. Inventories of raw
materials, work in process, stores, and replacement parts
(whether located at the Facilities or in transit) are (i) of
good and merchantable quality and contain no amounts that are
not usable for the purposes intended in the ordinary course of
the operations of the Company; (ii) in conformity with
warranties customarily given to purchasers of like products;
and (iii) at levels adequate for and not excessive in relation
to the ordinary course of the operations and in accordance
with past inventory stocking practices of the Company.
Except as set forth in Schedule 3.7, all inventory of Company
is located on premises owned or leased by Company as reflected
in this Agreement.
3.8. Absence of Certain Changes. Except as and to the
extent set forth in Schedule 3.8, since December 31, 1994
there has not been:
3.8.(a) No Adverse Change. Any material adverse
change in the financial condition, assets, liabilities,
business, prospects or operations of Company;
3.8.(b) No Damage. Any material loss, damage or
destruction, whether covered by insurance or not, affecting
Company's business or properties;
3.8.(c) No Increase in Compensation. Any
increase in the compensation, salaries or wages payable or to
become payable to any employee or agent of Company (including,
without limitation, any increase or change pursuant to any
bonus, pension, profit sharing, retirement or other plan or
commitment), or any bonus or other employee benefit granted,
made or accrued except in the ordinary course of business and
in accordance with past practice;
3.8.(d) No Labor Disputes. Any labor dispute or
disturbance, other than routine individual grievances which
are not material to the business, financial condition or
results of operations of Company.
3.8.(e) No Dividends. Any declaration, setting
aside, or payment of any dividend or any other distribution in
respect of Company's capital stock; any redemption, purchase
or other acquisition by Company of any capital stock of
Company, or any security relating thereto; or any other
payment to any shareholder of Company in his, her or its
capacity as a shareholder;
3.8.(f) No Disposition of Property. Any sale,
lease creation of any Lien on or affecting, or other transfer
or disposition of any properties or assets of Company, except
for the sale of inventory items in the ordinary course of
business;
3.8.(g) Loans and Advances. Any loan or advance
(other than advances to employees in the ordinary course of
business for travel and entertainment in accordance with past
practice) to any person including, but not limited to, any
Affiliate;
3.8.(h) Credit. Any grant of credit to any
customer or distributor on terms or in amounts more favorable
than those which have been extended to such customer or
distributor in the past, any other change in the terms of any
credit heretofore extended, or any other change of Company's
policies or practices with respect to the granting of credit,
or any forgiveness or cancellation of any amount of debt due
to or claim of the Company against any third party; or
3.8.(i) Accounting Practice. Any change in
accounting methods, principles or practices.
3.9. Bank Accounts. Schedule 3.9 sets forth the names and
locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the
Company maintains a safe deposit box, lock box or checking,
savings, custodial or other account of any nature, the type
and number of each such account and the names of all persons
authorized to draw thereon or who have access thereto.
3.10. No Litigation. Except as set forth in Schedule
3.10, there is no action, suit, arbitration, proceeding,
investigation or inquiry, whether civil, criminal or
administrative ("Litigation"), pending or, to the knowledge of
the Shareholders, threatened against Company, its directors
(in such capacity), its business or any of its assets.
Schedule 3.10 also identifies all Litigation to which Company
or any of its directors (in such capacity) have been parties
since January 1, 1991, where the amount in controversy
exceeds $25,000. Except as set forth in Schedule 3.10,
neither Company nor its business or assets is subject to any
Order of any Government Entity.
3.11. Compliance With Laws and Orders.
3.11.(a) Compliance. Except as set forth in
Schedule 3.11.(a), Company is in compliance with all
applicable Laws and Orders (except where non-compliance would
not have a material adverse effect on the Company or the
Business), including, without limitation, those applicable to
discrimination in employment, public health, occupational
safety and health, trade practices, competition and pricing,
product warranties, zoning, building and sanitation,
employment, retirement and labor relations, product
advertising and the Environmental Laws as hereinafter defined.
Except as set forth in Schedule 3.11.(a), Company has not
received notice of any violation or alleged violation of, and
is subject to no Liability for past or continuing violation
of, any Laws or Orders.
3.11.(b) Licenses and Permits. Company has all
licenses, permits, approvals, authorizations and consents of
all Government Entities and all certification organizations,
including without limitation, those relating to pollution or
protection of the environment required for the conduct of the
Business (as presently conducted and as proposed to be
conducted) and operation of the Facilities(other than
licenses, permits, registrations, approvals, authorizations or
consents which if not obtained would have a material adverse
effect on the Company or the Business). All such licenses,
permits, approvals, authorizations and consents are described
in Schedule 3.11.(b), are in full force and effect, are not
subject to any pending or, to the best of Company's and
Shareholders' knowledge, threatened revocation or
modification, and will not be affected or made subject to
loss, limitation or any obligation to reapply as a result of
the transactions contemplated hereby. Except as set forth in
Schedule 3.11.(b), Company (including its operations,
properties and assets) is and has been in compliance with all
such permits and licenses, approvals, authorizations and
consents, except to the extent that noncompliance would not
have a material adverse effect on the Company or the
Business.
3.11.(c) Environmental Matters. For purposes of
this Agreement, applicable national, state, regional, county
and local (whether foreign or domestic) Laws relating to
pollution or protection of the environment, including, without
limitation, Laws relating to emissions, discharges,
generation, storage, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic,
hazardous or petroleum or petroleum-based substances or wastes
("Waste") into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Waste including, without limitation,
the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control
Act and the Comprehensive Environmental Response Compensation
Liability Act ("CERCLA"), as amended, are herein collectively
referred to as the "Environmental Laws." Without limiting the
generality of the foregoing provisions of this Section 3.11,
except to the extent that any of the following would not have
a material adverse effect on the Company or the Business,
(i) Company is in full compliance with all
limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in
any Order, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent that
noncompliance would not have a material adverse effect on the
Company or the Business.
(ii) Except as set forth in Schedule 3.11.(c),
there is no Litigation nor any demand, claim, hearing or
notice of violation pending or threatened against Company
relating in any way to the Environmental Laws or any Order
issued, entered, promulgated or approved thereunder.
(iii) Except as set forth in Schedule 3.11.(c),
there are no past or present (or, to the best of Company's and
the Shareholders'knowledge, future) events, conditions,
circumstances, activities, practices, incidents, actions,
omissions or plans which may
(A) interfere with or prevent
compliance or continued compliance with the Environmental Laws
or with any Order issued, entered, promulgated or approved
thereunder, or
(B) give rise to any liability,
including, without limitation, liability under CERCLA or
similar state or local Laws, or otherwise form the basis of
any Litigation, hearing, notice of violation, study or
investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or
threatened release into the environment, of any Waste.
3.12. Title to and Condition of Properties.
3.12.(a) Marketable Title. Company has good and
marketable title to all of Company's assets, business and
properties (and a fee simple estate in all owned Real
Property), including, without limitation, all such properties
(tangible and intangible) reflected in the Recent Balance
Sheet, except for inventory disposed of in the ordinary course
of business since the date of such Recent Balance Sheet, free
and clear of all mortgages, liens, (statutory or otherwise)
security interests, claims, pledges, tenancies, licenses,
equities, options, conditional sales contracts, assessments,
levies, easements, covenants, reservations, restrictions,
rights-of-way, exceptions, limitations, charges, encroachments
or encumbrances of any nature whatsoever (collectively,
"Liens") except those described in Schedule 3.12 and, in the
case of real property, Liens for taxes not yet due or which
are being contested in good faith by appropriate proceedings
(and which have been sufficiently accrued or reserved against
in the Recent Balance Sheet), municipal and zoning ordinances
and easements for public utilities, none of which interfere
with the use of the property as currently utilized. None of
Company's assets, business or properties are subject to any
restrictions with respect to the transferability thereof. The
Company's title thereto will not be affected in any way by the
transactions contemplated hereby.
3.12.(b) Condition. All property and assets owned
or utilized by Company are in good operating condition and
repair, free from any defects (except such minor defects as do
not interfere with the use thereof in the conduct of the
normal operations of Company), and have been maintained
consistent with prudent industry practice. No other assets or
property are needed to permit the Company to carry on the
business of Company as conducted during the preceding 12
months and as proposed to be conducted. All buildings, plants
and other structures owned or otherwise utilized by Company
are in good condition and repair and have no structural
defects or defects affecting the plumbing, electrical,
sewerage, or heating, ventilating or air conditioning systems
(except such minor defects as do not interfere with the use
thereof in the conduct of the normal operations of Company)
and are suitable and adequate for the purposes for which it is
presently being used and as it is proposed to be used.
3.12.(c) Real Property. Schedule 3.12.(c) lists
all real property owned, leased or occupied by Company (the
"Real Property"), including the legal description of all land,
and all encumbrances, easements or rights of way of record
(or, if not of record, of which Company has notice or
knowledge) granted on or appurtenant to or otherwise affecting
such Real Property, the zoning classification thereof, and
sets forth a description of all plants, buildings or other
structures located thereon. Schedule 3.12.(c) also sets
forth, with respect to each parcel of Real Property which is
leased, the material terms of such lease. There are now in
full force and effect duly issued certificates of occupancy
permitting the Real Property and improvements located thereon
to be legally used and occupied as the same are now
constituted, and the business activities of the Company
thereon are consistent with and permitted under, and not in
default of, applicable zoning ordinances, restrictive
covenants or other restrictions. All of the Real Property has
permanent rights of access to dedicated public highways. No
fact or condition exists which would prohibit or adversely
affect the ordinary rights of access to and from the Real
Property from and to the existing highways and roads and there
is no pending or threatened restriction or denial,
governmental or otherwise, upon such ingress and egress.
There is not (i) any claim of adverse possession or
prescriptive rights involving any of the Real Property, (ii)
any structure located on any Real Property which encroaches on
or over the boundaries of neighboring or adjacent properties
or (iii) any structure of any other party which encroaches on
or over the boundaries of any of such Real Property. Except
as set forth in Schedule 3.12(c), none of the Real Property is
located in a flood plain, flood hazard area, wetland or
lakeshore erosion area within the meaning of any Law,
regulation or ordinance. No public improvements have been
commenced and to Company's and Shareholders' knowledge none
are planned which in either case may result in special
assessments against or otherwise materially adversely affect
any Real Property. No portion of any of the Real Property has
been used as a landfill or for storage or landfill of
hazardous or toxic materials. Neither Company nor any
Shareholder has notice or knowledge of any (i) planned or
proposed increase in assessed valuations of any Real Property,
(ii) Order requiring repair, alteration, or correction of any
existing condition affecting any Real Property or the systems
or improvements thereat, (iii) condition or defect which could
give rise to an order of the sort referred to in "(ii)" above,
(iv) aboveground or underground storage tanks, (v) wells
located on the Real Property, (vi) pending or proposed
modifications of zoning or similar Laws affecting the Real
Property or (vii) structural, mechanical, or other defects of
material significance affecting any Real Property or the
systems or improvements thereat (including, but not limited
to, inadequacy for normal use of mechanical systems or
disposal or water systems at or serving the Real Property).
3.12.(d) No Condemnation or Expropriation.
Neither the whole nor any portion of the Real Property or any
other assets of Company is subject to any Order to be sold or
is being condemned, expropriated or otherwise taken by any
Government Entity with or without payment of compensation
therefor, nor to the best of Company's and Shareholders'
knowledge has any such condemnation,expropriation or taking
been proposed.
3.12.(e) Utilities. All utilities, including
without limitation telephone, municipal sewer and water,
electricity and gas, necessary for the use of the Real
Property and the Business, as currently conducted and as
proposed to be conducted, are available, connected and
operational.
3.13. Insurance.
3.13.(a) Policies. Set forth in Schedule 3.13 is
a complete and accurate list and description of all policies
of fire, liability, product liability, workers compensation,
and other forms of insurance presently in effect with respect
to the business and properties of Company, true and correct
copies of which have heretofore been delivered to Buyer.
Schedule 3.13 includes, without limitation, the carrier, the
description of coverage, the limits of coverage, retention or
deductible amounts, amount of annual premiums, date of
expiration and the date through which premiums have been paid
with respect to each such policy, and any pending claims in
excess of $25,000. All such policies are valid, outstanding
and enforceable policies and provide insurance coverage for
the properties, assets and operations of Company, of the
kinds, in the amounts and against the risks customarily
maintained by organizations similarly situated. No notice of
cancellation or termination has been received with respect to
any such policy, and neither Company nor any Shareholder has
knowledge of any act or omission of Company which could result
in cancellation of any such policy prior to its scheduled
expiration date. Except as set forth in Schedule 3.13,
Company has not been refused any insurance with respect to any
aspect of the operations of the business nor has its coverage
been limited by any insurance carrier to which it has applied
for insurance or with which it has carried insurance during
the last three years.
3.13.(b) Claims. Company has duly and timely made
all claims it has been entitled to make under each policy of
insurance. Except for policies in favor of Subsidiary, since
1985, all products liability and general liability policies
maintained by or for the benefit of Company have been
"occurrence" policies and not "claims made" policies. There
is no claim by Company pending under any such policies as to
which coverage has been questioned, denied or disputed by the
underwriters of such policies. Such policies are sufficient
in all material respects for compliance by Company with all
requirements of law and with the requirements of all material
contracts to which Company is a party.
3.14. Contracts and Commitments.
3.14.(a) Real Property Leases. Except as set
forth in Schedule 3.12.(c), Company has no leases of real
property, whether as lessor or lessee. With respect to each
such lease listed, there are no prepaid or deferred rents
payable.
3.14.(b) Personal Property Leases. Except as set
forth in Schedule 3.14.(b), Company has no leases of personal
property involving consideration or other expenditure in
excess of $25,000 or involving performance over a period of
more than 12 months.
3.14.(c) Purchase Commitments. Except as set
forth in Schedule 3.14(c)(i), Company has no inventory items
or supplies on hand that constitute in excess of twelve months
normal usage by more than $10,000. Except as set forth in
Schedule 3.14(c)(ii), Company has no purchase commitments for
inventory items or supplies that, together with amounts on
hand, exceed twelve months normal usage by more than $10,000,
provided, however, each purchase commitment may be cancelled
by the Company. The Company has no commitments for capital
expenditures in excess of $50,000 for any one project.
3.14.(d) Sales Commitments. Except as set forth
in Schedule 3.14.(d), Company has no sales or service
contracts or commitments to customers or distributors which
aggregate in excess of $50,000 to any one customer or
distributor (or group of affiliated customers or
distributors). Company has no sales contracts or commitments
for its finished goods or for services to be performed, except
those made in the ordinary course of business, at arm's
length, and no such contracts or commitments are beyond its
ability to produce or to provide such services or are for a
consideration which would result in a loss to the Company.
3.14.(e) Contracts With Affiliates and Certain
Others. Except as set forth in Schedule 3.14.(e), Company has
no agreement, understanding, contract or commitment (written
or oral) with any Affiliate or any employee, agent,consultant,
distributor, dealer or franchisee that is not cancelable by
Company on notice of not longer than 30 days without
liability, penalty or premium of any nature or kind
whatsoever.
3.14.(f) Collective Bargaining Agreements.
Company is not a party to any collective bargaining agreements
with any unions, guilds, shop committees or other collective
bargaining groups.
3.14.(g) Loan Agreements. Except as set forth in
Schedule 3.14.(g), Company is not obligated under any loan
agreement, promissory note, letter of credit, or other
evidence of indebtedness as a signatory, guarantor or
otherwise.
3.14.(h) Guarantees. Except as disclosed on
Schedule 3.14.(h), Company has not guaranteed the payment or
performance of any person, firm or corporation, agreed to
indemnify any person or act as a surety, or otherwise agreed
to be contingently or secondarily liable for the obligations
of any person.
3.14.(i) Restrictive Agreements. Except as
disclosed on Schedule 3.14.(i), the Company has not entered
into and is not bound by any contract, agreement, commitment
or arrangement restricting the territories in which it may do
business, limiting the type of business that it may do in any
territory, or restricting its right to sell products to any
customer or group of customers.
3.14.(j) Personal Contracts. Except as disclosed
on Schedule 3.14.(j), the Company has not entered into and is
not bound by any contract, agreement, commitment or
arrangement for personal services or severance of
relationship involving annual payments in excess of $50,000.
3.14.(k) Performance. Except as disclosed on the
appropriate Schedule, the Company has performed and is
performing all of the obligations required to be performed by
it to date, and is not, and will not be as of the Closing
Date, in default under, such leases, contracts, agreements,
commitments, or arrangements, and no notice of default has
been received with respect thereto. No other party thereto is
in default thereof. No event has occurred that with notice or
the lapse of time or both would constitute a default by any
party thereunder. All such contracts and arrangements are and
will on the Closing Date be in good standing and full force
and effect according to their terms.
3.15. Labor Matters. Except as set forth in Schedule
3.15, within the last five years Company has not experienced
any labor disputes, union organization attempts or any work
stoppage due to labor disagreements in connection with its
business. Except to the extent set forth in Schedule 3.15,
(a) Company is in compliance with all applicable laws
respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not
engaged in any unfair labor practice; (b) there is no unfair
labor practice charge or complaint against Company pending or
threatened; (c) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending or
threatened against or affecting Company nor any secondary
boycott with respect to products of Company; (d) no question
concerning representation has been raised or is threatened
respecting the employees of Company; (e) no grievance which
might have a material adverse effect on Company, nor any
arbitration proceeding arising out of or under collective
bargaining agreements, is pending and no such claim therefor
exists; and (f) there are no administrative charges or court
complaints against Company concerning alleged employment
discrimination or other employment related matters pending or
threatened before the U.S. Equal Employment Opportunity
Commission or any Government Entity. Neither Shareholders nor
the Company are aware of any pending or threatened change in
the employment status of any officer or other member of
management of the Company. Subsidiary does not have and is
not required to have a comite' d'entreprise and no approval by
any representative council of workers or other employees
of Subsidiary is required for the consummation of the
transactions contemplated hereby.
3.16. Employee Benefit Plans.
3.16.(a) Disclosure. Schedule 3.16.(a) sets forth
all pension, medical, dental, life, accident insurance,
employee welfare, disability, group insurance, and other
similar fringe or employee benefit plans, programs and
arrangements, and any severance agreements or plans, vacation
and sick leave plans, programs, arrangements and policies,
including, without limitation, all "employee benefit plans"
(as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), which are
provided to, for the benefit of, or relate to, any persons
("Company Employees") employed by Company. The items
described in the foregoing sentence are hereinafter sometimes
referred to collectively as "Employee Plans/Agreements," and
each individually as an "Employee Plan/Agreement." True and
correct copies of (i) all the Employee Plans/Agreements,
including all amendments thereto, (ii) all current summary
plan descriptions and material modifications thereto for all
Employee Plans/Agreements subject to the disclosure rules
under Part 1 of Title I of ERISA, (iii) the most recent IRS
determination letters for each Employee Plan/Agreementintended
to be qualified under Section 401 and 501 of the Code, (iv)
the three most recent annual reports on Form 5500 series (and
all required schedules thereto) filed with the Internal
Revenue Service with respect to each Employee Plan/Agreement
(if any such report was required), (v) each trust agreement
and group annuity contract relating to an Employee
Plan/Agreement, and (vi) certified financial statements for
each Employee Plan/Agreement (if required) have heretofore
been provided to Buyer. Each of the Employee Plans/Agreements
is identified on Schedule 3.16.(a),to the extent applicable,
as one or more of the following: an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA), an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA),
and/or as a plan intended to be qualified under Section 401 of
the Code. No Employee Plan/Agreement is a "multiemployer
plan" (as defined in Section 4001 of ERISA), "multiple
employer plan" (as defined in Section 413(c) of the Code) or
a defined benefit plan as defined in Section 414 of the Code,
and Company has never contributed nor been obligated to
contribute to any multiemployer plan, multiple employer plan
or defined benefit plan.
3.16.(b) Prohibited Transactions, etc. There have
been no "prohibited transactions" within the meaning of
Section 406 or 407 of ERISA or Section 4975 of the Code for
which a statutory or administrative exemption does not exist
with respect to any Employee Plan/Agreement, and no event or
omission has occurred in connection with which the Company or
any of its assets or any Employee Plan/Agreement, directly or
indirectly, could be subject to any liability under ERISA, the
Code or any other Law or Order applicable to any Employee
Plan/Agreement, or under any agreement, instrument, Law or
Order pursuant to or under which Company has agreed to
indemnify or is required to indemnify any person against
liability incurred under any such Law or Order.
3.16.(c) Affiliated Service Group; Leased
Employees. Company is not and never has been a member of an
"affiliated service group" within the meaning of Section
414(m) of the Code. There are not and never have been any
leased employees within the meaning of Section 414(n) of the
Code who perform services for Company, and no individuals are
expected to become leased employees with the passage of time.
3.16.(d) Payments and Compliance. With respect to
each Employee Plan/Agreement, (i) all payments due from
Company to date have been made and all amounts properly
accrued to date as liabilities of Company which have not been
paid have been properly recorded on the books of Company and
are reflected in the Recent Balance Sheet; (ii) Company has
complied with, and each such Employee Plan/Agreement conforms
in form and operation to, all applicable laws and regulations,
including but not limited to ERISA and the Code, in all
respects and all reports and information relating to such
Employee Plan/Agreement required to be filed with any
governmental entity have been timely filed; (iii) all reports
and information relating to each such Employee Plan/Agreement
required to be disclosed or provided to participants or their
beneficiaries have been timely disclosed or provided; (iv)
each such Employee Plan/Agreement which is intended to qualify
under Section 401 of the Code has received a favorable
determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been
determined to be exempt from taxation under Section 501(a) of
the Code, and nothing has occurred since the date of such
letter that has or is likely to adversely affect such
qualification or exemption; (v) there are no governmental
investigations, actions, suits or claims pending (other than
routine claims for benefits) or threatened with respect to
such Employee Plan/Agreement or against the assets of such
Employee Plan/Agreement; and (vi) no Employee Plan/Agreement
is a plan which is established and maintained outside the
United States primarily for the benefit of individuals
substantially all of whom are nonresident aliens. No event
has occurred and no condition exists under any Employee
Plan/Agreement that would subject Company to any tax under
Code Sections 4971, 4972, 4977 or 4979 or to a fine under
ERISA Section 502(c).
3.16.(e) Post-Retirement Benefits. No Employee
Plan/Agreement provides benefits, including, without
limitation, death or medical benefits (whether or not insured)
with respect to current or former Company employees beyond
their retirement or other termination of service other than
(i) coverage mandated by applicable law, (ii) death or
retirement benefits under any Employee Plan/Agreement that is
an employee pension benefit plan, (iii) deferred compensation
benefits accrued as liabilities on the books of Company
(including the Recent Balance Sheet), (iv) disability
benefits under any Employee Plan/ Agreement that is an
employee welfare benefit plan and which have been fully
provided for by insurance or otherwise or (v) benefits in the
nature of severance pay.
3.16.(f) No Triggering of Obligations. The
consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee
of Company to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement,
(ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or former
employee or (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code
for which an exemption is not available.
3.16.(g) Future Commitments. Company has no
announced plan or legally binding commitment to create any
additional Employee Plans/Agreements or to amend or modify any
existing Employee Plan/Agreement.
3.17. Employment Compensation. Schedule 3.17 contains a
true and correct list of all employees to whom Company is
paying compensation, including bonuses and incentives, at an
annual rate in excess of Fifty Thousand Dollars ($50,000) for
services rendered or otherwise; and in the case of salaried
employees such list identifies the current annual rate of
compensation for each employee and in the case of hourly or
commission employees identifies certain reasonable ranges of
rates and the number of employees falling within each such
range.
3.18. Trade Rights. Schedule 3.18 lists all Trade Rights
(as defined below) in which Company now has any interest,
specifying whether such Trade Rights are owned, controlled,
used or held (under license or otherwise) by Company, and also
indicating which of such Trade Rights are registered. In
order to conduct the business of Company, as such is currently
being conducted or proposed to be conducted, Company does not
require any Trade Rights that it does not already have. Except
as set forth on Schedule 3.18, Company is not infringing and
has not infringed any Trade Rights of another in the operation
of the business of Company. Company has not granted any
license or made any assignment of any Trade Right listed on
Schedule 3.18, nor does Company pay any royalties or other
consideration for the right to use any Trade Rights of others.
Except as set forth on Schedule 3.18, there is no Litigation
pending or, to Shareholders' knowledge, threatened to
challenge Company's right, title and interest with respect to
its continued use and right to preclude others from using any
Trade Rights of Company. The Company is not aware of any
infringement by a third party upon any Trade Right. The
consummation of the transactions contemplated hereby will not
alter or impair any Trade Rights owned or used by Company. As
used herein, the term "Trade Rights" shall mean and include:
(i) all trademark rights, service marks, trade names and brand
names; (ii) all copyrights; and (iii) all patents and patent
applications, and all international proprietary rights
associated therewith.
3.19. Major Customers and Suppliers.
3.19.(a) Major Customers. Schedule 3.19.(a)
contains a list of the twenty (20) largest customers,
including distributors, of Company for the eight-month period
ending August 31, 1995, and the twelve-month period ending
December 31, 1994 (determined on the basis of the total dollar
amount of net sales), showing the total dollar amount of net
sales to each such customer during each such period.
Shareholders and management of the Company have no knowledge
or information of any facts indicating, nor any other reason
to believe, that any of the customers listed on Schedule
3.19.(a) will not continue to be customers of the business of
Company after the Closing..
3.19.(b) Major Suppliers. Schedule 3.19.(b)
contains a list of the twenty (20) largest suppliers to
Company for the eight-month period ending August 31, 1995, and
the twelve-month period ending December 31, 1994(determined on
the basis of the total dollar amount of purchases) showing the
total dollar amount of purchases from each such supplier
during each such period.
Shareholders and management of the Company have no
knowledge or information of any facts indicating, nor any
other reason to believe, that any of the suppliers listed on
Schedule 3.19.(b) will not continue to be suppliers to the
business of Company after the Closing and will not continue to
supply the business with substantially the same quantity and
quality of goods at competitive prices.
3.19.(c) Dealers and Distributors. Schedule
3.19.(c) contains a list of all sales representatives,
dealers, distributors and franchisees of Company, together
with representative copies of all sales representative,
dealer, distributor and franchise contracts.
3.20. Product Warranty and Product Liability. Schedule
3.20 contains a true,correct and complete copy of Company's
standard warranty or warranties for sales of Products (as
defined below) as adopted since January 1, 1992 and, except as
stated therein, there are no warranties, commitments or
obligations with respect to the return, repair or replacement
of Products. Schedule 3.20 sets forth the estimated aggregate
annual cost to Company of performing warranty obligations for
customers for each of the three (3) preceding fiscal years and
the current fiscal year to the date of the Recent Balance
Sheet.
Schedule 3.20 contains a description of all product liability
claims and similar Litigation relating to products
manufactured or sold, or services rendered, which are
presently pending or which to Shareholder's and Company's
knowledge are threatened, or which have been asserted or
commenced against Company within the last three (3) years, in
which a party thereto either requests injunctive relief or
alleges damages in excess of $10,000 (whether or not covered
by insurance). As used in this Section 3.20, the term
"Products" means any and all products currently or for the
past ten years manufactured, distributed or sold by Company.
3.21. No Brokers or Finders. Except for Houlihan Lokey
Howard & Zukin and Goldman, Sachs & Co., Shareholders have not
retained, employed or used any broker or finder in connection
with the transaction provided for herein or in connection with
the negotiation thereof.
3.22. Disclosure. No representation or warranty by the
Shareholders in this Agreement, nor any statement,
certificate, schedule, document or exhibit hereto furnished or
to be furnished by or on behalf of Shareholders pursuant to
this Agreement contains or shall contain any untrue statement
of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not
misleading. Notwithstanding anything else contained herein,
no claims for breach of warranty or misrepresentation with
respect to the items described in Schedule 2.3.(c)(ii) may be
made by Buyer because an adjustment has already been made by
the parties with respect thereto.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties
to the Shareholders, each of which is true and correct on the
date hereof, shall remain true and correct to and including
the Closing Date in all material respects, shall be unaffected
by any investigation heretofore or hereafter made by
Shareholders or any notice to Shareholders, and shall survive
the Closing of the transactions provided for herein.
4.1. Corporate.
4.1.(a) Organization. Buyer is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Minnesota.
4.1.(b) Corporate Power. Buyer has all requisite
corporate power to enter into this Agreement and the other
documents and instruments to be executed and delivered by
Buyer and to carry out the transactions contemplated hereby
and thereby.
4.2. Authority. The execution and delivery of this
Agreement and the other documents and instruments to be
executed and delivered by Buyer pursuant hereto and the
consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of
Buyer. No other corporate act or proceeding on the part of
Buyer or its shareholders is necessary to authorize this
Agreement or the other documents and instruments to be
executed and delivered by Buyer pursuant hereto or the
consummation of the transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and
delivered, the other documents and instruments to be executed
and delivered by Buyer pursuant hereto will constitute, valid
and binding agreements of Buyer, enforceable in accordance
with their respective terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable
principles.
4.3. No Brokers or Finders. Neither Buyer nor any of its
directors, officers, employees or agents have retained,
employed or used any broker or finder in connection with the
transaction provided for herein or in connection with the
negotiation thereof.
4.4. Investment Intent. The Shares are being acquired by
Buyer for investment only and not with the view to resale or
other distribution.
4.5. Disclosure. No representation or warranty by Buyer
in this Agreement, nor any statement, certificate, schedule,
document or exhibit hereto furnished or to be furnished by or
on behalf of Buyer pursuant to this Agreement, contains or
shall contain any untrue statement of material fact or omits
or shall omit a material fact necessary to make the statements
contained therein not misleading.
5. COVENANTS AND AGREEMENTS
5.1. Actions Pending Closing. From the date hereof
through the Closing or earlier termination, except as
otherwise approved in writing by the Buyer, Shareholders
shall take, or cause the Company to take, and the Company
shall take, all actions necessary or appropriate to comply
with, or to refrain from taking any action in breach of,
the following covenants:
5.1.(a) HSR Act Filings. To the extent such
filings have not been completed prior to the execution of this
Agreement, each party shall, in cooperation with the other
parties, file or cause to be filed any reports or
notifications that may be required to be filed by it under the
HSR Act, with the Federal Trade Commission and the Antitrust
Division of the Department of Justice, and shall furnish to
the others all such information in its possession as may be
necessary for the completion of the reports or notifications
to be filed by the other. Prior to making any communication,
written or oral, with the Federal Trade Commission,the
Antitrust Division of the federal Department of Justice or any
other governmental agency or authority or members of their
respective staffs with respect to this Agreement or the
transactions contemplated hereby, the Shareholders and the
Company shall consult with Buyer.
5.1.(b) Consents. Shareholders and Company will
use their best efforts prior to Closing to obtain all consents
(and estoppel letters with respect toleased property)
necessary for the consummation of the transactions
contemplated hereby.
5.1.(c) Access to Information and Records.
Buyer, its counsel, accountants and other representatives
shall have (i) reasonable access during normal business hours
to all of the properties, books, records, contracts and
documents of Company for the purpose of such inspection,
investigation and testing as Buyer deems appropriate (and
Company shall furnish or cause to be furnished to Buyer and
its representatives all information with respect to the
business and affairs of Company as Buyer may reasonably
request); (ii) access to employees, agents and representatives
for the purposes of such meetings and communications as Buyer
reasonably desires; and (iii) with the prior consent of
Company in each instance(which consent shall not be
unreasonably withheld), access to vendors, customers,
manufacturers of its machinery and equipment, and others
having business dealings with Company.
5.1.(d) Access to Facilities. Buyer, including
its agents, employees and its professional advisors, shall be
given full access during regular business hours to the
physical facilities of the Company, upon appointment with the
general manager of each of the Facilities and accompanied by
general manager or his or her designee(s). Shareholders, the
Company and their respective employees and professional
advisors shall cooperate fully with Buyer in its examinations
and inspections, but not to the detriment of the ongoing
operations of their business operations prior to Closing.
In order to enable Buyer to conduct a due diligence
investigation, Shareholders and Company shall provide Buyer
(including its employees and agents, and its professional
advisors) full and unrestricted access to the Facilities to
conduct inspections, soil test borings, soil tests, drainage
tests, surveys, topographical analyses, engineering studies,
and investigations, together with copies of or access to all
environmental files, licenses, permits, permit applications,
consultant reports, notices from local, state, and federal
governmental entities, environmental audit and inspection
reports, insurance files, and other information, necessary for
Buyer to assess the environmental status of the Facilities.
5.1.(e) Conduct of Business Pending the Closing.
Shareholders shall observe and cause the Company to observe
and the Company shall observe each of the following
provisions:
(i) No Changes. Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) Maintain Organization. Company will take
such action as may be necessary to maintain, preserve, renew
and keep in favor and effect the existence, rights and
franchises of Company and will use its best efforts to
preserve the business organization of Company intact, to keep
available to Company the present officers and employees, and
to preserve for Company its present relationships with
suppliers and customers and others having business
relationships with Company.
(iii) No Corporate Changes. Company shall not
amend its Articles of Incorporation or By-Laws or make any
changes in authorized or issued capital stock.
(iv) Maintenance of Insurance. Company shall
maintain all of the insurance in effect as of the date hereof
and shall procure such additional insurance as shall be
reasonably requested by Buyer.
(v) No Negotiations. Shareholders will not
directly or indirectly (through a representative or otherwise)
solicit or furnish any information to any prospective buyer,
commence, or conduct presently ongoing, negotiations with any
other party or enter into any agreement with any other party
concerning the sale of Company, Company's assets or business
or any part thereof or any equity securities of Company (an
"acquisition proposal"), and Shareholders shall immediately
advise Buyer of the receipt of any acquisition proposal.
(vi) No Transfer of Shares. No Shareholder
shall transfer or attempt to transfer any of the Shares except
to Buyer pursuant hereto; and Company shall refuse to accept
any certificates for Shares to be transferred or otherwise to
allow such transfers to occur upon its books.
(vii) No Breach. Neither Shareholders nor the
Company shall enter into any transaction or perform any act
that would constitute a breach of the representations and
warranties contained herein or of any covenant entered into
herein, other than actions by the Company undertaken in the
ordinary course of business that would result in any Schedule
or any representation made herein being out of date or
incomplete.
5.1.(f) Compliance with Conditions.
Shareholders, Company and Buyer shall use all reasonable
efforts to cause the conditions set forth in Sections 10 and
11 hereof to be satisfied as soon as reasonably practicable.
5.1.(g) Disclosure Schedule Update. Promptly
upon the occurrence thereof, Shareholders and Company shall
disclose to Buyer in writing any breach known to them of any
representation and warranty made by them or any covenant to be
performed by any of them. In addition, not less than five (5)
business days prior to Closing, Shareholders and Company shall
advise the Buyer in writing of any material change in any
information supplied to Buyer hereunder or in the Disclosure
Schedule. In addition, at Closing, Buyer shall be advised of
any further breach or material change. Notwithstanding such
disclosure, Buyer shall be entitled to rely upon the original
representations and warranties contained in Section 3 as of
the date of execution hereof, whether or not Closing shall
take place.
5.2. Other Agreements. The Agreements described in this
Section 5.2 and those other agreements, instruments and
documents, including without limitation all documents to be
delivered at closing, contemplated hereby to be executed by
any party hereto shall constitute the "Ancillary Instruments."
5.2.(a) Escrow Agreement. At Closing,
Shareholders, Buyer and M&I Marshall & Ilsley Bank (the
"Escrow Agent") shall execute and deliver an Escrow Agreement
(the "Escrow Agreement") in the form of Exhibit C.
5.2.(b) Consulting Agreement. At the Closing,
Company and Buyer shall deliver to Andrew J. Fleckenstein a
Consulting Agreement in the form of Exhibit D hereto, duly
executed by the Buyer, Company and Andrew J.Fleckenstein,
providing for compensation of One Million Dollars
($1,000,000), which agreement Andrew J. Fleckenstein agrees
hereby to execute at or before Closing.
5.2.(c) Noncompetition Agreements. At the
Closing, Shareholders shall deliver to Buyer noncompetition
agreements, substantially in the form of Exhibit E hereto,
duly executed by each Shareholder pursuant to which each
Shareholder covenants and agrees, for a period of 10 years
from the Closing Date, not to compete with Company or Buyer in
any aspect with respect to the Business anywhere in the world,
and providing for consideration to each Shareholder as
follows: Andrew J. Fleckenstein, Three Million Dollars
($3,000,000); John L. Fleckenstein, Two Hundred Fifty Thousand
Dollars ($250,000), Mark Fleckenstein, Two Hundred Fifty
Thousand Dollars ($250,000) and all other individual
Shareholders, Five Thousand Dollars ($5,000) each.
5.2.(d) Purchase Agreement. Upon the execution
of this Agreement, Andrew J. Fleckenstein shall have delivered
to Buyer an executed Stock Purchase Agreement in the form of
Exhibit F for the sale by Andrew J. Fleckenstein and the
purchase by Buyer of all of the issued and outstanding shares
of Family Corp. for One Hundred Thousand Dollars ($100,000).
5.2.(e) Shareholder Releases. At the Closing,
the Shareholders shall each deliver to the Buyer an executed
release of all obligations, of the Company or Subsidiary or
any Affiliate to either of them, to such Shareholder in the
form of Exhibit G hereto (the "Release") and each such Release
shall constitute the legal, valid and binding obligation of
such Shareholder, enforceable in accordance with its terms.
5.3. Tax Matters Agreements; Payment of Taxes.
5.3.(a) Tax Returns. Shareholders shall prepare
or cause to be prepared, at their own expense, and shall
timely file or cause to be filed tax returns (including any
amendments thereto) for any income taxes related to or arising
from Company's status as an S corporation. Shareholders shall
pay or cause to be paid all taxes related to or arising from
Company's status as an S corporation, to the extent such taxes
are attributable to items of income, gain, expense, deduction,
loss, credit or recapture of the Company which flow through to
the Shareholder under the Code and analogous provisions of
state or local law ("S items").
5.3.(b) Apportionment of S Items. Shareholders
will include all S items on their federal, state and local
income tax returns. Company will furnish all tax information
requested by Shareholders for such inclusion in accordance
with past custom and practice. S items, and items which would
be S items for the year which includes the Closing Date but
for the termination of the Company's S status, for the year
which includes the Closing Date will be apportioned to the
period up to and including the day immediately preceding the
Closing Date and the period from and after the Closing Date by
closing the books of Company as of the end of the day
immediately preceding the Closing Date.
5.3.(c) Allocation of Other Taxes. In the case
of any Taxes (other than taxes attributable to S items) that
are imposed on a periodic basis and are payable for a period
that begins before the Closing Date and ends after the Closing
Date, Shareholders shall reimburse Buyer for the portion of
such Taxes payable for the period ending on the Closing Date
to the extent such Taxes are not reflected on the Statement of
Net Book Value as of the Closing Date. For this purpose, the
portion of such Taxes payable for the period ending on the
Closing Date shall be deemed to be the amount of such Taxes
for the entire period multiplied by a fraction, the numerator
of which is the number of days in the period ending on the
Closing Date, and the denominator of which is the number of
days in the entire period. The preceding sentence shall be
applied with respect to such Taxes relating to capital
(including net worth or long-term debt) or intangibles by
reference to the level of such items on the Closing Date to
the extent such Taxes are not reflected on the Statement of
Net Book Value as of the Closing Date.
5.3.(d) Control of Contest. Shareholders shall
have the right, at their own expense, to control any audit or
determination by any taxing authority, initiate any claim for
refund or amended tax return and contest, resolve and defend
against any assessment, notice of deficiency or other
adjustment or proposed adjustment relating to S items. Each
party will allow the other and its counsel (atits or their own
expense) to be represented during any audits of income tax
returns to the extent that disputed items therein relate to
Company and resolution of such designated items may adversely
affect the other party.
5.3.(e) General. Buyer and Shareholders shall
each grant the other, and Buyer shall following the Closing
cause Company to grant to Shareholders, the rights, at
reasonable times and upon reasonable notice, to access to
personnel, and to copy and use, any records or information
that may be relevant in connection with the preparation of any
tax returns, any audit or other examination by any taxing
authority or any litigation relating to liability for taxes
attributable to S items for all years prior to Closing.
Information required in the filing of any return shall be
provided to the other party not less than thirty (30) days
before such return is due (taking into account extensions to
file). Shareholders will allow Buyer an opportunity to review
and comment upon any tax returns (including any amended
returns) to the extent they relate to S items. Shareholder
will take no position on such returns that would adversely
affect Company after the Closing. Shareholders and Buyer
shall retain all records relating to taxes for as long as the
statute of limitations with respect thereto shall remain open.
5.4. Special Matters.
5.4.(a) Maintenance of Bonus Program. After
Closing, Buyer shall maintain the bonus program for hourly
employees and implement the program in the same manner as
Company's past practices and will not make or institute any
changes until December 31, 1995.
5.4.(b) Disposition of Assets. Upon Andrew J.
Fleckenstein's request, Company will sell to Andrew J.
Fleckenstein (i) the automobile currently used by Andrew J.
Fleckenstein for $27,000, and (ii) the $230,000 life insurance
policy in Andrew J. Fleckenstein's name, for its current cash
surrender value of $63,352.61.
5.4.(c) Tax Appeal. After Closing, Buyer shall
not appeal nor permit the Company to appeal the determination
of the IRS related to the 1992 federal income tax audit.
5.4.(d) Employment Agreements. Company shall, if
Buyer so directs, execute employment agreements previously
executed by Bernard Peltier, John Piasecki, Paul Sacotte,
Walter Smith and Donald Vaughan ("Managers"), and provided by
Company to Buyer. If Buyer fails to so direct at or prior to
Closing, the offers to enter into written employment
agreements by the Managers shall be rescinded.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the
Closing Date shall be subject to the satisfaction prior to or
at the Closing of each of the following conditions unless
expressly waived by the Buyer, in its sole and unconfined
discretion:
6.1. Representations and Warranties True of the Closing
Date. Each of the representations and warranties made by
Shareholders in this Agreement, and the statements contained
in the Disclosure Schedule or in any instrument, list,
certificate or writing delivered by Shareholders pursuant to
this Agreement, shall be true and correct when made and shall
be true and correct at and as of the Closing Date as though
such representations and warranties were made or given on and
as of the Closing Date, except for any changes permitted by
the terms of this Agreement or consented to in writing by
Buyer.
6.2. Compliance With Agreement. Shareholders shall have
in all material respects performed and complied with all of
their agreements and obligations under this Agreement which
are to be performed or complied with by them prior to or on
the Closing Date, including the delivery of the closing
documents specified in Section 9.1.
6.3. Absence of Litigation. No Litigation shall have been
commenced or threatened and no Order shall have been issued
against Buyer, Company or any of the affiliates, officers or
directors of any of them, with respect to the transactions
contemplated hereby which would prevent the Closing.
6.4. Consents and Approvals. All material approvals,
consents and waivers (including estoppel letters with respect
to leased property) that are required by Buyer to effect the
transactions contemplated hereby shall have been received, and
executed counterparts thereof shall have been delivered to
Buyer not less than two business days prior to the Closing.
6.5. HSR Act Waiting Period. All applicable waiting
periods related to the HSR Act shall have expired or been
terminated.
6.6. Environmental Due Diligence. The results of any
inspections, soil test borings, soil tests, drainage tests,
surveys, topographical analyses, engineering studies or
other investigations performed or obtained by Buyer from
Braun/Intertech or Dames & Moore shall not have disclosed
evidence of Waste in, on, or adjacent to any Real Property
requiring any removal and/or remediation to be undertaken by
the Company which would cost more than $7,500,000. Buyer
shall not have received any evidence from Braun/Intertech or
Dames & Moore that there are existing violations of any law,
ordinance, regulation or order relating to air, water or land
pollution or Wastes generally which, if adversely determined
would result in liability to the company of more than
$7,500,000.
If Buyer desires to invoke this Section 6.6 as the
basis for refusal to close the transaction, Buyer shall
promptly so advise Shareholders in writing by October 25,
1995 and shall provide Company a copy of the reports from its
environmental advisors verifying the grounds upon which such
refusal to close is based. Shareholders shall then have seven
(7) business days to either accept such grounds for
termination, in which case the Agreement will terminate, or to
elect to close. If Shareholders elect to close, Shareholders
shall fully indemnify Buyer from and all liability identified
in such reports.
Such indemnification shall be on the terms set forth in
Article 8, provided, however, that the limitations on amounts
set forth in Section 8.5.(b) (the $2,000,000 basket) and in
Section 8.5.(c) (the $15,000,000 cap) shall not be applicable.
6.7. Repayment of Indebtedness. All indebtedness of the
Shareholders or any Affiliate thereof to the Company or
Subsidiary listed on Schedule 3.6 or required to be so listed
shall have been repaid in full.
6.8. Ancillary Instruments and Proceedings. All of the
Ancillary Instruments to be delivered to Buyer at or prior to
Closing shall have been executed and delivered and all such
Ancillary Instruments and all corporate proceedings and
actions taken in connection with the transactions contemplated
hereby shall be reasonably satisfactory in form and substance
to Buyer and its counsel.
7. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS
Each and every obligation of Shareholders to be performed
on the Closing Date shall be subject to the satisfaction prior
to or at the Closing of the following conditions, unless
expressly waived by the Shareholders, in their sole and
unconfined discretion:
7.1. Representations and Warranties True on the Closing
Date. Each of the representations and warranties made by
Buyer in this Agreement or in any instrument, list,
certificate or writing delivered by Buyer pursuant to this
Agreement, shall be true and correct when made and shall be
true and correct at and as of the Closing Date as though
such representations and warranties were made or given on and
as of the Closing Date.
7.2. Compliance With Agreement. Buyer shall have in all
material respects performed and complied with all of Buyer's
agreements and obligations under this Agreement which are to
be performed or complied with by Buyer prior to or on the
Closing Date, including the delivery of the closing documents
specified in Section 9.2.
7.3. Absence of Litigation. No Litigation shall have been
commenced or threatened against Buyer, Company or any of the
affiliates, officers or directors of any of them, with respect
to the transactions contemplated hereby which would prevent
the Closing.
7.4. HSR Act Waiting Period. All applicable waiting
periods related to the HSR Act shall have expired or been
terminated.
7.5. Repayment of Indebtedness. All indebtedness of the
Company or Subsidiary to any Shareholder or any Affiliate
thereof listed on Schedule 3.6 or required to be so listed
shall have been repaid in full.
7.6. Ancillary Instruments and Proceedings. All of the
Ancillary Instruments to be delivered to Shareholders or
Company at or prior to Closing shall have been executed
and delivered and all such Ancillary Instruments and all
corporate proceedings and actions taken in connection with the
transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Shareholders and Company
and their counsel.
8. INDEMNIFICATION
8.1. By Shareholders. Subject to the terms and conditions
of this Article 8, each Shareholder, jointly and severally,
hereby agrees to indemnify, defend and hold harmless Buyer,
its directors, officers, employees and controlled and
controlling persons (hereinafter "Buyer's Affiliates") and the
Company from and against all Claims asserted against,
resulting to, imposed upon, or incurred by Buyer, Buyer's
Affiliates or the Company, directly or indirectly, by reason
of, arising out of or resulting from (a) the inaccuracy or
breach of any representation or warranty of any Shareholder
contained in or made pursuant to this Agreement or (b) the
breach of any covenant of any Shareholder contained in this
Agreement. Regardless of the foregoing, however, breaches of
representations and warranties contained in Section 3.2 hereof
shall be subject only to several indemnification by the
respective Shareholders who shall have made and breached
such representations and warranties. As used in this Article
8, the term "Claim" shall include (i) all debts, liabilities
and obligations; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards,
settlements, costs and expenses (including, without
limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs and attorneys fees
and expenses); and (iii) all demands, claims, suits, actions,
costs of investigation, causes of action, proceedings and
assessments, whether or not ultimately determined to be valid,
provided however, to the extent the Company has specifically
accrued for or reserved against the occurrence giving rise to
the Claim, no claim shall exist to the extent of such accrual
or reserve, including but not limited to, those items listed
on Schedule 8.1; and provided further, that the amount of any
Claim shall be adjusted to take into account the present value
of any benefit realized by the Indemnified Party (hereinafter
defined) with respect to the subject matter of such Claim.
8.2. By Buyer. Subject to the terms and conditions of
this Article 8, Buyer hereby agrees to indemnify, defend and
hold harmless each Shareholder from and against all Claims
asserted against, resulting to, imposed upon or incurred by
any such person, directly or indirectly, by reason of or
resulting from (a) the inaccuracy or breach of any
representation or warranty of Buyer contained in or made
pursuant to this Agreement or (b) the breach of any covenant
of Buyer contained in this Agreement.
8.3. Indemnification of Third-Party Claims. The
obligations and liabilities of any party to indemnify any
other under this Article 8 with respect to Claims relating to
third parties shall be subject to the following terms and
conditions:
8.3.(a) Notice and Defense. The party or parties
to be indemnified (whether one or more, the "Indemnified
Party") will give the party from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any
such Claim, and the Indemnifying Party will undertake the
defense thereof by representatives chosen by it. In all
matters concerning the Shareholders by virtue of joint and
several liability, the Shareholders' Agent shall give and
receive notice and otherwise act in all respects on their
behalf. Failure to give such notice shall not affect the
Indemnifying Party's duty or obligations under this Article 8,
except to the extent the Indemnifying Party is prejudiced
thereby. So long as the Indemnifying Party is defending any
such Claim actively and in good faith, the Indemnified Party
shall not settle such Claim. The Indemnified Party shall make
available to the Indemnifying Party or its representatives all
records and other materials required by them and in the
possession or under the control of the Indemnified Party, for
the use of the Indemnifying Party and its representatives in
defending any such Claim and shall in other respects give
reasonable cooperation in such defense.
8.3.(b) Failure to Defend. If the Indemnifying
Party, within a reasonable time after notice of any such
Claim, fails to defend such Claim actively and in good faith,
the Indemnified Party will (upon further notice) have the
right to undertake the defense, compromise or settlement of
such Claim or consent to the entry of a judgment with respect
to such Claim, on behalf of and for the account and risk of
the Indemnifying Party, and the Indemnifying Party shall
thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment
therein.
8.3.(c) Indemnified Party's Rights. Anything in
this Section 8.3 to the contrary notwithstanding, (i) if there
is a reasonable probability that a Claim may materially and
adversely affect the Indemnified Party other than as a result
of money damages or other money payments, the Indemnified
Party shall have the right to defend, compromise or settle
such Claim, and (ii) the Indemnifying Party shall not, without
the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment
which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified
Party of a release from all Liability in respect of such
Claim.
8.4. Payment. The Indemnifying Party shall pay the
Indemnified Party any amount due under this Article 8. Upon
judgment, determination, settlement or compromise of any third
party Claim, the Indemnifying Party shall pay promptly on
behalf of the Indemnified Party, and/or to the Indemnified
Party in reimbursement of any amount theretofore required to
be paid by it, the amount so determined by judgment,
determination, settlement or compromise and all other Claims
of the Indemnified Party with respect thereto, unless in the
case of a judgment an appeal is made from the judgment.
If the Indemnifying Party desires to appeal from an adverse
judgment, then the Indemnifying Party shall post and pay the
cost of the security or bond to stay execution of the judgment
pending appeal. Upon the payment in full by the Indemnifying
Party of such amounts, the Indemnifying Party shall succeed to
the rights of such Indemnified Party, to the extent not waived
in settlement, against the third party who made such third
party Claim.
8.5. Limitations on Indemnification.
8.5.(a) Time Limitation. No claim or action
among the parties hereto shall be brought under this Article 8
for breach of a representation or warranty after the lapse of
eighteen months (18) following the Closing. Regardless of the
foregoing, however, or any other provision of this Agreement:
(i) There shall be no time limitation on
claims on actions brought for breach of any representation or
warranty made by Shareholders pursuant to Sections 3.1.(g),
3.2 and 3.12.(a).
(ii) Except as provided below, any claim or
action brought for breach of any representation or warranty
made by Shareholders in Section 3.5 may be brought at any time
until the underlying tax obligation is barred by applicable
period of limitation under applicable law, plus sixty (60)
days.
(iii) Any claim or action brought for breach of
any representation or warranty made by Shareholders in Section
3.5, and which relates to a change in method of accounting
(within the meaning of Sections 481 and 446(e) of the Code,
and analogous provisions under state and local laws)
maintained or used by the Company on or before Closing, may be
brought at any time and even though the statute of limitations
has expired for some or all of the Company's tax years ending
on or before Closing; provided, however, (x) no such claim or
action shall be indemnified unless the change in method of
accounting is required by the Internal Revenue Service or
state or local tax authorities, and (y) the amount of such
indemnification under this Section 8.5(a)(iii) shall not
exceed the additional taxes which would have resulted if the
Section 481 adjustment had been determined and assessed as of
the day before Closing, less any amounts reserved for such
taxes and reflected on the Statement of Net Book Value.
(iv) Any claim or action brought for breach of
any representation or warranty made by Shareholders in Section
3.11.(c) is barred after the lapse of three (3) years
following the Closing.
8.5.(b) Amount Limitation. Except with respect
to claims for breaches of representations or warranties
contained in Sections 3.2 and 3.12.(a), an Indemnified Party
shall only be entitled to indemnification under this Article 8
for breach of a representation or warranty for the aggregate
of the Indemnifying Party's indemnification obligations to the
Indemnified Party pursuant to this Article 8 in excess of Two
Million Dollars ($2,000,000).
8.5.(c) Maximum Liability. Shareholders'
collective indemnification obligations to the Buyer pursuant
to this Article 8 (other than pursuant to Sections 3.2 and
3.12.(a)) shall not exceed in the aggregate Fifteen Million
Dollars ($15,000,000).
8.5.(d) Bar On Claims. No claim or action shall
be brought by Buyer relating to breaches of representations or
warranties relating to issues raised in Schedule 2.3.(c)(ii).
9. CLOSING
The closing of this transaction ("the Closing") shall take
place at the offices of Foley& Lardner, 777 East Wisconsin
Avenue, Milwaukee, Wisconsin, at 9:00 A.M. on November 1,
1995, or at such other time and place as the parties hereto
shall agree upon. Such date is referred to in this Agreement
as the "Closing Date".
If the Closing occurs after November 1, 1995, the parties
nevertheless agree that the Closing shall be deemed to have
occurred on such date. Specifically, Buyer shall be entitled
to revenues generated on and after such date, but shall be
treated as having incurred such liabilities. Such liabilities
and assets shall be properly reflected on the Statement of Net
Book Value, which will be prepared as of November 1, 1995.
If the Closing occurs on November 8, 1995, or thereafter,
the Shareholders shall be entitled to interest on the amount
that would otherwise have been paid on November 1 at the rate
announced by M&I Marshall & Ilsley Bank as its prime rate in
Milwaukee, Wisconsin, from the period of November 1 through
the actual Closing Date. If the Closing occurs on or before
November 7, Shareholders shall not be entitled to such
interest.
9.1. Documents to be Delivered by Shareholders. At the
Closing, Shareholders shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper
form:
9.1.(a) Stock Certificate(s). Stock certificates
representing the Shares, duly endorsed for transfer or with
duly executed stock powers attached.
9.1.(b) Compliance Certificate. A certificate
signed by Shareholders' Agent that each of the representations
and warranties made by Shareholders in this Agreement is true
and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer), and that
Shareholders have performed and complied with all of
Shareholders' obligations under this Agreement which are to be
performed or complied with on or prior to the Closing Date.
9.1.(c) Opinion of Counsel. A written opinion of
Foley & Lardner, counsel to Shareholders, dated as of the
Closing Date, addressed to Buyer, substantially in the form of
Exhibit D hereto.
9.1.(d) Certified Resolutions. Certified copies
of the resolutions of the Board of Directors and the
Shareholders of (i) the Company, authorizing and approving
this Agreement and the consummation of the transactions
conntemplated by this Agreement and (ii) Family Corp.,
authorizing and approving the Purchase Agreement and the
consummation of the transactions contemplated thereby.
9.1.(e) Articles; By-Laws. (i) A copy of the
By-Laws of Company and Family Corp. certified by their
respective secretaries, and a copy of their respective
Articles of Incorporation certified by the Secretary of State
of Wisconsin and (ii) a copy of the corporate statutes of
Subsidiary, as filed in the Registre de Commerce.
9.1.(f) Incumbency Certificate. Incumbency
certificates relating to each person executing (as a corporate
officer or otherwise on behalf of another person) any document
executed and delivered to Buyer pursuant to the terms hereof.
9.1.(g) Other Documents. All other documents,
instruments or writings required to be delivered to Buyer at
or prior to the Closing pursuant to this Agreement and such
other certificates of authority and documents as Buyer may
reasonably request.
9.2. Documents to be Delivered by Buyer. At the Closing,
Buyer shall deliver to Shareholders the following documents,
in each case duly executed or otherwise in proper form:
9.2.(a) Compliance Certificate. A certificate
signed by the Chief Executive Officer of Buyer that the
representations and warranties made by Buyer in this Agreement
are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had
been made or given on and as of the Closing Date (except for
any changes permitted by the terms of this Agreement or
consented to in writing by Shareholders), and that Buyer has
performed and complied with all of Buyer's obligations under
this Agreement which are to be performed or complied with on
or prior to the Closing Date.
9.2.(b) Opinion of Counsel. A written opinion of
Henson & Efron, P.A., counsel to Buyer, dated as of the
Closing Date, addressed to Company, in substantially the form
of Exhibit I hereto.
9.2.(c) Certified Resolutions. A certified copy
of the resolutions of the Board of Directors of Buyer
authorizing and approving this Agreement and the consummation
of the transactions contemplated by this Agreement.
9.2.(d) Incumbency Certificate. Incumbency
certificates relating to each person executing any document
executed and delivered to Company or Shareholders by Buyer
pursuant to the terms hereof.
9.2.(e) Other Documents. All other documents,
instruments or writings required to be delivered to Company at
or prior to the Closing pursuant to this Agreement and such
other certificates of authority and documents as Company may
reasonably request.
9.3. Documents to be Delivered by the Parties. At the
Closing, Shareholders and Buyer shall deliver to each other
the following documents, in each case duly executed or
otherwise in proper form:
9.3.(a) Non-Competition Agreements. The
Non-Competition Agreements referred to in Section 5.2.(c),
duly executed by the persons referred to in such Section.
9.3.(b) Escrow Agreement. The Escrow Agreement
referred to in Section 5.2.(a), duly executed by Shareholders,
Buyer and the Escrow Agent in the form of Exhibit C.
9.3.(c) Consulting Agreement. The Consulting
Agreement referred to in Section 5.2.(b), duly executed by
Andrew J. Fleckenstein and Buyer.
9.3.(d) Purchase Agreement. The Stock Purchase
Agreement referred to in Section 5.2.(d), duly executed by
Andrew J. Fleckenstein and Buyer.
10. TERMINATION
10.1. Right of Termination Without Breach. This
Agreement may be terminated without further liability of any
party at any time prior to the Closing:
10.1.(a) by mutual written agreement of Buyer and
Shareholders' Agent, or
10.1.(b) by either Buyer or Shareholders' Agent if
the Closing shall not have occurred on or before December 31,
1995, provided the terminating party has not, through breach
of a representation, warranty or covenant, prevented the
Closing from occurring on or before such date.
10.2. Termination for Breach.
10.2.(a) Termination by Buyer. If, after written
notice and failure to cure within five (5) business days, (i)
there has been a material violation orbreach by any
Shareholder of any of the agreements, representations or
warranties contained in this Agreement which has not been
waived in writing by Buyer, or (ii) there has been a failure
of satisfaction of a condition to the obligations of Buyer
which has not been so waived, or (iii) Shareholders' Agent or
any Shareholder shall have attempted to terminate this
Agreement under this Article 10 or otherwise without grounds
to do so, then Buyer may, by written notice to Shareholders'
Agent at any time prior to the Closing that such violation,
breach, failure or wrongful termination attempt is continuing,
terminate this Agreement with the effect set forth in Section
10.2.(c) hereof.
10.2.(b) Termination by Shareholders' Agent. If
(i) there has been a material violation or breach by Buyer of
any of the agreements, representations or warranties contained
in this Agreement which has not been waived in writing by
Shareholders' Agent, or (ii) there has been a failure of
satisfaction of a condition to the obligations of Shareholders
which has not been so waived, or (iii) Buyer shall have
attempted to terminate this Agreement under this Article 10 or
otherwise without grounds to do so, then Shareholders' Agent
may, by written notice to Buyer at any time prior to the
Closing that such violation, breach, failure or wrongful
termination attempt is continuing, terminate this Agreement
with the effect set forth in Section 10.2.(c) hereof.
10.2.(c) Effect of Termination. In the event of
termination under Section 10.2, the terminating party shall
have the right to receive, as damages for such breach and not
as a penalty, reimbursement of all expenses incurred by it in
connection with the transactions contemplated in this
Agreement. Neither party shall be liable for, and no party
may recover, consequential or punitive damages as a result of,
the termination of this Agreement. Subject to the foregoing,
the parties' obligations under Section 12.8 of this Agreement
shall survive termination.
11. ARBITRATION OF DISPUTES
11.1. Arbitration Required. Except as otherwise provided
in Section 2.3.(c)(iv) hereof, any dispute arising out of or
in connection with this Agreement, including any question
regarding its existence, validity, interpretation, or
termination, that can not be resolved amicably by the parties
shall be referred to and finally resolved by binding
arbitration, under the auspices and the then applicable
Commercial Arbitration Rules of the American Arbitration
Association as herein modified or supplemented or otherwise
agreed to by the parties hereto. At any time by express
written agreement, the parties may modify, limit the
application of, add to, or avoid the operation of one or more
rules of such association.
11.2. Arbitrators. The arbitrator or arbitrators shall
be selected in accordance with such rules. The number of
arbitrators when the amount in dispute is $500,000 or less
shall be one, and the number of arbitrators when the amount in
dispute is more than $500,000 shall be three. The location of
the arbitration proceedings shall be Chicago, Illinois. The
American Arbitration Association shall arrange for a
prehearing conference as soon as practicable after the
appointment of the arbitrators. At the prehearing conference,
the arbitrators shall set a hearing date, which shall commence
not later than 60 days after the prehearing conference. The
parties agree that the arbitrators may call and question any
witness, including any expert witness, and may require a party
to produce any relevant documents or evidence prior to or at
any hearing.
11.3. Arbitral Award. The parties and the arbitrators
shall proceed expeditiously so that the arbitral award is
issued as soon as practicable. The arbitrators will be
empowered to grant injunctive relief in the form of interim
orders pending the outcome of the arbitration and in the final
arbitral award. The costs, expenses, and fees of a party
incurred in connection with any arbitration proceeding shall
be borne by that party. Costs, expenses, and fees of the
arbitration panel shall be borne equally by Buyer and Seller,
unless the final arbitral award otherwise provides. The
arbitral award will be the exclusive remedy for all claims,
counterclaims, issues, or accountings presented or pled to the
arbitrators. Any award may, in the discretion of the
arbitrators, include interest from the date of the breach or
other violation of the Agreement until the award is fully
paid. The parties hereto irrevocably submit to the
jurisdiction of the courts of, and United States federal
courts sitting in, the State of Wisconsin, for enforcement of
the arbitral award. Any additional costs, fees, or expenses
incurred in enforcing the arbitral award will be charged
against the party that resists enforcement.
12. MISCELLANEOUS
12.1. Disclosure Schedule. The Schedules have been
compiled in a bound volume (the "Disclosure Schedule"),
executed by Shareholders' Agent and dated and delivered to
Buyer on the date of this Agreement. Disclosure in one
Schedule hereto shall constitute disclosure for all purposes
under this Agreement and in response to any other Schedule
hereto. Disclosure of a document or information in a Schedule
hereto is not intended as a representation or warranty of the
material nature of such document or information nor does it
establish any standard of materiality upon which to judge the
inclusion or omission of other similar documents or
information in that Schedule or other Schedules.
12.2. Further Assurance. From time to time, at Buyer's
request and without further consideration, Shareholders will
execute and deliver to Buyer such documents and take such
other action as Buyer may reasonably request in order to
consummate more effectively the transactions contemplated
hereby.
12.3. Disclosures and Announcements. Announcements
concerning the transactions provided for in this Agreement by
Buyer or Shareholders shall be subject to the approval of the
other parties in all essential respects.
12.4. Assignment; Parties in Interest.
12.4.(a) Assignment. Except as expressly provided
herein, the rights and obligations of a party hereunder may
not be assigned, transferred or encumbered without the prior
written consent of the other parties. Notwithstanding the
foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or
part of the transactions contemplated hereby; provided,
however, that Buyer shall, nevertheless, remain liable for all
of its obligations, and those of any such subsidiary, to
Shareholders hereunder.
12.4.(b) Parties in Interest. This Agreement
shall be binding upon, inure to the benefit of, and be
enforceable by the respective successors and permitted assigns
of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy
under or by reason of this Agreement.
12.5. Law Governing Agreement. This Agreement may not be
modified or terminated orally, and shall be construed and
interpreted according to the internal laws of the State of
Wisconsin, excluding any choice of law rules that may direct
the application of the laws of another jurisdiction.
12.6. Amendment and Modification. Buyer and Shareholders
may amend, modify and supplement this Agreement in such manner
as may be agreed upon in writing between Buyer and
Shareholders' Agent; provided, however, that Buyer may, in
Buyer's discretion, require the execution of any amendment by
all the Shareholders personally.
12.7. Notice. All notices, requests, demands and other
communications hereunder shall be given in writing and shall
be: (a) personally delivered; (b) sent by telecopier,
facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at
their respective addresses indicated herein by registered or
certified U.S. mail, return receipt requested and postage
prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such notices, demands
or requests are as follows:
(a) If to Buyer, to:
Pentair, Inc.
1500 County Road B2 West
St. Paul, MN 55113-3105
Attention: Richard J. Cathcart
Facsimile: (612) 639-5209
(with a copy to)
Henson & Efron, P. A.
1200 Title Insurance Building
400 Second Avenue South
Minneapolis, MN 55401
Attention: Louis L. Ainsworth
Facsimile: (612) 339-6364
or to such other person or address as Buyer shall furnish to
Shareholders' Agent in writing.
(b) If to Shareholders, to Shareholders'
Agent:
Andrew J. Fleckenstein
2880 Santa Maria Dr.
Brookfield, WI 53005
(with a copy to)
Joseph B. Tyson, Jr.
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
Facsimile: (414) 297-4900
or to such other person or address as Shareholders shall
designate as a successor Shareholders' Agent in accordance
with this Agreement.
If personally delivered, such communication shall be
deemed delivered upon actual receipt; if electronically
transmitted pursuant to this paragraph, such communication
shall be deemed delivered the next business day after
transmission (and sender shall bear the burden of proof of
delivery); if sent by overnight courier pursuant to this
paragraph, such communication shall be deemed delivered upon
receipt; and if sent by U.S. mail pursuant to this paragraph,
such communication shall be deemed delivered as of the date of
delivery indicated on the receipt issued by the relevant
postal service, or, if the addressee fails or refuses to
accept delivery, as of the date of such failure or refusal.
Delivery to Shareholders' Agent shall constitute delivery to
all Shareholders. Any party to this Agreement may change its
address for the purposes of this Agreement by giving notice
thereof in accordance with this Section.
12.8. Expenses. Regardless of whether or not the
transactions contemplated hereby are consummated:
12.8.(a) Brokerage. Except as to Houlihan Lokey
Howard & Zukin and Goldman, Sachs & Co., who shall be
compensated by Shareholders, Shareholders and Buyer each
represent and warrant to each other that there is no broker
involved or in any way connected with the transfer provided
for herein on their behalf respectively (and Shareholders
represent and warrant that there is no broker involved on
behalf of Company) and each agrees to hold the other harmless
from and against all other claims for brokerage commissions or
finder's fees in connection with the execution of this
Agreement or the transactions provided for herein.
12.8.(b) Expenses to be Paid by Shareholders.
Shareholders shall pay, and shall indemnify, defend and hold
Buyer and Company harmless from and against, each of the
following:
(i) Transfer Taxes. Any sales, use, excise,
transfer or other similar tax imposed with respect to the
transactions provided for in this Agreement, and any interest
or penalties related thereto.
(ii) Professional Fees. All fees and expenses
of their own and Company's legal, accounting, investment
banking and other professional counsel in connection with the
transactions contemplated hereby. Shareholders acknowledge
their responsibility for fees and expenses paid by the Company
to Goldman Sachs in the amount of $150,000 and agree to pay
such amount to the Company on or before the Closing.
12.8.(c) Other. Except as otherwise provided
herein, each of the parties shall bear its own expenses and
the expenses of its counsel and other agents in connection
with the transactions contemplated hereby.
12.9. Entire Agreement. This instrument embodies the
entire agreement between the parties hereto with respect to
the transactions contemplated herein, and there have been and
are no agreements, representations or warranties between the
parties other than those set forth or provided for herein.
12.10. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
12.11. Headings. The headings in this Agreement are
inserted for convenience only and shall not constitute a part
hereof.
12.12. Waiver. No failure of either party to this
Agreement to pursue any remedy resulting from a breach of this
Agreement shall be construed as a waiver of that breach or as
a waiver of any subsequent or other breach. No waiver shall
be enforced against a party unless such waiver is in writing
and signed by the party against whom enforcement of such is
sought.
12.13. Severability. Should any provision of this
Agreement be or become invalid in whole or in part or be
incapable of performance for whatever reason, then the
validity of the remaining provisions of this Agreement shall
not be affected thereby. In such event, the parties hereby
undertake to substitute for any such invalid provision or for
any provision incapable of performance, a provision which
corresponds to the spirit and purpose of such invalid or
unperformable provision as far as permitted under applicable
law, so as to provide to the parties to the fullest extent
possible the economic purpose and effect of this Agreement.
12.14. Glossary of Terms. The following sets forth the
location of definitions of capitalized terms defined in the
body of this Agreement:
"Affiliate" - Section 3.6.(a)
"Ancillary Instruments" - Section 5.2
"Arbiter" - Section 2.3.(c)(iv)
"Audited Financial Statements" - Section 3.4.(a)
"Buyer's Affiliates" - Section 8.1
"CERCLA" - Section 3.11.(c)
"Claim" - Section 8.1
"Closing" - Preamble to Article 9
"Closing Date" - Section 9
"Code" - Section 3.5.(e)
"Company Employees" - Section 3.16.(a)
"Disclosure Schedule" - Section 12.1
"Effective Time" - Section 2.3.(b)
"Employee Plans/Agreement(s)" - Section 3.16.(a)
"Environmental Laws" - Section 3.11.(c)
"ERISA" - Section 3.16.(a)
"Escrow Agent" - Section 5.2.(a)
"Escrow Agreement" - Section 5.2.(a)
"Estimated Closing Balance Sheet" - Section 2.3.(b)
"Government Entities" - Section 3.3
"HSR Act" - Section 3.3
"Indemnified Party" - Section 8.3.(a)
"Indemnifying Party" - Section 8.3.(a)
"Laws" - Section 3.3
"Lien" - Section 3.12.(a)
"Litigation" - Section 3.10
"Net Book Value" - Section 2.3.(a)
"Orders" - Section 3.3
"PBGC" - Section 3.16.(b)(ii)
"Products" - Section 3.20
"Purchase Price" - Section 2.1
"Real Property" - Section 3.12.(c)
"Release" - Section 5.2.(e)
"Recent Balance Sheet" - Section 3.4
"Settlement Date" - Section 2.2.(c)
"Shareholders' Accountants" - Section 2.3.(c)(ii)
"Statement of Net Book Value" - Section 2.3.(c)(ii)
"Subsidiary" - Section 3.1.(d)
"Taxes" - Section 3.5.(a)
"Trade Rights" - Section 3.18
"Waste" - Section 3.11.(c)
Where any group or category of items or matters is defined
collectively in the plural number, any item or matter within
such definition may be referred to using such defined term in
the singular number and vice versa.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
PENTAIR, INC.
"BUYER")
By:
Winslow H. Buxton,
Chief Executive Officer and Chairman of the Board
FLECK CONTROLS, INC.
("COMPANY")
By:
Andrew J. Fleckenstein,President and Chairman of the Board
John L. Fleckenstein, Susan M. Fleckenstein,
Carolyn Scott, Paul Fleckenstein, Mark Fleckenstein, Andrew J.
Fleckenstein 1988 Children's Trust F/B/O Paul Fleckenstein,
Andrew J. Fleckenstein 1988 Children's Trust F/B/O Carolyn
Scott, Andrew J. Fleckenstein 1993 Children's Trust F/B/O
Susan M. Fleckenstein, Andrew J. Fleckenstein 1993 Children's
Trust F/B/O Carolyn Scott, Andrew J. Fleckenstein 1993
Children's Trust F/B/O Paul Fleckenstein, Andrew J.
Fleckenstein 1993 Children's Trust F/B/O John L. Fleckenstein
and Andrew J.Fleckenstein 1993 Children's Trust F/B/O Mark A.
Fleckenstein ("SHAREHOLDERS")
By:
Andrew J. Fleckenstein,
Shareholders' Agent
Andrew J. Fleckenstein, individually
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT TO STOCK PURCHASE
AGREEMENT By and Among PENTAIR, INC.,
FLECK CONTROLS INC., and SHAREHOLDERS
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT is made and
entered into as of the 1st day of November, 1995 between Pentair, Inc.,
a Minnesota corporation("Buyer"), Fleck Controls, Inc., a Wisconsin
corporation ("Company"), and the Individuals and Trusts listed on the
signature page hereof (the "Shareholders").
WHEREAS, the parties entered into the Stock Purchase Agreement By and Among
Buyer, the Company and Shareholders dated October 16, 1995 (the "Agreement");
WHEREAS, the parties desire to modify the payment terms set forth in
Subparagraphs 2.2.(a), (b) and (d) of that Agreement;
WHEREAS, the parties desire to add certain ancillary provisions to the
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenantsand conditions herein contained, the parties agree as follows:
1. Subparagraph 2.2.(a) of the Agreement shall be amended to read in its
entirety as follows:
2.2.(a) Note to Escrow Agent. At the Closing, Buyer shall deliver
to the Escrow Agent, under the Escrow Agreement (as defined in Subparagraph
5.2.(a)), a note in the amount of Ten Million Dollars ($10,000,000) in
substantially the form of Exhibit 2.2.(a) attached hereto.
2. Subparagraph 2.2.(b) of the Agreement shall be amended to read in its
entirety as follows:
2.2.(b) Notes to Shareholders' Agent. At the Closing, Buyer shall
deliver to the Shareholders' Agent notes to the Shareholders for an amount
equal to their respective shares of the Purchase Price, in the
aggregate amount of:
(1) The Net Book Value on the Recent Balance Sheet,
(2) plus/minus the increase/decrease in the Net Book
Value from the Recent Balance Sheet to the Estimated Closing
Balance Sheet (as hereinafter defined),
(3) plus $99,349,957,
(4) less the amount set forth in the note delivered to the
Escrow Agent pursuant to Subsection 2.2.(a) above,
in substantially the form of Exhibit 2.2.(b) attached hereto.
3. Subparagraph 2.2.(d) of the Agreement shall be amended to read in its
entirety as follows:
2.2.(d) Method of Payment. All payments made pursuant to the
notes described in Subparagraphs 2.2.(a) and (b) above shall be made
by wire transfer of immediately available funds to an account
designated by the recipient. Attached as Schedule 2.2.(d) is a
sample Flow of Funds Memorandum as of the date hereof.
4. Subparagraph 9.1.(g) shall be added to the Agreement to read in its
entirety as follows:
9.1.(g) Stock Pledge Agreement. A Stock Pledge Agreement in
the form of Exhibit J hereto, securing the payment of the notes to
be delivered pursuant to Subparagraphs 2.2.(a) and (b) hereof.
5. Subparagraph 9.1.(h) of the Agreement shall be amended to read in its
entirety as follows:
9.1.(h) Other Documents. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closin
pursuant to this Agreement and such other certificates of authority
and documents as Buyer may reasonably request.
6. Subparagraph 9.2.(e) shall be added to the Agreement to read in its
entirety as follows:
9.2.(e) Promissory Notes. Those notes required by
Subparagraphs 2.2.(a) and (b).
7. Subparagraph 9.2.(f) shall be added to the Agreement to read in its
entirety as follows:
9.2(f) Stock Pledge Agreement. A Stock Pledge Agreement in
the form of Exhibit J hereto, securing the payment of the notes to be
delivered pursuant to Subparagraphs 2.2.(a) and (b) hereof, together
with certificates representing all of the shares of stock of the
Company, with duly executed stock powers attache
8. Subparagraph 9.2.(g) of the Agreement shall be amended to read in its
entirety as follows:
9.2.(g) Other Documents. All other documents, instruments or
writings required to be delivered to Company at or prior to the
Closing pursuant to this Agreement and such other certificates of
authority and documents as Company may reasonably request.
9. Subparagraph 12.8.(c) shall be added to the Agreement to read in its
entirety as follows:
12.8.(c) Substitute Collateral. At the request of Shareholders'
Agent, Buyer shall obtain and deliver to the Shareholders' Agent
Letters of Credit or other instruments, in such amount, issued by
such persons and in such form as he may deem acceptable, as security
for the payment thereof by Buyer, the cost obtaining any and all
such collateral instruments shall be paid by Shareholde
10. Subparagraph 12.8.(d) of the Agreement shall be amended to read in
its entirety as follows:
12.8.(c) Other. Except as otherwise provided herein, each of
the parties shall bear its own expenses and the expenses of its
counsel and other agents in connection with the transactions
contemplated hereby.
IN WITNESS WHEREOF, each party has caused this Amendment to Stock
Purchase Agreement to be executed by its authorized officer or agent as of
the date first above written.
PENTAIR, INC. FLECK CONTROLS, INC.
By: _____________________________ By: _____________________________
Its: __________________________ Its: _____________________
John L. Fleckenstein, Susan M. Fleckenstein, Carolyn
Scott, Paul Fleckenstein, Mark Fleckenstein, Andrew J.
Fleckenstein 1988 Children's Trust F/B/O Paul
Fleckenstein, Andrew J. Fleckenstein 1988 Children's
Trust F/B/O Carolyn Scott, Andrew J. Fleckenstein 1993
Children's Trust F/B/O Susan M. Fleckenstein, Andrew J.
Fleckenstein 1993 Children's Trust F/B/O Carolyn Scott,
Andrew J. Fleckenstein 1993 Children's Trust F/B/O Paul
Fleckenstein, Andrew J. Fleckenstein 1993 Children's
Trust F/B/O John L. Fleckenstein and Andrew J.
Fleckenstein 1993 Children's Trust F/B/O Mark A.
Fleckenstein, ("SHAREHOLDERS")
By: ________________________________
Andrew J. Fleckenstein,
Shareholders' Agent
_________________________________
Andrew J. Fleckenstein, individually
EXHIBIT 4.1
NON-NEGOTIABLE PROMISSORY NOTE
$
November 1, 1995
FOR VALUE RECEIVED, Pentair, Inc., a
Minnesota corporation, promises to pay to
_______________, at 777 East Wisconsin Avenue,
Milwaukee, Wisconsin ("Holder"), the principal sum
of _________________________________________ Dollars
($_____________), payable on the 3rd day
of January, 1996.
The principal shall bear interest computed
at a rate equal to 4% per annum, payable at
maturity. Principal amounts unpaid at the maturity
thereof shall bear interest from and after maturity until
paid at a rate per annum equal to the rate announced
by M & I Marshall & Ilsley Bank, Milwaukee,
Wisconsin, as its prime rate, plus 2%. Principal of
and interest on this Note shall be payable in lawful
money of the United States. Prepayment of this Note
shall not be allowed.
The Holder of this Note shall have the right
to sell, transfer, assign or otherwise dispose of
this Note to a third party upon such terms and
conditions as may be agreed to between the Holder and such
third party, provided that such third party shall
represent to the Holder thatit is acquiring this Note for the
purpose of investment and not with a view to the
resale or distribution thereof, and that any subsequent sale
or transfer of this Note by such third party will be made
in compliance with the Securities Act of 1933, as
amended, and any applicable state securities laws.
The maker of this Note acknowledges such right and
agrees that, upon its receipt of written notice of
any such transfer from the Holder delivered not less than
2 business days prior to the due date hereof, setting
forth the name and address of the transferee, it will make
payment under this Note directly to the transferee.
PENTAIR, INC.
By: ________________________
Winslow H. Buxton
Chief Executive Officer
(NO CORPORATE SEAL)
And: ________________________
Roy T. Rueb
Secretary
EXHIBIT 99
NEWS RELEASE DATED NOVEMBER 1, 1995
PENTAIR COMPLETES PURCHASE OF FLECK CONTROLS, INC.
ST. PAUL, MINNESOTA -- November 1, 1995 -- Pentair,
Inc. today announced it has completed the purchase of Fleck Controls,
Inc. of Brookfield, Wisc. for approximately $130 million.
Fleck Controls designs, manufactures and markets control valves
which are major components in residential water softeners, and
commercial and industrial water conditioning systems. The headquarters
and main manufacturing facility of the privately held company are
located in the Milwaukee suburb of Brookfield, Wisconsin. The Fleck
Europe facility is located in Buc, France, about 35 miles southwest of Paris.
The company employs about 260 people in Brookfield and 50 in Buc.
Pentair is a St. Paul, Minnesota-based company with
1994 continuing operations sales of $1.3 billion and approximately
9,000 employees. The company sold its Paper Group businesses
in the second quarter of 1995 to focus on the growth and development
of its industrial businesses which manufacture enclosures for electrical and
electronic equipment; woodworking equipment; power tools; pumps; water
conditioning control valves; sporting ammunition; automotive service equipment;
and industrial lubrication systems and material dispensing equipment.
Pentair stock is quoted on the NASDAQ National System under the
symbol: PNTA.
