<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported) August 10, 1999
PENTAIR, INC.
(Exact Name of Registrant as specified in Its Charter)
MINNESOTA 001-11625 41-0907434
(State of Incorporation (Commission File (I.R.S. Employer
or Organization) Number) Identification No.)
1500 County Road B2 West, St. Paul, Minnesota 55113-3105
(Address of Principal Executive Offices) (Zip Code)
612.636.7920
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
ACQUISITION OF ESSEF CORPORATION
On August 10, 1999, Pentair, Inc. (the "Company") acquired all of the
outstanding capital shares of Essef Corporation ("Essef") which currently
operates two businesses, Structural Fibers and Pac-Fab. A third business
formerly owned by Essef, Anthony & Sylvan, was split off to Essef
shareholders at the time of the acquisition. The acquisition price was $310
million. The Company also refinanced approximately $120 million of Essef
indebtedness. The Essef acquisition will be accounted for using the purchase
method of accounting. Sales and operating income for the Structural and Pac-
Fab businesses were $296 million and $26 million, respectively, for Essef's
fiscal year ended September 30, 1998 and were $261 million and $28 million,
respectively, for Essef's first three quarters ended June 30, 1999.
Structural Fibers designs, manufactures and distributes products used in
moving, treating and storing water, including pumps, storage tanks and
filtration systems for residential, commercial, municipal and industrial
customers. Pac-Fab is a leading manufacturer of pool and spa equipment used
in residential and commercial applications. These two businesses will expand
the Company's water segment product offerings to include tanks and filtration
systems, and extend the Company's distribution channels to include the pool
and spa markets. The Company believes the acquisition of these businesses
will significantly strengthen its position in global water markets and in the
residential and industrial water equipment business.
The Company intends to pursue cost-saving opportunities in integrating the
newly acquired Structural Fibers and Pac-Fab business into its Water and
Fluid Technologies Segment, including:
- streamlining management in the water treatment business;
- rationalizing facilities;
- leveraging its ongoing supply management program to reduce
purchase costs for motors and resins;
- outsourcing certain products to Asia, as is currently done
for some existing water segment products;
- combining pumps, filters and other equipment currently
utilized by Pac-Fab in its pool markets to provide for
industrial water systems; and
- integrating the North American and European operations of
Structural and Fleck, the Company's water control valve
business.
The foregoing description of the Essef acquisition does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Exhibit 2.1 to this report. A copy
of the press release, dated August 10, 1999, issued by Pentair, Inc.
regarding the closing of the
<PAGE>
Essef acquisition is attached as Exhibit 99.3.
ITEM 5. OTHER MATTERS
I. ACQUISITION OF DEVILBISS AIR POWER COMPANY.
On August 13, 1999, the Company announced an agreement to purchase from
Falcon Building Products, Inc. ("Falcon") all of the stock of Falcon
Manufacturing, Inc., the parent company of DeVilbiss Air Power Company
(Falcon Manufacturing, Inc. and DeVilbiss Air Power Company, together
"DeVilbiss" ) for a cash purchase price of $460 million. The DeVilbiss
acquisition will be accounted for using the purchase method of accounting.
Sales and operating income before corporate charges and interest expense of
DeVilbiss were $389 million and $32 million respectively for the year ended
December 31, 1998 and were $269 million and $30 million respectively for
DeVilbiss' six months ended June 30, 1999.
DeVilbiss is a leading manufacturer of a broad line of air compressors,
portable generators, pressure washers and accessories. Its products are sold
to the retail, commercial, contractor and "do-it-yourself" markets under
brand names such as Air America-Registered Trademark-, Charge Air
Pro-Registered Trademark-, Ex-Cell-Registered Trademark- and Pro Air
II-Registered Trademark-. The acquisition of DeVilbiss will significantly
expand the Company's tools segment product line and will make it the
second-largest supplier in the rapidly growing retail channel for power tools
and equipment. The Company believes it will be able to realize synergies from
this acquisition by leveraging Pentair's in-house retail sales force to
increase account penetration and the number of accounts served. As well,
Pentair intends to introduce these acquired products into wholesale
industrial and automotive service markets not currently served by DeVilbiss.
The Company expects to be able to generate significant cost savings from this
acquisition, including:
- consolidating physical distribution resulting in
significant freight and overhead cost savings, as well as
improved customer and delivery services;
- combining headquarters and administrative functions to
reduce costs;
- using Pentair's purchasing and sourcing capabilities
through Delta and Porter-Cable's existing organizations in
the Far East to lower product costs; and
- servicing DeVilbiss products through Porter-Cable's
existing network to increase service and productivity and
reduce costs.
The closing of this acquisition is currently expected to occur in September
1999, subject to the satisfaction of certain customary conditions.
The foregoing description of the DeVilbiss acquisition does not purport to be
complete and is qualified in its entirety by reference to the Stock Purchase
Agreement, a copy of which is attached as Exhibit 2.4 to this report. A copy
of the press release, dated August 13, 1999, issued by Pentair, Inc.
regarding the agreement to acquire DeVilbiss is attached as Exhibit 99.4 to
this report.
<PAGE>
II. ACQUISITION AND OTHER FINANCINGS
MORGAN BRIDGE LOAN
On August 2, 1999, the Company entered into a $400 million Bridge Loan
Agreement with Morgan Guaranty Trust Company of New York (the "Morgan Bridge
Loan") that together with approximately $30 million from the Company's
regular revolving credit facilities was used to finance the Essef
acquisition. The Morgan Bridge Loan accrues interest at a floating rate equal
to LIBOR plus a variable margin. The margin is 1.25% through September 30,
1999, increasing to 1.75% from October 1 to November 30, 1999 (or, if the
amount outstanding on October 1 is $200 million or less, increasing to 1.5%),
and increasing by an additional 1% from December 1, 1999 through maturity.
The current interest rate under the Morgan Bridge Loan is 6.56%. The Morgan
Bridge Loan matures on March 30, 2000; however it is required to be paid down
in the event of any prior sale of assets or new issuance of debt or equity.
Under the terms of the Morgan Bridge Loan, the Company will be restricted
from making additional acquisitions over $25 million until that financing is
paid off; however, the lender has consented to the pending DeVilbiss
acquisition. A copy of the Morgan Bridge Loan was filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended June 26, 1999,
filed August 4, 1999.
PENDING DEVILBISS BRIDGE LOAN
The Company has arranged for a commitment from Bank of America N.A. and First
National Bank of Chicago for a $400 million bridge facility (the "DeVilbiss
Bridge Loan") that will be used to partially finance the DeVilbiss
acquisition. Definitive loan documentation for the DeVilbiss Bridge Loan is
being drafted and negotiated; under the terms of the commitment the DeVilbiss
Bridge Loan will only be able to be drawn upon through September 15, 1999, by
which time the Company's expanded credit facilities discussed below are
anticipated to be available. The Company expects that the DeVilbiss Bridge
Loan will provide for floating rates of interest depending upon the type of
loan selected by the Company, the duration of the interest period selected
and the debt rating of the Company's senior debt. The Company expects that
annual interest rates will increase on the 61st day after closing of the loan
by .5%, and will increase on the 91st day after closing by an additional 1%.
The Company further expects that the DeVilbiss Bridge Loan will mature six
months after it is entered into; however it will likely be required to be
paid down prior to such date upon the completion of refinancing of the
Company's existing $390 million credit facilities. In addition to the
DeVilbiss Bridge Loan, the Company intends to use approximately $50 million
from the U.S. Bank Loan discussed below and any remaining needed funds from
the Company's existing revolving credit facilities to finance the closing of
the DeVilbiss acquisition. If the refinancing of these credit facilities is
completed before the closing of the DeVilbiss acquisition, the DeVilbiss
Bridge Loan will not be utilized and the new credit facilities will provide
all needed funds for the acquisition.
U.S. BANK LOAN
On August 13, 1999, the Company entered into a new $100 million revolving
credit agreement with certain banks and U. S. Bank National Association, as
agent (the "U.S. Bank Loan"). The U.S. Bank Loan provides for floating rates
of interest depending upon the type of loan selected by the Company, the loan
amounts outstanding on October 1, 1999 and December 1, 1999, the duration of
the interest period selected, the rating of the Company's long-term senior
unsecured debt assigned by Standard & Poor's Ratings Group and Moody's
Investor Service, Inc. and an applicable margin, if higher, with respect to
certain new debt. The U.S. Bank Loan matures on March 30, 2000; provided,
that
<PAGE>
the bank's commitment will be permanently reduced by $50 million prior to
maturity upon completion of a refinancing of the Company's existing $390
Million Revolving Credit Facilities (described below), and related borrowings
repaid, and the bank's commitment will be permanently reduced by $50 million
prior to maturity upon any new issuance of debt or equity, and related
borrowings repaid. A copy of the U.S. Bank Loan is included herewith as
Exhibit 10.2.
AMENDMENTS TO $390 MILLION CREDIT FACILITIES
Also, as of August 13, 1999, the Company amended its two existing credit
facility agreements. The Company has a $365 million revolving credit facility
with certain banks (the $365 Million Credit Facility") and a $25 million
revolving credit facility with U.S. Bank (the "$25 Million Credit Facility")
(collectively, the "$390 Million Credit Facilities"). The amendments
increased the rate of interest and fees payable under the facilities and
changed some of the Company's financial covenants. The amendments provide for
floating rates of interest depending upon the type of loan selected by the
Company, the duration of the interest period selected, the ratings of the
Company's long-term, senior unsecured debt assigned by Standard and Poor's
Ratings Group and Moody's Investor Service, Inc. and in the case of the $25
Million Credit Facility, the amount outstanding on October 1, 1999 and
December 31, 1999. The amendments also replace the "long-term debt to total
capital" ratio with new "debt to EBITDA" (earnings before interest, taxes,
depreciation and amortization) ratio and a "minimum coverage" ratio. The new
coverage covenants measure the Company's cash flow compared to interest and
other fixed charges and focus on the Company's ability to repay loans out of
its operations. The Company's previous leverage ratios measured its relative
indebtedness compared to its long-term capitalization. In addition, the $25
Million Credit Facility was amended to terminate on March 30, 2000, but is
required to be terminated prior to such date upon any new issuance of debt or
equity. A copy of the amendments to the existing $365 Million Credit Facility
and the $25 Million Credit Facility are included herewith as Exhibits 4.1 and
10.3.
PENDING $800 MILLION CREDIT FACILITIES
The Company has entered into a commitment letter with its current lenders and
others and is in the process of negotiating definitive loan documentation for
two new credit facilities aggregating $800 million, consisting of a five-year
$425 million revolving credit facility (the "$425 Million Revolver") and a
new 364-day $375 million revolving credit facility (the $375 Million
Revolver") (the $425 Million Revolver and the $375 Million Revolver together,
the "New Revolving Credit Facilities"). The New Revolving Credit Facilities
would entirely replace the existing $390 Million Credit Facilities. The New
Revolving Credit Facilities would be used in part to repay the $400 Million
DeVilbiss Bridge Loan (unless the New Revolving Credit Facilities are
completed prior to the closing of the acquisition of DeVilbiss in which case
the New Revolving Credit Facilities will be used to fund the acquisition of
DeVilbiss) and any amounts borrowed under the U.S. Bank Loan and to refinance
existing loans under the $390 million credit facilities. The balance would be
used to fund ongoing operations. The Company expects to complete this
refinancing during the third quarter of 1999.
EFFECTS OF RECENT AND PENDING FINANCINGS
The Company's increased debt levels as a result of the borrowings described
above may affect certain other five to seven year fixed-rate term loan
financing agreements entered into by the Company in the years from 1992 to
1999. The Company has some flexibility in order to maintain compliance with
its
<PAGE>
financial covenants under these agreements. Under the most restrictive of
these agreements, the Company will have to maintain its debt to total capital
ratio below 65%.
The Morgan Bridge Loan, the DeVilbiss Bridge Loan, the U.S. Bank Loan and the
Company's existing $390 Million Credit Facilities will be sufficient to fund
the Essef and DeVilbiss acquisitions and for the Company to finance its
normal operating needs for the balance of the year, including working
capital, capital expenditures, dividends and small acquisitions. The Morgan
Bridge Loan, the U.S. Bank Loan and the $25 Million Credit Facility mature on
March 30, 2000 and it is expected that the DeVilbiss Bridge Loan will mature
at approximately the same time. By that date, the Company currently intends
to refinance these loans through the New Revolving Credit Facilities and
completion of debt and/or equity offerings. If the Company is unable to do so
before maturity of these loans, it will be required to seek alternative
financing arrangements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The financial statements required to be filed for Essef
Corporation are included herewith as Exhibit 99.1
The financial statements required to be filed for Falcon
Manufacturing, Inc. are included herewith as Exhibit 99.2
(b) Pro Forma Financial Information
The following unaudited pro forma combined condensed financial
information of Pentair, Inc. and subsidiaries, reflecting the
acquisition of Essef Corporation and the pending acquisition
of Falcon Manufacturing, Inc., the parent of DeVilbiss Air
Power Company, are filed herewith:
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements
Unaudited Pro Forma Combined Condensed Statement of Income
for the year ended December 31, 1998
Unaudited Pro Forma Combined Condensed Statement of Income
for the Six Months Ended June 26, 1999
Unaudited Pro Forma Combined Condensed Balance Sheet as of
June 26, 1999
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
(c) Exhibits:
<PAGE>
See the Exhibit Index following the signature page of this
Report, which is incorporated herein by reference.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed financial statements (the pro
forma statements) contained herein give effect to the following transactions
and events: (i) the Company's acquisition of all of the stock of Essef for a
cash purchase price of approximately $310 million and (ii) the Company's
pending acquisition of the stock of DeVilbiss for a cash purchase price of
approximately $460 million.
The pro forma statements are based on the estimates and assumptions set forth
in the notes to such pro forma statements. The pro forma statements have been
prepared using the purchase method of accounting whereby the total cost of
the Essef acquisition and the pending DeVilbiss acquisition has been
allocated to the tangible and intangible assets acquired and liabilities
assumed based on their respective fair values at the effective date of the
acquisition, assumed for purposes of the pro forma information to be
approximated by historical values. Such allocations ultimately will be based
on further management studies and due diligence. Accordingly, the allocations
reflected in the pro forma statements are preliminary and subject to
revision. It is not expected that the final allocation of purchase price will
produce results materially different from those presented herein.
These pro forma statements have been prepared by the Company utilizing the
historical audited annual financial statements and unaudited interim
financial statements of Essef, DeVilbiss and the Company. See Note 1 of Notes
to Unaudited Pro Forma Combined Condensed Financial Statements for a
description of the periods combined.
The pro forma statements have been adjusted to reflect the effects of the
Essef acquisition and the pending DeVilbiss acquisition and to eliminate
interest expense on Falcon advances and certain duplicative general and
administrative costs, summarized in Notes 3 and 4 of Notes to Unaudited Pro
Forma Combined Condensed Financial Statements. No other pro forma effect has
been given to operational or other synergies that may be realized from these
acquisitions. Additional acquisitions made by the Company and Essef in 1998
and 1999 are not considered in the pro forma statements because they do not
constitute significant business combinations, individually or in the
aggregate, and disclosure is not deemed material.
These pro forma statements are presented for illustrative purposes only and
are not necessarily indicative of the operating results or financial position
that might have been achieved had the transactions occurred as of an earlier
date, nor are they necessarily indicative of operating results or financial
position that may occur in the future. The pro forma statements do not,
therefore, project the Company's financial position or results of operations
for any future date or period. These pro forma statements should be read in
conjunction with the historical consolidated financial statements and notes
thereto of Pentair which were contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, filed March 12, 1999,
the unaudited condensed consolidated financial statements and notes thereto
of Pentair contained in the Company's Form 10-Q for the three and six month
periods ended June 26, 1999, filed August 4, 1999, and the historical
financial statements and notes thereto of Essef and DeVilbiss which are
included herewith as Exhibits 99.1 and 99.2, respectively.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Statements Pro Forma
------------------------------------------------ Pro Forma Combined
Pentair DeVilbiss Essef Adjustments Statement
-------------- -------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,937.6 $ 389.1 $ 302.8 $ (8.1)(a) $ 2,621.4
-------------- -------------- -------------- ---------------- ---------------
Operating costs:
Cost of goods sold 1,330.3 327.6 219.7 (8.1)(a) 1,869.5
Selling, general and administrative 414.1 29.6 56.3 10.6 (b)(c) 510.6
-------------- -------------- -------------- ---------------- ---------------
Total operating costs 1,744.4 357.2 276.0 2.5 2,380.1
-------------- -------------- -------------- ---------------- ---------------
Operating income 193.2 31.9 26.8 (10.6) 241.3
Interest expense - net (22.3) (7.1) (61.6)(e) (91.0)
Other income/(expense) (26.8) 26.8 (d) -
-------------- -------------- -------------- ---------------- ---------------
Income before income taxes 170.9 5.1 19.7 (45.4) 150.3
Provision for income taxes 64.1 2.2 6.6 (11.3)(f) 61.6
-------------- -------------- -------------- ---------------- ---------------
Income from continuing operations $ 106.8 $ 2.9 $ 13.1 $ (34.1) $ 88.7
-------------- -------------- -------------- ---------------- ---------------
-------------- -------------- -------------- ---------------- ---------------
Basic earnings from continuing
operations per share $ 2.67 $ 2.20
Diluted earnings from continuing
operations per share $ 2.46 $ 2.04
Weighted average shares (000's)
Outstanding 38,444 38,444
Outstanding assuming dilution 43,149 43,149
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 26, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical Statements Pro Forma
---------------------------------------------- Pro Forma Combined
Pentair DeVilbiss Essef Adjustments Statement
------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 977.7 $ 269.4 $ 199.4 $ (8.1)(a) $ 1,438.4
------------ -------------- -------------- -------------- --------------
Operating costs:
Cost of goods sold 667.9 218.3 142.2 (8.1)(a) 1,020.3
Selling, general and administrative 211.8 21.0 30.9 4.6 (b)(c) 268.3
Restructuring charge 38.0 38.0
------------ -------------- -------------- -------------- --------------
Total operating costs 917.7 239.3 173.1 (3.5) 1,326.6
------------ -------------- -------------- -------------- --------------
Operating income 60.0 30.1 26.3 (4.6) 111.8
Interest expense - net (12.0) (4.2) (30.8)(e) (47.0)
Other income/(expense) (12.1) 12.1 (d) -
------------ -------------- -------------- -------------- --------------
Income before income taxes 48.0 18.0 22.1 (23.3) 64.8
Provision for income taxes 17.5 7.1 8.5 (6.4)(f) 26.7
------------ -------------- -------------- -------------- --------------
Income from continuing operations $ 30.5 $ 10.9 $ 13.6 $ (16.9) $ 38.1
------------ -------------- -------------- -------------- --------------
------------ -------------- -------------- -------------- --------------
Basic earnings from continuing
operations per share $ 0.72 $ 0.90
Diluted earnings from continuing
operations per share $ 0.71 $ 0.88
Weighted average shares (000's)
Outstanding 42,433 42,433
Outstanding assuming dilution 43,056 43,056
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 26, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- Pro Forma Combined
Pentair DeVilbiss Essef Adjustments Statement
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 41.6 $ 0.1 $ 4.5 $ 46.2
Accounts and notes receivable 419.6 62.2 $ 102.5 (g) 584.3
Inventories 292.8 55.5 47.6 395.9
Other current assets 56.9 7.9 3.2 68.0
------------- ------------ ------------ -------------- -------------
Total current assets 810.9 63.5 117.5 102.5 1,094.4
Net property, plant and equipment 301.1 36.1 67.5 404.7
Goodwill 497.1 18.0 48.6 562.1 (g) 1,125.8
Other assets 60.5 0.6 9.9 71.0
Net long-term assets of discontinued operations 35.9 (35.9)(g) -
------------- ------------ ------------ -------------- -------------
Total assets $ 1,669.6 $ 118.2 $ 279.4 $ 628.7 $2,695.9
------------- ------------ ------------ -------------- -------------
------------- ------------ ------------ -------------- -------------
Current liabilities:
Accounts and notes payable $ 129.2 $ 45.2 $ 26.0 $ 200.4
Other accrued liabilities 218.5 25.3 35.7 279.5
Current maturities of long-term debt 47.8 0.1 0.3 48.2
Net current liabilities of discontinued 3.9 $ (3.9)(g)
operations ------------- ------------ ------------ -------------- -------------
Total current liabilities 395.5 70.6 65.9 (3.9) 528.1
Long-term debt 370.7 0.2 113.3 770.0 (h) 1,254.2
Other liabilities 178.5 5.3 4.9 - 188.7
Advances from parent 30.4 (30.4)(g) -
------------- ------------ ------------ -------------- -------------
Total liabilities 944.7 106.5 184.1 735.7 1,971.0
Shareholders' equity:
Common stock - par value, $.16 2/3 authorized
250,000,000; issued and
outstanding 42,677,375 7.1 7.1
Additional paid-in capital 237.2 237.2
Accumulated other comprehensive income (5.4) (5.4)
Retained earnings 486.0 11.7 95.3 (107.0)(g) 486.0
------------- ------------ ------------ -------------- -------------
Total shareholders' equity 724.9 11.7 95.3 (107.0) 724.9
------------- ------------ ------------ -------------- -------------
Total liabilities and shareholders' equity $ 1,669.6 $ 118.2 $ 279.4 $ 628.7 $2,695.9
------------- ------------ ------------ -------------- -------------
------------- ------------ ------------ -------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
NOTE 1 - PERIODS COMBINED
The Pentair consolidated statements of income for the six months ended June
26, 1999 (unaudited) and for the year ended December 31, 1998 have been
combined with the DeVilbiss consolidated statements of income for the six
months ended June 30, 1999 (unaudited) and for the year ended December 31,
1998, and with the Essef consolidated statements of income for the six months
ended June 30, 1999 (unaudited) and for the twelve months ended December 31,
1998. The Pentair and DeVilbiss fiscal years end on December 31 and Essef's
fiscal year ends on September 30. Essef's historical consolidated statement
of income was conformed to Pentair's fiscal year by adding Essef's December
31, 1998 quarterly results to, and subtracting its December 31, 1997
quarterly results from, its September 30, 1998 consolidated statements of
income amounts. Pentair's June 26, 1999 unaudited consolidated balance sheet
has been combined with DeVilbiss's and Essef's June 30, 1999 unaudited
consolidated balance sheets.
NOTE 2 - BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Income Statements assume the pending
acquisition of DeVilbiss and the acquisition of Essef occurred on January 1,
1998. The Unaudited Pro Forma Combined Balance Sheet assumes the acquisitions
occurred on June 26, 1999. The pro forma statements exclude the effect of
Essef's discontinued Anthony & Sylvan operations, which were split off to
Essef's shareholders immediately prior to Pentair's purchase of Essef.
Additional acquisitions made by the Company and Essef in 1998 and 1999 are
not considered in the pro forma statements because they do not constitute
significant business combinations, individually or in the aggregate, and
disclosure is not deemed material.
NOTE 3 - PRO FORMA INCOME STATEMENT ADJUSTMENTS
The following pro forma adjustments are incorporated in the unaudited pro
forma combined condensed statements of income as a result of the pending
acquisition of DeVilbiss and the acquisition of Essef:
(a) Elimination of DeVilbiss sales and cost of sales to Pentair.
(b) Reflects the elimination of cost allocations of $3.5 million and $2.4
million for the periods ended December 31, 1998 and June 26, 1999,
respectively, from Essef's prior corporate structure for services such
as treasury, corporate administration, and public relations which
Pentair provides for its subsidiaries, which will not result
in additional costs to the Company after the acquisition.
<PAGE>
(c) Reflects amortization of incremental goodwill of $315.4 million and
$246.7 million (see Note 4) associated with the pending DeVilbiss
acquisition and the Essef acquisitions, respectively, over 40 years:
<TABLE>
<CAPTION>
Six months
Year ended ended
12/31/98 6/26/99
---------------- -----------------
<S> <C> <C>
DeVilbiss $ 7.9 $ 3.9
Essef 6.2 3.1
---------------- -----------------
$ 14.1 $ 7.0
---------------- -----------------
---------------- -----------------
</TABLE>
(d) Reflects the elimination of cost allocations from Falcon for interest
expense on Falcon advances and for services such as treasury, corporate
administration, and public relations which Pentair provides for its
subsidiaries, which will not result in additional costs to the Company
after the acquisition.
(e) Reflects incremental interest expense and financing fees at an expected
average interest rate of 7.5% on borrowings of $770 million (the cash
acquisition price for Essef and DeVilbiss) incurred as shown in Note 4,
plus refinanced long-term debt of Essef. Also reflects an increase in
interest rates of 1% on other outstanding floating rate debt of the
Company due to an increase in the Company's debt leverage.
(f) Decrease in income taxes (net benefit) applying the Company's
anticipated effective tax rates for DeVilbiss and Essef of 38% and 39%
to their respective earnings, less the effect of pro forma adjustments
(a) through (e) above, except for goodwill amortization in (c) which is
not deductible.
NOTE 4 - PRO FORMA BALANCE SHEET ADJUSTMENTS
The following pro forma adjustments are incorporated in the unaudited pro
forma combined condensed balance sheet as a result of the acquisitions of the
pending acquisition of DeVilbiss and the acquisition of Essef:
(g) Reflects the allocation of the purchase prices for the pending DeVilbiss
acquisition and the Essef acquisition, adds the purchase of securitized
accounts receivable of DeVilbiss from Falcon according to the terms of
the purchase agreement, eliminates advances from Falcon that will be
settled as part of the purchase price,
<PAGE>
eliminates the net assets of the discontinued operations of Anthony &
Sylvan that were not acquired, and eliminates the investment in
the acquired companies.
<TABLE>
<CAPTION>
DeVilbiss Essef Total
--------------- ------------------------------
<S> <C> <C> <C>
Net assets - as reported $ 11.7 $ 95.3 $ 107.0
Add securitized accounts
receivable acquired
from Falcon 102.5 102.5
Add advances from Falcon 30.4 30.4
Less: net assets of discontinued
operations (32.0) (32.0)
--------------- ------------------------------
Net assets - acquired 144.6 63.3 207.9
Fair value adjustments:
Record incremental goodwill acquired 315.4 246.7 562.1
--------------- ------------------------------
Investment in DeVilbiss and Essef $ 460.0 $ 310.0 $ 770.0
--------------- ------------------------------
--------------- ------------------------------
</TABLE>
For purposes of these allocations, we have assumed that the fair values
of the net assets in the pending DeVilbiss acquisition and the Essef
acquisition are approximated by historical values, and thus have made
no fair value adjustments. Such allocations ultimately will be based on
further management studies and due diligence. Accordingly these
allocations are preliminary and subject to revision.
(h) Reflects an estimated purchase price of $460 million for the pending
DeVilbiss acquisition and a purchase price of $310 million for the
Essef acquisition.
CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS
The information set forth above in this Current Report on Form 8- K
contains statements that are "forward-looking" in nature. Forward- looking
information or statements include statements about the future of the
industries represented by the Company's operating groups, statements about
the Company's future business plans and strategies, expectations about
industry and market growth and developments, expectations about the Company's
growth and profitability and other statements that are not historical in
nature. Many of these statements contain words such as "may," "will,"
"expect," "believe," "intend," "anticipate," "estimate" or "continue" or
other similar words.
Because forward-looking statements involve future risks and
uncertainties, there are many factors that could cause actual results to
differ materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward- looking statements
include:
- changes in industry conditions, such as
- the strength of product demand;
- the intensity of competition;
- pricing pressures;
- market acceptance of new product introductions;
- the introduction of new products by competitors;
<PAGE>
- the continuing ability to source components from third
parties without interruption and at reasonable prices;
and
- the financial condition of customers;
- changes in the Company's business strategies;
- general economic conditions, such as the rate of economic growth
in the Company's principal geographic markets or fluctuations in
exchange rates;
- changes in operating factors, such as continued improvement in
manufacturing activities and the achievement of related
efficiencies and inventory risks due to shifts in market demand;
and
- the Company's ability to accurately evaluate the effects of
contingent liabilities such as taxes, product liability and other
liabilities.
The Company cannot predict the actual effect these factors will have
on its results and many of the factors and their effects are beyond its
control. In addition, the Company is under no duty to update any of the
forward-looking statements after the date of this report to conform these
statements to actual performance or results. Given these uncertainties, these
forward-looking statements should not relied upon too heavily in assessing
the Company's future financial condition and the results of its operations
and the material contingencies it faces.
SIGNATURE
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 hereunder duly authorized.
PENTAIR, INC.
Date: August 25, 1999 By: /s/ Richard W. Ingman
------------------------
Richard W. Ingman
Executive Vice President and
Chief Financial Officer
PENTAIR, INC.
EXHIBIT INDEX TO
FORM 8-K CURRENT REPORT
Date of Report: August 10, 1999
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated Herein by Filed
Number Description Reference to Herewith
------ ----------- ------------ --------
<S> <C> <C> <C>
2.1 Agreement and Plan of Merger dated as of April 30, 1999 among x
Pentair, Inc., Northstar Acquisition Company and Essef
Corporation. (In accordance with SEC rules, schedules and exhibits
to the Agreement and Plan of Merger, which are referenced therein
are omitted. Such schedules and exhibits will be furnished
supplementally to the SEC upon request.)
2.2 Transition Agreement dated as of April 30, 1999 among Essef x
Corporation, Anthony & Sylvan Pools Corporation and Pentair, Inc.
(In accordance with SEC rules, the Disclosure Schedule to the
Transition Agreement is omitted. Such schedule will be furnished
supplementally to the SEC upon request.)
2.3 Tax Sharing Agreement dated as of April 30, 1999 among Pentair, x
Inc., Essef Corporation and Anthony & Sylvan Pools Corporation
2.4 Stock Purchase Agreement dated as of August 12, 1999 between x
Falcon Building Products, Inc. and Pentair, Inc. (In accordance
with SEC rules, certain schedules to the Agreement, which are
listed in the list of Schedules to the Agreement, are omitted.
Such schedules will be furnished supplementally to the SEC upon
request.)
4.1 First Amendment dated as of August 13, 1999 to the Amended and x
Restated Credit Agreement dated as of August 1, 1997 among
Pentair, Inc., EuroPentair GmbH, Pentair Canada, Inc., Bank of
America, N.A., U.S. Bank National Association, Morgan Guaranty
Trust Company of New York, NBD Bank, The Bank of Tokyo-Mitsubishi,
Ltd., ABN Amro Bank N.V. and Dresdner Bank AG.
<PAGE>
Exhibit Incorporated Herein by Filed
Number Description Reference to Herewith
------ ----------- ------------ --------
10.1 Bridge Loan Agreement dated as of July 27, 1999 among Pentair, Form 10-Q for the
Inc., the banks from time to time parties thereto and Morgan quarter ended June
Guaranty Trust Company of New York. 26, 1999.
10.2 Revolving Credit Agreement dated as of August 13, 1999 among x
Pentair, Inc., the banks or financial institutions from time to
time party thereto and U.S. Bank National Association as agent for
the banks.
10.3 Credit Agreement dated November 15, 1996 as amended and restated x
as of August 13, 1999 between Pentair, Inc. and U.S. Bank National
Association.
23.1 Consent of Deloitte & Touche LLP x
23.2 Consent of PricewaterhouseCoopers LLP x
99.1 Essef Corporation and Subsidiaries Consolidated Financial x
Statements as of and for the Year Ended September 30, 1998, and
Unaudited Condensed Consolidated Financial Statements as of
June 30, 1999 and for the Nine Month Periods ended June 30, 1999
and 1998.
99.2 Falcon Manufacturing, Inc. and Subsidiary Consolidated Financial x
Statements as of and for the Year Ended December 31, 1998, and
Unaudited Condensed Consolidated Financial Statements as of
June 30, 1999 and for the Six Month Periods ended June 30, 1999
and 1998.
99.3 Press Release dated August 10, 1999 x
99.4 Press Release dated August 13, 1999 x
</TABLE>
<PAGE>
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
APRIL 30, 1999
AMONG
PENTAIR, INC.,
NORTHSTAR ACQUISITION COMPANY
AND
ESSEF CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger...........................................................2
Section 1.2 Effective Time of the Merger.........................................2
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles.............................................................2
Section 2.2 Regulations..........................................................2
Section 2.3 Board of Directors; Officer..........................................2
Section 2.4 Effects of Merger....................................................2
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Shares of Company Common Stock.........................3
Section 3.2 Surrender and Payment................................................3
Section 3.3 Dissenting Shares....................................................5
Section 3.4 Stock Options........................................................5
Section 3.5 Shareholders' Meetings...............................................7
Section 3.6 Assistance in Consummation of the Merger.............................8
Section 3.7 Closing..............................................................8
Section 3.8 Filing of Certificate of Merger......................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.1 Organization and Qualification.......................................8
Section 4.2 Authority Relative to this Merger Agreemen...........................9
Section 4.3 Consents and Approvals; No Violations................................9
Section 4.4 Financial Advisor....................................................9
Section 4.5 Financing............................................................9
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Organization and Qualification......................................10
Section 5.2 Capitalization......................................................10
i
<PAGE>
Section 5.3 Subsidiaries........................................................10
Section 5.4 Authority Relative to this Merger Agreement.........................11
Section 5.5 Consents and Approvals; No Violations...............................11
Section 5.6 Reports and Financial Statements....................................12
Section 5.7 Absence of Certain Changes or Events................................12
Section 5.8 Litigation..........................................................12
Section 5.9 Information in Disclosure Documents.................................13
Section 5.10 Employee Benefit Plans..............................................13
Section 5.11 ERISA...............................................................14
Section 5.12 Company Action......................................................15
Section 5.13 Fairness Opinion....................................................15
Section 5.14 Financial Advisor...................................................15
Section 5.15 Compliance with Applicable Laws.....................................15
Section 5.16 Liabilities.........................................................16
Section 5.17 Taxes...............................................................16
Section 5.18 Certain Agreements..................................................17
Section 5.19 Patents, Trademark, Etc.............................................18
Section 5.20 Title to Assets; Liens..............................................18
Section 5.21 Required Vote.......................................................18
Section 5.22 Insurance...........................................................18
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by the Company Pending the Merger...............18
Section 6.2 Notice of Breach....................................................20
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information; Environmental and Year 2000 Compliance......20
Section 7.2 Shareholders'Meeting; Filings.......................................21
Section 7.3 Employment Arrangements.............................................21
Section 7.4 Employee Benefits...................................................21
Section 7.5 Indemnification.....................................................21
Section 7.6 Consents............................................................21
Section 7.7 Antitrust Filings...................................................21
Section 7.8 Additional Agreements...............................................21
Section 7.9 No Solicitation.....................................................21
Section 7.10 Split-Off of A&S....................................................21
Section 7.11 Confidentiality.....................................................21
ARTICLE VIII
CONDITIONS PRECEDENT
ii
<PAGE>
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger..........21
Section 8.2 Conditions to Obligation of the Company to Effect the Merger........21
Section 8.3 Conditions to Obligation of Parent and Sub to Effect the Merger.....21
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.........................................................21
Section 9.2 Effect of Termination...............................................21
Section 9.3 Amendment...........................................................21
Section 9.4 Waiver..............................................................21
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties and Agreements..........21
Section 10.2 Notices.............................................................21
Section 10.3 Fees and Expenses...................................................21
Section 10.4 Publicity...........................................................21
Section 10.5 Specific Performance................................................21
Section 10.6 Interpretation......................................................21
Section 10.7 Third Party Beneficiaries...........................................21
Section 10.8 Miscellaneous.......................................................21
Section 10.9 Cure Period.........................................................21
Section 10.10 Validity............................................................21
Exhibit A Transition Agreement
Exhibit B Tax Sharing Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), dated
as of April 30, 1999, by and among PENTAIR, INC., a Minnesota corporation
("Parent"), NORTHSTAR ACQUISITION COMPANY, an Ohio corporation and a wholly
owned subsidiary of Parent ("Sub"), and ESSEF CORPORATION, an Ohio
corporation (the "Company").
RECITALS
WHEREAS, the respective boards of directors of Parent, Sub and the
Company have determined that it is fair to, and in the best interests of
their respective stockholders to consummate the acquisition of the Company
(other than the swimming pool installation business thereof) by Parent upon
the terms and subject to the conditions set forth herein; and
WHEREAS, as part of the Merger (as defined below), Anthony & Sylvan
Pools Corporation, an Ohio corporation and an indirect wholly-owned
subsidiary of the Company (including any successor in interest, "A&S"), will
be split-off from the Company, in a manner (as provided in the Transition
Agreement, dated as of the date hereof, among the Company, A&S and the Parent
attached hereto as Exhibit A (the "Transition Agreement")) whereby the holder
of shares of Company common stock, without par value ("Company Common Stock")
will receive 100% of the shares of common stock, without par value, of A&S
(the "Split-Off") in consideration for the redemption of a portion of their
shares of Company Common Stock; and
WHEREAS, in furtherance of the acquisition, the respective boards of
directors of Parent, Sub and the Company have approved the merger of Sub with
and into the Company (the "Merger") in accordance with the Ohio General
Corporation Law ("OGCL") whereby each issued and outstanding share of Company
Common Stock (other than shares of Company Common Stock held by the Company
as treasury stock or owned by Parent, Sub or any other Subsidiary (as defined
in Section 10.6 below) of Parent immediately prior to the Effective Time and
other than Dissenting Shares (as defined in Section 3.3 hereof)), will be
converted into the right to receive (i) the Cash Consideration (as defined in
Section 3.1(c) hereof) and (ii) the Split-Off Consideration (as defined in
Section 3.1(c) hereof) as set forth below; and
WHEREAS, as set forth in Section 7.10(a) hereof, as a condition to
and in consideration of the transactions contemplated hereby, following the
date hereof the Company, A&S and certain other parties will enter into a Tax
Sharing Agreement substantially in the form attached hereto as Exhibit B with
such changes as shall have been properly approved prior to the consummation
of the Merger (the "Tax Sharing Agreement" and together with the Transition
Agreement, hereafter collectively referred to as the "Ancillary Agreements");
and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
- 1 -
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions hereof and in accordance with the OGCL, at the Effective Time (as
defined below in Section 1.2), Sub shall be merged into the Company and the
separate existence of Sub shall thereupon cease, and the name of the Company,
as the surviving corporation in the Merger (the "Surviving Corporation"),
shall by virtue of the Merger be "Essef Corporation."
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective when a properly executed Certificate of Merger is duly filed with
the Secretary of State of the State of Ohio in accordance with the OGCL,
which filing shall be made as soon as practicable after the closing of the
transactions contemplated by this Merger Agreement in accordance with Section
3.8. When used in this Merger Agreement, the term "Effective Time" shall mean
the date and time at which such filing shall have been made.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 ARTICLES. The Surviving Corporation shall adopt the
Articles of Incorporation of Sub in effect immediately prior to the Merger as
the Articles of Incorporation of the Surviving Corporation until amended in
accordance with its terms and as provided by law and this Merger Agreement.
Section 2.2 REGULATIONS. The Surviving Corporation shall adopt
the Regulations of Sub as in effect at the Effective Time as the Regulations
of the Surviving Corporation.
Section 2.3 BOARD OF DIRECTORS; OFFICERS. The directors of Sub
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation and the officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected and qualified in the
manner provided in the Articles of Incorporation and Regulations of the
Surviving Corporation.
Section 2.4 EFFECTS OF MERGER. The Merger shall have the effects
set forth in the applicable provisions of the OGCL. Without limiting the
generality of the foregoing, and subject thereto at the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all restrictions, debts, liabilities and duties
of the Sub.
- 2 -
<PAGE>
ARTICLE III
CONVERSION OF SHARES
Section 3.1 CONVERSION OF SHARES OF COMPANY COMMON STOCK. At the
Effective Time:
(a) CANCELLATION OF CERTAIN STOCK. Each share of Company Common
Stock held by the Company as treasury stock or owned by Parent, Sub or any
other Subsidiary of Parent immediately prior to the Effective Time shall
automatically be cancelled and retired and cease to exist, and no payment
shall be made with respect thereto; provided, that shares of Company Common
Stock held beneficially or of record by any plan, program or arrangement
sponsored or maintained for the benefit of employees of Parent or the Company
or any Subsidiaries thereof shall not be deemed to be held by Parent or the
Company regardless of whether Parent or Company has, directly or indirectly,
the power to vote or control the disposition of such shares of Company Common
Stock.
(b) CAPITAL STOCK OF SUB. Each share of common stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and non-assessable share of common stock, par
value $0.01, of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
(c) CONVERSION OF SHARES. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time shall, except
as otherwise provided in Sections 3.1(a) and 3.3 hereof, be converted into
the right to receive Nineteen Dollars and Nine Cents ($19.09) per share,
without interest (the "Cash Consideration") and 0.25 shares of A&S Common
Stock (as defined in the Transition Agreement) (the "Split-Off
Consideration").
Section 3.2 SURRENDER AND PAYMENT.
(a) Prior to the Effective Time, Parent and Company shall jointly
appoint a depositary (the "Depositary") for the purpose of exchanging
certificates representing shares of Company Common Stock for the Cash
Consideration and the Split-Off Consideration. The Depositary shall be Bank
of America National Trust and Savings Association. Parent will pay to the
Depositary immediately prior to the Effective Time, the Cash Consideration,
and the Company shall cause A&S to deposit with the Depositary the Split-Off
Consideration (comprised of shares of A&S Common Stock and cash sufficient to
pay any fractional shares), to be paid in respect of the shares of Company
Common Stock. For purposes of determining the Cash Consideration and the
Split-Off Consideration to be so paid, Parent and Company shall assume that
no holder of shares of Company Common Stock will perfect his right to
appraisal of his shares of Company Common Stock. Promptly after the Effective
Time, Parent will send, or will cause the Depositary to send, but in no event
later than three (3) business days after the Effective Time, to each holder
of shares of Company Common Stock at the Effective Time a letter of
transmittal for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing shares of Company Common Stock to
the Depositary) and instructions for use in effecting the surrender of shares
of Company Common Stock in exchange
- 3 -
<PAGE>
for the Cash Consideration and Split-Off Consideration, and no interest shall
accrue or be paid on any Cash Consideration payable upon the surrender of
certificates.
(b) Each holder of shares of Company Common Stock that have been
converted into the right to receive the Cash Consideration and Split-Off
Consideration, upon surrender to the Depositary of a certificate or
certificates properly representing such shares of Company Common Stock,
together with a properly completed letter of transmittal covering such shares
of Company Common Stock, will be entitled to receive the Cash Consideration
and Split-Off Consideration payable in respect of such shares of Company
Common Stock less any amounts required to be withheld under applicable
federal, state, local or foreign income tax regulations. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes, only the right to receive such Cash Consideration and
Split-Off Consideration. No certificates representing fractional shares of
A&S Common Stock shall be issued upon the surrender for exchange of shares of
Company Common Stock, and such fractional share interests will not entitle
the owner thereof to vote or to any other rights as a shareholder of A&S.
Each holder of shares of Company Common Stock who would otherwise be entitled
to receive a fractional share of A&S Common Stock shall receive from the
Depositary an amount in cash (the "Fractional Share Payment") equal to the
product obtained by multiplying (i) the fractional share interest to which
such holder (after taking into account all shares of Company Common Stock
held at the Effective Time by such holder) would otherwise be entitled by
(ii) the mean between the high and low trading prices of A&S Common Stock on
the first full day of trading following the Closing (as defined in Section
3.7 below) (the "Trading Value").
(c) If any portion of the Cash Consideration and Split-Off
Consideration is to be paid to a Person other than the registered holder of
the shares of Company Common Stock represented by the certificate or
certificates surrendered in exchange therefor, it shall be a condition to
such payment that the certificate or certificates so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Depositary any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such shares of Company Common Stock or establish to the
satisfaction of the Depositary that such tax has been paid or is not payable.
For purposes of this Merger Agreement, "Person" means an individual, a
corporation, limited liability company, a partnership, an association, a
trust or any other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
(d) After the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration
of transfers of shares of Company Common Stock. If, after the Effective Time,
certificates representing shares of Company Common Stock are presented to the
Surviving Corporation, they shall be cancelled and exchanged for the
consideration provided for, and in accordance with the procedures set forth,
in this Article III. From and after the Effective Time, holders of
certificates theretofore evidencing shares of Company Common Stock shall
cease to have any rights as shareholders of the Company, except as provided
herein or by law.
- 4 -
<PAGE>
(e) Any portion of the Cash Consideration paid to the Depositary
pursuant to Section 3.2(a) that remains unclaimed by the holders of shares of
Company Common Stock one year after the Effective Time shall be returned to
the Surviving Corporation, including any interest thereon, and any portion of
the Split-Off Consideration (including, any interest on the cash deposited
for Fractional Share Payments) paid to the Depositary pursuant to Section
3.2(a) that remains unclaimed by the holders of shares of Company Common
Stock one year after the Effective Time shall be returned to A&S, upon
written demand, and any such holder who has not exchanged his shares of
Company Common Stock for the Cash Consideration and Split-Off Consideration
in accordance with this Section 3.2(a) prior to that time shall thereafter
look only to the Surviving Corporation for payment of the Cash Consideration
and A&S for payment of the Split-Off Consideration in respect of his shares
of Company Common Stock, without any interest thereon. Notwithstanding the
foregoing, Parent, Sub and the Surviving Corporation shall not be liable to
any holder of shares of Company Common Stock for any amount paid to a public
official pursuant to applicable abandoned property laws. Any Cash
Consideration or Split-Off Consideration remaining unclaimed by holders of
shares of Company Common Stock on the day immediately prior to such times as
such amounts would otherwise escheat to or become property of any
governmental entity shall, to the extent permitted by applicable law, in the
case of the Cash Consideration become the property of Parent, and in the case
of the Split-Off Consideration become the property of A&S, free and clear of
any claims or interest of any Person previously entitled thereto.
(f) Any portion of the Cash Consideration and Split-Off
Consideration paid to the Depositary pursuant to Section 3.2(a) hereof to pay
for shares of Company Common Stock for which appraisal rights have been
perfected shall be returned to the Surviving Corporation and A&S,
respectively, upon written demand.
Section 3.3 DISSENTING SHARES. Notwithstanding Section 3.1 hereof,
shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time and held by a holder who has properly exercised and
perfected appraisal rights under Section 1701.85 of the OGCL (the "Dissenting
Shares"), shall not be converted into the right to receive the Cash
Consideration and Split-Off Consideration, but the holders of Dissenting
Shares shall be entitled to receive such consideration as shall be determined
pursuant to said Section 1701.85; provided, however, that if any such holder
shall have failed to perfect or shall withdraw or lose his right to appraisal
and payment under the OGCL, such holder's shares shall thereupon be deemed to
have been converted as of the Effective Time into the right to receive the
Cash Consideration and Split-Off Consideration, without any interest thereon,
and such shares of Company Common Stock shall no longer be Dissenting Shares.
The Company shall give Parent (i) prompt notice of any written demands for
payment, withdrawals of demands for payment and any other instruments served
pursuant to the OGCL received by the Company and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for payment
under the OGCL. The Company will not voluntarily make any payment with
respect to any demands for payment and will not, except with the prior
written consent of Parent, settle or offer to settle any such demands.
Section 3.4 STOCK OPTIONS.
- 5 -
<PAGE>
(a) Except as provided in Section 3.4(c) below, the Company shall
take all actions (including, but not limited to, obtaining any and all
consents from employees to the matters contemplated by this Section 3.4)
necessary to provide that all outstanding options and other rights to acquire
shares ("Stock Options") granted under any stock option or deferred
compensation plan, program or similar arrangement or any employment agreement
of the Company or any Subsidiaries other than options, if any, of A&S, each
as amended (the "Option Plans"), shall become fully exercisable and vested on
the date (the "Vesting Date") which shall be set by the Company and which, in
any event, shall be not less than thirty (30) days prior to the Effective
Time, whether or not otherwise exercisable and vested. All Stock Options
which are outstanding immediately prior to the Effective Time shall be
cancelled as of the Effective Time and the holders thereof shall be entitled
to receive from the Company, for each share of Company Common Stock subject
to such Stock Option, (i) an amount in cash equal to the difference between
the Cash Consideration and the exercise price per share of such Stock Option,
which amount shall be payable at the Effective Time, plus (ii) 0.25 shares of
A&S Common Stock (and in the case of fractional shares, the Fractional Share
Payment), which shall be held by the Depositary pending delivery after the
Effective Time. All applicable withholding taxes attributable to the payments
made hereunder or to distributions contemplated hereby shall be deducted from
the amounts payable under clauses (i) and (ii) above and all such taxes
attributable to the exercise of Stock Options on or after the Vesting Date
shall be withheld from the proceeds received in the Merger, in respect of the
shares of Company Common Stock issuable on such exercise.
(b) Except as provided herein or as otherwise agreed to by the
parties and to the extent permitted by the Option Plans, (i) the Option Plans
shall terminate as of the Effective Time and the provisions in any other
plan, program or arrangement, providing for the issuance or grant by the
Company or any of its Subsidiaries of any interest in respect of the capital
stock of the Company or any of its Subsidiaries shall be deleted as of the
Effective Time and (ii) the Company shall use all reasonable efforts to
ensure that following the Effective Time no holder of Stock Options or any
participant in the Option Plans or any other such plans, programs or
arrangements shall have any right thereunder to acquire any equity securities
of the Company, the Surviving Corporation or any subsidiary thereof.
(c) (i) With respect to the employees identified on Schedule 3.4(c)
of the Company Disclosure Schedule who will remain as employees or
directors of A&S (the "Optionees" and individually an "Optionee"), the
Company agrees to take all actions (including, but not limited to,
obtaining any and all consents from the Optionees to the matters
contemplated by this Section 3.4(c) and causing A&S to take such
actions as are necessary to accomplish the matters contemplated by this
Section 3.4(c)) necessary to provide that (A) the Stock Options
identified on Schedule 3.4(c) of the Company Disclosure Schedule are
amended in such a fashion that each Optionee has the right under such
options to purchase (subsequent to the Merger) that number of shares of
Company Common Stock that represents the same proportionate interest in
the Company that such Optionee had the right to purchase prior to the
Merger (such option hereafter referred to as the "Post-Merger Company
Option") with appropriate adjustments (if necessary as specified below)
in the exercise price of such Option and (B) such Optionee is granted a
stock option (with terms equivalent to the terms in the Optionee's
option to purchase Company Common Stock and with an exercise price as
- 6 -
<PAGE>
specified in this Section 3.4(c)) to purchase that number of shares of
A&S Common Stock that represents a proportionate interest in A&S equal
to the proportionate interest in the Company that the Optionee's option
to purchase Company Common Stock represented (the "A&S Option").
(ii) (A) The amendment contemplated by Section 3.4(c)(i)(A)
shall be accomplished by reducing the option price of the Post-Merger
Company Option to a price equal to the option price (immediately before
the Merger) multiplied by a fraction, the numerator of which is the
aggregate value of Company Common Stock immediately subsequent to the
Merger (utilizing $19.09 as the per share value of such Common Stock)
and the denominator of which is the sum of such aggregate value of the
Company Common Stock and the aggregate value of A&S Common Stock
immediately subsequent to the Merger (based on the value of A&S Common
Stock as determined pursuant to Section 5 of the Tax Sharing Agreement)
and (B) the A&S Option shall have a per-share exercise price that bears
the same relation to the per-share value of A&S Common Stock as the
per-share exercise price of the Post-Merger Company Option (adjusted as
provided in clause (A)) bears to $19.09.
(iii) Immediately after the amendment contemplated in Section
3.4(c)(i)(A), all Post-Merger Company Options shall be cancelled and
the holders thereof shall be entitled to receive from the Company for
each share of Company Common Stock subject to such Post-Merger Company
Option an amount in cash equal to the difference between the Cash
Consideration and the exercise price of such Post-Merger Company
Option.
(iv) For all purposes of this Section 3.4(c), the term
"proportionate interest" shall be determined on the basis of the
percentage interest of Company or A&S Common Stock (as the case may be)
that such Optionee would own after the exercise of all Stock Options
(as defined in Section 3.4(a)) in the case of the Company and all A&S
Options in the case of A&S.
Section 3.5 SHAREHOLDERS' MEETINGS. (a) In order to consummate
the Merger, the Company, acting through its board of directors, shall, in
accordance with applicable law, the Company's Third Amended Articles of
Incorporation and its Regulations:
(i) duly call, give notice of, convene and hold a special
meeting of its shareholders for the purpose of considering and taking
action upon this Merger Agreement (the "Shareholders' Meeting");
(ii) subject to its fiduciary duties under applicable laws as
advised by counsel, include in the proxy statement or information
statement prepared by the Company for distribution to shareholders of
the Company in advance of the Shareholders' Meeting in accordance with
Regulation 14A promulgated under the Exchange Act (the "Company Proxy
Statement") the recommendation of its board of directors; and
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(iii) use its best efforts to (A) obtain and furnish the
information required to be included by it in the Company Proxy
Statement, and, after consultation with Parent, respond promptly to any
comments made by the Commission with respect to the Company Proxy
Statement and any preliminary version thereof and cause the Company
Proxy Statement to be mailed to its shareholders and (B) obtain the
necessary approvals of this Merger Agreement by its shareholders.
(b) Parent will provide the Company with information concerning
Parent and Sub required to be included in the Company Proxy Statement and
will vote, or cause to be voted, all shares of Company Common Stock owned by
it or its Subsidiaries in favor of approval and adoption of this Merger
Agreement.
Section 3.6 ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of
Parent, Sub and the Company shall provide all reasonable assistance to, and
shall cooperate with, each other to bring about the consummation of the
Merger as soon as possible in accordance with the terms and conditions of
this Merger Agreement. Parent shall cause Sub to perform all of its
obligations in connection with this Merger Agreement.
Section 3.7 CLOSING. The closing (the "Closing") of the
transactions contemplated by this Merger Agreement shall take place (i) at
the offices of Squire, Sanders & Dempsey L.L.P., 4900 Key Tower, 127 Public
Square, Cleveland, Ohio 44114-1304, at 9:00 A.M. local time on the second
business day after the day on which the last of the conditions set forth in
Article VII is fulfilled or waived, PROVIDED, HOWEVER, that the closing shall
take place on or within 10 days after the last day of a month, or (ii) at
such other time and place as Parent and the Company shall agree in writing
(the "Closing Date").
Section 3.8 FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof as soon as practicable following the
Closing, the Company shall execute and file a certificate of merger in the
manner required by the OGCL and the parties hereto shall take all such other
and further actions as may be required by applicable law to make the Merger
effective.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company, except as set
forth in a disclosure schedule delivered by Parent and Sub concurrently
herewith (the "Parent and Sub Disclosure Schedule"), as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Sub
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and carry on its
business as it is now being conducted or currently proposed to be conducted.
Section 4.2 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. Each of
Parent and Sub has the corporate power to enter into this Merger Agreement
and to carry out its obligations hereunder. The
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execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the boards of
directors of Parent and Sub. This Merger Agreement constitutes a valid and
binding obligation of each of Parent and Sub enforceable in accordance with
its terms except as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. No other corporate proceedings on the
part of Parent or Sub are necessary to authorize the Merger Agreement and the
transactions contemplated hereby.
Section 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither Parent
nor Sub is subject to or obligated under (i) any charter, by-law, indenture
or other loan document provision or (ii) any other contract, license,
franchise, permit, order, decree, concession, lease, instrument, judgment,
statute, law, ordinance, rule or regulation applicable to either of them or
any of Parent's Subsidiaries or their respective properties or assets, which
would be breached or violated, or under which there would be a default (with
or without notice or lapse of time, or both), or under which there would
arise a right of termination, cancellation or acceleration of any obligation
or the loss of a material benefit, by its executing and carrying out this
Merger Agreement other than, in the case of clause (ii) only, the laws and
regulations referred to in the next sentence. Except as referred to herein or
in connection, or in compliance, with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 (the "Exchange Act"), and other governmental approvals
required under the applicable laws of any foreign jurisdiction ("Foreign
Laws") and the environmental, corporation, securities or blue sky laws or
regulations of the various states ("State Laws") (all of which required
consents and approvals under Foreign Laws and State Laws are identified in
Schedule 4.3 to the Parent and Sub Disclosure Schedule), no filing by Parent
or Sub or registration by Parent with any public body or authority is
necessary for, nor is any authorization, consent or approval of any public
body or authority required to be obtained by Parent or Sub for, the
consummation of the Merger or the other transactions contemplated by this
Merger Agreement.
Section 4.4 FINANCIAL ADVISOR. Except for Credit Suisse First
Boston Corporation, financial advisor to Parent and Sub ("Credit Suisse First
Boston"), no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
or the transactions contemplated by this Merger Agreement based upon
arrangements made by or on behalf of Parent and Sub.
Section 4.5 FINANCING. Sub currently has sufficient funds, or has
a firm written commitment from one or more financial institutions and/or from
Parent (copies of all of which have been delivered to the Company), to enable
it to finance the consummation of the Merger.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub, except as set
forth in a disclosure schedule delivered by the Company concurrently herewith
(the "Company Disclosure Schedule"), as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio and has all requisite corporate power and authority
to own, lease and operate its properties and carry on its business as it is
now being conducted or currently proposed to be conducted. The Company is
duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to so qualify would not have a Company
Material Adverse Effect (as defined in Section 10.6). Complete and correct
copies as of the date hereof of the articles of incorporation and regulations
of the Company and each of its Subsidiaries have, to the extent requested,
been delivered to Parent as part of the Company Disclosure Schedule.
Section 5.2 CAPITALIZATION. The authorized capital stock of the
Company consists of 40,000,000 shares of Company Common Stock and 1,000,000
shares of Preferred Stock, without par value ("Company Preferred Stock"). As
of February 28, 1999 and as adjusted to reflect the stock dividend paid by
the Company on March 10, 1999 to the shareholders of record on February 19,
1999 (the "Stock Dividend"), 13,062,741 shares of Company Common Stock were
validly issued and outstanding, fully paid and nonassessable, 618,127 shares
of Company Common Stock were held in treasury, no shares of Preferred Stock
had been issued, and there have been no material changes (other than as a
result of the Stock Dividend) in such numbers of shares through the date
hereof. Except for Stock Option exercises, no shares of Company Common Stock
have been issued since February 28, 1999. Schedule 5.2 of the Company
Disclosure Schedule sets forth as of the date of this Merger Agreement each
outstanding Stock Option issued under the Option Plans, including the holder,
date of grant, exercise price and number of shares of Company Common Stock
subject thereto. Except for such Stock Options, there are no outstanding
options, warrants, calls or other rights, agreements or commitments
obligating the Company to issue, deliver or sell shares of its capital stock
or debt securities or obligating the Company to grant, extend or enter into
any such option, warrant, call or other such right, agreement or commitment.
Section 5.3 SUBSIDIARIES. Schedule 5.3 of the Company Disclosure
Schedule lists each Subsidiary of the Company. Each of such Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the corporate power to
carry on its business as it is now being conducted or currently proposed to
be conducted. Each of such Subsidiaries is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature
of its activities makes such qualification necessary, except where the
failure to so qualify would not have a Company Material Adverse Effect. All
the outstanding shares of capital stock of each of such Subsidiaries are
validly issued, fully paid and nonassessable and those owned by the Company
or by a Subsidiary of the Company are owned free and clear of any liens,
claims or
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encumbrances. There are no existing options, warrants, calls or other rights,
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of any of the Subsidiaries of the Company
other than A&S. Except as set forth in Schedule 5.3 of the Company Disclosure
Schedule, the Company does not directly or indirectly own any interest in any
other corporation, partnership, joint venture or other business association
or entity.
Section 5.4 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. The
Company has the corporate power to enter into this Merger Agreement, subject
to the requisite approval of this Merger Agreement by the holders of Company
Common Stock, and to carry out its obligations hereunder. The execution and
delivery of this Merger Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the board of directors of
the Company and to the extent necessary by the board of directors of A&S.
This Merger Agreement constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
Except for the requisite approval of the holders of Company Common Stock, no
other corporate proceedings on the part of the Company are necessary to
authorize this Merger Agreement and the transactions contemplated hereby.
Section 5.5 CONSENTS AND APPROVALS; NO VIOLATIONS. The Company is
not subject to or obligated under (i) any charter, by-law, indenture or other
loan document provision or (ii) any other contract, license, franchise,
permit, order, decree, concession, lease, instrument, judgment, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or their respective properties or assets which would be breached
or violated, or under which there would be a default (with or without notice
or lapse of time, or both), or under which there would arise a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit, by its executing and carrying out this Merger Agreement,
other than, in the case of clause (ii) only, the laws and regulations
referred to in the next sentence. Except as referred to herein or, with
respect to the Merger or the transactions contemplated thereby, in
connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act, the Foreign Laws and the State Laws (all of
which required consents and approvals under Foreign Laws and State Laws are
identified in Schedule 5.5 to the Company Disclosure Schedule), no filing by
the Company or registration by the Company with any public body or authority
is necessary for, nor is any authorization, consent or approval of any public
body or authority required to be obtained by the Company for, the
consummation of the Merger or the other transactions contemplated hereby.
Section 5.6 REPORTS AND FINANCIAL STATEMENTS. The Company has
previously furnished Parent with true and complete copies of its (i) Annual
Reports on Form 10-K for the three years ended September 30, 1996, 1997, and
1998, as filed with the Commission, (ii) Quarterly Reports on Form 10-Q for
the quarters ended March 30, 1998, June 30, 1998, and December 31, 1998 as
filed with the Commission, (iii) proxy statements related to all meetings of
its shareholders (whether annual or special) since December 31, 1996 and (iv)
all other reports or registration statements filed by the Company with the
Commission since December 31, 1996 which are all the documents (other than
preliminary materials) that the Company was required to file with the
Commission since that
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date (such documents identified in clauses (i) through (iv) (except
registration statements on Form S-8 relating to employee benefit plans and
the Form S-1 (as defined in the Transition Agreement (or any other
registration statement contemplated to be filed pursuant to the terms of the
Transition Agreement)) being referred to herein collectively as the "Company
SEC Reports")). As of their respective dates, the Company SEC Reports
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports, and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC
Reports comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission
with respect thereto, and the financial statements included in the Company
SEC Reports have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and fairly present the
financial position of the Company and its Subsidiaries as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
Section 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Company SEC Reports, since December 31, 1998, there has not
been (i) any event, condition, transaction, commitment, dispute or other
circumstance (financial or otherwise) of any character (whether or not in the
ordinary course of business) individually or in the aggregate having a
Company Material Adverse Effect; (ii) any damage, destruction or loss,
whether or not covered by insurance, which, insofar as reasonably can be
foreseen, in the future would have a Company Material Adverse Effect; (iii)
any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of the Company; or (iv) any entry into any commitment or transaction
material to the Company and its Subsidiaries taken as a whole (including,
without limitation, any borrowing or sale of assets) except in the ordinary
course of business consistent with past practice.
Section 5.8 LITIGATION.
(a) Except as disclosed in the Company SEC Reports, there is no
suit, action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries which,
either alone or in the aggregate, has, or is reasonably likely to have, a
Company Material Adverse Effect or would prevent, delay or otherwise
interfere with any of the transactions contemplated by this Merger Agreement,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company or any of its Subsidiaries having, or
reasonably likely to have, either alone or in the aggregate, a Company
Material Adverse Effect or would prevent, delay or otherwise interfere with
any of the transactions contemplated by this Merger Agreement. Schedule 5.8
of the Company Disclosure Schedule sets forth all claims with respect to the
Company or any of its Subsidiaries, whether or not accrued for or covered by
insurance, where
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the amount in controversy exceeds $200,000. Schedule 5.8 of the Company
Disclosure Schedule sets forth all claims with respect to Products (as
defined in 5.8(b)(i) below) liability that have not been accrued for by the
Company in its consolidated financial statements or are not covered by the
Company's insurance policies. There has not been any adverse change in the
number, type or severity of claims with respect to Products during the last
three years. To the knowledge of the Company, none of the Products is the
subject of any Recall Campaign (as defined in 5.8(b)(ii) below) and no facts
or conditions exist which could reasonably be expected to result in such a
Recall Campaign, in each case, where the costs of such a Campaign would
exceed $200,000.
(b) For purposes of this Section 5.8, capitalized terms have the
following meanings:
(i) "Products" shall mean any and all products currently or at
any time previously designed, manufactured, distributed or sold by the
Company or its Subsidiaries, or by any predecessor of the Company or
its Subsidiaries.
(ii) "Recall Campaign" shall mean any formal action by the
Company or its Subsidiaries to order the return of any Product from all
known customers for such Product for repair, substitution or
replacement.
Section 5.9 INFORMATION IN DISCLOSURE DOCUMENTS. None of the
information with respect to the Company or its Subsidiaries to be included or
incorporated by reference in the Company Proxy Statement or the Form S-1 (or
any other registration statement contemplated to be filed pursuant to the
terms of the Transition Agreement) will, in the case of the Company Proxy
Statement or any amendments or supplements thereto, and at the time of the
Shareholders' Meeting to be held in connection with the Merger, or in the
case of Form S-1 (or any other registration statement contemplated to be
filed pursuant to the terms of the Transition Agreement), at the time it
becomes effective and at the Effective Time contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Company Proxy
Statement and the Form S-1 (or any other registration statement contemplated
to be filed pursuant to the terms of the Transition Agreement) will comply in
all material respects with the Exchange Act (and the rules and regulations
promulgated thereunder) and the Securities Act (and the rules and regulations
promulgated thereunder).
Section 5.10 EMPLOYEE BENEFIT PLANS. Except as disclosed in the
Company SEC Reports or as set forth in Schedule 5.10 of the Company
Disclosure Schedule, there are no employee benefit, compensation or severance
plans, agreements or arrangements, including "employee benefit plans," as
defined in Section 3(3) of Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and including, but not limited to, plans, agreements or
arrangements relating to former employees, including, but not limited to,
retiree medical plans or post-employment life insurance plans, maintained by
the Company or any of its Subsidiaries or collective bargaining agreements to
which the Company or any of its Subsidiaries is a party (together, the
"Company Benefit Plans"). To the knowledge of the Company, no default exists
with respect to the obligations of the Company or any of its Subsidiaries
under such Company Benefit Plans. Since December 31, 1998, there have been no
disputes or grievances subject to any grievance procedure, unfair labor
practice proceedings, arbitration or litigation occurring or threatened under
such Company Benefit Plans, which have not
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been finally resolved, settled or otherwise disposed of, nor is there any
default, or any condition which, with notice or lapse of time or both, would
constitute such a default, under any such Company Benefit Plans, by the
Company or its Subsidiaries or, to the knowledge of the Company and its
Subsidiaries, any other party thereto. Since December 31, 1998, there have
been no strikes, lockouts or work stoppages or slowdowns, or to the knowledge
of the Company and its Subsidiaries, jurisdictional disputes or organizing
activity occurring or threatened with respect to the business or operations
of the Company or its Subsidiaries. Except as disclosed in the Company SEC
Reports or as set forth in Schedule 5.10 of the Company Disclosure Schedule,
neither the execution of the Merger Agreement nor the consummation of the
transactions contemplated hereby will (either alone or upon the occurrence of
additional events or acts) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to
any employee of the Company or any of its Subsidiaries. Notwithstanding
anything stated in this Section 5.10 to the contrary, with respect to the
severance plans or arrangements for the officers of the Company and its
Subsidiaries, Schedule 5.10 of the Disclosure Schedule sets forth to the
knowledge of the Company only such plans or arrangements for which the costs
will exceed $100,000 per individual plan or arrangement or $500,000 in the
aggregate for all such plans or arrangements.
Section 5.11 ERISA. The Company Benefit Plans have been
administered in compliance in all material respects with applicable laws and
regulations such that no condition exists with respect to the Company Benefit
Plans that could have a Company Material Adverse Effect. Each of the Company
Benefit Plans which is intended to meet the requirements of Section 401(a) of
the Code has been determined by the Internal Revenue Service to be
"qualified," within the meaning of such section of the Code, and the Company
knows of no fact which is likely to have a material adverse effect on the
qualified status of such plans. To the knowledge of the Company, there are
not now nor have there been any non-exempt "prohibited transactions," as such
term is defined in Section 4975 of the Code or Section 406 of ERISA,
involving the Company Benefit Plans which could subject the Company, its
Subsidiaries or Parent to the penalty or tax imposed under Section 502(i) of
ERISA or Section 4975 of the Code. Except as set forth in Schedule 5.11 of
the Company Disclosure Schedule, no Company Benefit Plan which is subject to
Title IV of ERISA has been completely or partially terminated, no proceedings
to completely or partially terminate any Company Benefit Plan have been
instituted within the meaning of Subtitle C of said Title IV of ERISA; and no
reportable event, within the meaning of Section 4043(c) of said Subtitle C
for which the 30-day notice requirement of ERISA has not been waived, has
occurred with respect to any Company Benefit Plan. Neither the Company nor
any of its Subsidiaries has made a complete or partial withdrawal, within the
meaning of Section 4201 of ERISA, from any multiemployer plan which has
resulted in, or is reasonably expected to result in, any withdrawal liability
to the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has engaged in any transaction described in Section 4069 of
ERISA within the last five (5) years. To the knowledge of the Company, there
does not now exist, nor do any circumstances exist that could result in, any
material liability of the Company or any of its Subsidiaries (or any entity,
trade or business that is or was at any time required to be aggregated with
the Company or any of its Subsidiaries under Section 414(b), (c), (m) or (o)
of the Code) under Title IV of ERISA, Section 302 of ERISA, Sections 412 and
4971 of the Code, the continuation coverage requirements of Section 601 ET
SEQ. of ERISA and Section 4980B of the Code, and similar provisions of
foreign laws or regulations, other than such liabilities that arise solely
out of, or relate solely to, the Company Benefit Plans, that would have a
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Company Material Adverse Effect or a Parent Material Adverse Effect (as
defined in Section 10.6) following the Effective Time.
Section 5.12 COMPANY ACTION. The board of directors of the Company
(at a meeting duly called and held) has by the requisite vote of directors
(a) determined that the Merger is advisable and fair and in the best
interests of the Company and its shareholders, (b) approved the Merger in
accordance with the provisions of Section 1701.78 of the OGCL, and (c)
recommended the approval of this Merger Agreement and the Merger by the
holders of the Company Common Stock and directed that the Merger be submitted
for consideration by the Company's shareholders entitled to vote thereon at
the Shareholders' Meeting.
Section 5.13 FAIRNESS OPINION. The Company has received the
opinion of Rhone Group LLC, financial advisor to the Company ("Rhone Group"),
dated the date hereof, to the effect that the Cash Consideration and
Split-Off Consideration to be received by the holders of shares of Company
Common Stock pursuant to the terms of this Merger Agreement are fair from a
financial point of view to such holders, a copy of which has been or will be
delivered to Parent.
Section 5.14 FINANCIAL ADVISOR. Except for Rhone Group, no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the transactions
contemplated by this Merger Agreement and the Transition Agreement based upon
arrangements made by or on behalf of the Company. Schedule 5.14 of the
Company Disclosure Schedule contains a true and correct copy of the Company's
engagement letter with Rhone Group.
Section 5.15 COMPLIANCE WITH APPLICABLE LAWS. (i) The Company and
its Subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals (the "Company Permits") of all courts, administrative agencies
or commissions or other governmental authorities or instrumentalities,
domestic or foreign (each, a "Governmental Entity") necessary for the
operation of the businesses of the Company and its Subsidiaries; (ii) to the
knowledge of the Company, the Company and its Subsidiaries are in compliance
with the terms of the Company Permits; (iii) except as disclosed in the
Company SEC Reports, the businesses of the Company and its Subsidiaries are
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity; and (iv) no investigation or review by any Governmental
Entity with respect to the Company or any of its Subsidiaries is pending, or
threatened, nor has any Governmental Entity indicated an intention to conduct
the same.
Section 5.16 LIABILITIES. As of December 31, 1998, neither the
Company nor any of its Subsidiaries had any liabilities or obligations
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are not disclosed
or provided for in the most recent Company SEC Reports or which could result
in a Company Material Adverse Effect. To the knowledge of the Company, there
was no basis, as of December 31, 1998, for any claim or liability (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the consolidated financial
statements prepared in accordance with GAAP which is not reflected in the
Company SEC Reports.
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Section 5.17 TAXES. Except as otherwise disclosed in Schedule 5.17
of the Company Disclosure Schedule or as reflected in the Company SEC Reports
and except for those matters which, either individually or in the aggregate,
would not result in a Company Material Adverse Effect:
(a) The Company and each of its Subsidiaries have filed (or have
had filed on their behalf) or will file or cause to be filed, all Tax Returns
(as defined in Section 5.17(h)(iii) hereof) required by applicable law to be
filed by any of them prior to the Effective Time.
(b) The Company and each of its Subsidiaries have paid (or have had
paid on their behalf) all Taxes (as defined in Section 5.17(h)(ii) hereof)
due with respect to any period ending prior to or as of the Effective Time),
or where payment of Taxes is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established before the consummation of the Merger,
an adequate accrual for the payment of all such Taxes which have accrued
prior to the Effective Time other than Taxes directly attributable to the
transactions contemplated by the Transition Agreement.
(c) No Audit (as defined in Section 5.17(h)(i)) is pending with
respect to any Taxes due from the Company or any Subsidiary. There are no
outstanding waivers extending the statutory period of limitations relating to
the payment of Taxes due from the Company or any Subsidiary for any taxable
period ending prior to the Effective Time which are expected to be
outstanding as of the Effective Time.
(d) Neither the Company nor any Subsidiary is a party to, is bound
by, or has any obligation under, a tax sharing contract or other agreement or
arrangement for the allocation, apportionment, sharing, indemnification, or
payment of Taxes, other than the Tax Sharing Agreement.
(e) Neither the Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code.
(f) Neither the Company nor any of its Subsidiaries has received
any written notice of deficiency, assessment or adjustment from the Internal
Revenue Service or any other domestic or foreign governmental taxing
authority that has not been fully paid or finally settled, and any such
deficiency, adjustment or assessment shown on such schedule is being
contested in good faith through appropriate proceedings and adequate reserves
have been established on the Company's financial statements therefor. To the
knowledge of the Company, there are no other deficiencies, assessments or
adjustments threatened, pending or assessed with respect to the Company or
any of its Subsidiaries.
(g) Except as contemplated by this Agreement and the Ancillary
Documents or as disclosed in the Company SEC Reports, neither the Company nor
any of its Subsidiaries is a party to any agreement, contract or other
arrangement that would result, separately or in the aggregate, in the
requirement to pay any "excess parachute payments" within the meaning of
Section 280G of the
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Code or any gross-up in connection with such an agreement, contract or
arrangement. Schedule 5.17 of the Company Disclosure Schedule lists any
agreement, contract or other arrangement in which the Company or any Retained
Subsidiary is a party providing for any such "excess parachute payments" or
gross-ups.
(h) For purposes of this Section 5.17, capitalized terms have the
following meanings:
(i) "Audit" shall mean any audit, assessment or other
examination of Taxes or Tax Returns by the Internal Revenue Service or
any other domestic or foreign governmental authority responsible for
the administration of any Taxes, proceedings or appeal of such
proceedings relating to Taxes.
(ii) "Taxes" shall mean all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and
assessments, charges, or other fees imposed by a governmental
authority, together with any interest, additions to tax, or penalties
imposed with respect thereto.
(iii) "Tax Returns" shall mean all federal, state, local and
foreign tax returns, declarations, statements, reports, schedules,
forms and information returns and any amended Tax Return relating to
Taxes.
Section 5.18 CERTAIN AGREEMENTS. Except as filed as an exhibit to
the Company SEC Reports, neither the Company nor any of its Subsidiaries is a
party to or bound by any contract, agreement, arrangement, commitment or
understanding (whether written or oral) which as of the date hereof, is a
"material contract" (as defined in Item 601(b)(10) of Regulation S-K of the
Commission). Schedule 5.18 to the Company Disclosure Schedule contains true
and correct copies of all indemnification agreements between the Company and
officers, directors and employees of the Company and its Subsidiaries.
Section 5.19 PATENTS, TRADEMARK, ETC. The Company and its
Subsidiaries owns or possesses adequate licenses or other valid rights to use
all patents, trademarks, trade names, service marks, trade secrets,
copyrights and licenses and other proprietary intellectual property rights
and licenses ("Intellectual Property Rights") as are necessary in connection
with the conduct of the businesses of the Company and its Subsidiaries. The
Company does not have any knowledge of any infringement by any other person
of the Company's or its Subsidiaries' Intellectual Property Rights and, to
the knowledge of the Company, the Company and its Subsidiaries are not
infringing the Intellectual Property Rights of another person.
Section 5.20 TITLE TO ASSETS; LIENS. The Company has good and
marketable title to all of its inventory, accounts receivable, property,
equipment and other assets, and except as disclosed in the Company's SEC
Reports such assets are free and clear of any mortgages, liens, charges,
encumbrances, or title defects of any nature whatsoever. The Company and its
Subsidiaries have valid and enforceable leases for the premises and the
equipment, furniture and fixtures purported to be leased by them.
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Section 5.21 REQUIRED VOTE. The affirmative vote of the holders of
shares of Company Common Stock representing at least two-thirds of the votes
entitled to be cast at the Shareholders' Meeting is required to approve this
Merger Agreement. No other vote of any class or series of stock of the
Company is required by law, the Third Amended Articles of Incorporation or
Regulations of the Company or otherwise in order for the Company to
consummate the Merger and the transactions contemplated hereby.
Section 5.22 INSURANCE. The Company has previously delivered to
Parent a schedule of all policies of property, casualty, worker's
compensation, product liability, general liability and other insurance as
maintained by the Company and its Subsidiaries. All such policies are valid,
outstanding and enforceable and no notice of cancellation or termination has
been received with respect to any such policy.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Prior to the Effective Time and except as provided in Section 7.10 or the
Transition Agreement, unless Parent shall otherwise agree in writing after
written notice provided by the Company specifying in reasonable detail the
basis for any action by the Company or its Subsidiaries outside the scope of
agreed upon activities set forth in this Section 6.1 and at Parent's
election, a meeting with officials from the Company or its Subsidiaries, as
the case may be, to discuss the basis for such action:
(i) the Company shall, and shall cause its Subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary
course in the same manner as heretofore conducted, and shall, and shall
cause its Subsidiaries to, use their diligent efforts to preserve
intact their present business organizations, keep available the
services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business
dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. The Company
shall, and shall cause its Subsidiaries to (A) maintain insurance
coverages and its books, accounts and records in the usual manner
consistent with prior practices; (B) comply in all material respects
with all laws, ordinances and regulations of Governmental Entities
applicable to the Company and its Subsidiaries; (C) maintain and keep
its properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted; and (D) perform in all
material respects its obligations under all contracts and commitments
to which it is a party or by which it is bound, in each case other than
where the failure to so maintain, comply or perform, either
individually or in the aggregate, would not reasonably be expected to
result in a Company Material Adverse Effect;
(ii) the Company shall not and shall not propose to (A) sell or
pledge or agree to sell or pledge any capital stock owned by it in any
of its Subsidiaries, (B) amend its Third Amended Articles of
Incorporation or Regulations, (C) split, combine or reclassify its
outstanding capital stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or
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declare, set aside or pay any dividend or other distribution payable
in cash, stock or property (other than dividends declared, set aside
or paid in a manner consistent with the Company's past practice), or
(D) directly or indirectly redeem, purchase or otherwise acquire or
agree to redeem, purchase or otherwise acquire any shares of Company
capital stock;
(iii) the Company shall not, nor shall it permit any of its
Subsidiaries to, (A) issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or rights of any kind to acquire any
shares of, its capital stock of any class, or any option, rights or
warrants to acquire, or securities convertible into, shares of capital
stock other than issuances of Company Common Stock pursuant to the
exercise of Stock Options, (B) except as provided for in the Company's
capital expenditure budget for the fiscal year ending September 30,
1999 (the "Capital Expenditure Budget"), acquire, lease or dispose or
agree to acquire, lease or dispose of any capital assets in excess of
$1,000,000 or any other assets other than in the ordinary course of
business, (C) incur additional indebtedness other than in the ordinary
course of business for working capital purposes or as provided for in
the Capital Expenditure Budget or encumber or grant a security interest
in any asset in connection with such indebtedness; or (D) enter into
any binding contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(iv) the Company shall not, nor shall it permit any of its
Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof;
PROVIDED, HOWEVER, that if after notice provided by the Company to
Parent, Parent fails to agree to any such merger, consolidation or
acquisition and this Agreement is later terminated, Parent and its
respective Affiliates shall be precluded from undertaking such merger,
consolidation or acquisition for a period of three (3) years following
the date of such termination;
(v) except as set forth in Schedule 6.1 of the Company
Disclosure Schedule, the Company shall not, nor shall it permit, any of
its Subsidiaries to, except as required to comply with applicable law
and except as provided in Section 7.4 hereof, (A) adopt, enter into,
terminate, expand the applicability of or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Company Benefit
Plan, agreement, trust, fund or other arrangement for the benefit or
welfare of any director, officer or current or former employee, (B)
increase in any manner the compensation or fringe benefit of any
director, officer or employee (except for normal increases in the
ordinary course of business that are consistent with past practice and
that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company and its Subsidiaries
relative to the level in effect prior to such amendment), (C) pay any
benefit not provided under any existing plan or arrangement, (D) grant
any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Company Benefit Plan (including,
without limitation, the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any
benefit plans or agreements or awards made thereunder) except in the
ordinary course of business
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or in a manner consistent with past practice, (E) take any action to
fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement
or Company Benefit Plan other than in the ordinary course of business
consistent with past practice, or (F) adopt, enter into, amend or
terminate any binding contract, agreement, commitment or arrangement
to do any of the foregoing; and
(vi) the Company shall not, nor shall it permit any of its
Subsidiaries to, make any investments in non-investment grade
securities; PROVIDED, HOWEVER, that the Company will be permitted to
create new wholly owned Subsidiaries in the ordinary course of
business.
Section 6.2 NOTICE OF BREACH. Each party shall promptly give
written notice to the other party upon becoming aware of the occurrence or,
to its knowledge, impending or threatened occurrence, of any event which
would cause or constitute a breach of any of its representations, warranties
or covenants contained or referenced in this Merger Agreement and will use
its best efforts to prevent or promptly remedy the same. Any such
notification shall not be deemed an amendment of the Company Disclosure
Schedule or the Parent and Sub Disclosure Schedule.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION; ENVIRONMENTAL AND YEAR 2000
COMPLIANCE.
(a) Upon reasonable notice delivered to and at reasonable times
scheduled as soon as practicable following such notice by the Company's Vice
President-Finance all in a manner that will minimize disruptions of the
business and operations of the Company and its Subsidiaries and that is
sensitive to time and resource demands of the peak business periods of the
Company's pool equipment segment, (i) between the date of this Agreement and
the Cut-Off Date (as defined in Section 7.1(b) below), the Company will give
Parent and its authorized representatives, including Dames & Moore Group or
another mutually agreed upon nationally recognized environmental consultant
("Parent's Environmental Consultant") and Deloitte & Touche LLP or another
mutually agreed upon nationally recognized year 2000 consultant ("Parent's
Year 2000 Consultant"), access to all offices and other facilities and to
senior management of it and its Subsidiaries, and will cause its officers and
those of its Subsidiaries to furnish Parent with (A) such financial,
environmental and operating data and other information with respect to the
Company and its Subsidiaries as Parent may from time to time reasonably
request, or (B) any other financial, environmental and operating data which
materially impacts the Company and its Subsidiaries and (ii) between the
period beginning on the Cut-Off Date and continuing through the Effective
Time, the Company will give Parent full and complete access to the Company's
continuing businesses, personnel and records, including, without limitation,
a review of business plans, major customers and suppliers, potential
synergies and cost savings, post-acquisition management and organizational
configuration, key employees, and capital plans. Notwithstanding the
foregoing if during the period beginning on the date of this Agreement and
ending on the Cut-Off Date, the parties reasonably believe that the
Established Claims (as determined in Section 7.1(b) below) will not exceed
the Claim Basket (as defined and determined in Section 7.1(b) below), then
the Company will accommodate (subject to the notice requirements and
sensitivities described above) increased due diligence as contemplated in
clause
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(ii) above by the Parent prior to the Cut-Off Date. Without limiting the
foregoing, between the date of this Merger Agreement and the Effective Time,
the Company promptly will provide Parent with monthly management reports,
including interim financial statements of the Company, and such other
management reports as and when they are available.
(b) In connection with the performance of its due diligence, Parent
shall have the right at any time prior to the thirtieth day following the
date of this Agreement (the "Cut-Off Date") to deliver to the Company a
written claim (the "Claim Notice") specifying an amount reasonably determined
to be necessary to indemnify Parent for (i) the Company's Environmental
Non-Compliance Costs (as defined in Section 7.1(c)(ii) below), or (ii) the
Company's Year 2000 Non-Compliance Costs (as defined in Section 7.1(c)(iv)
below); PROVIDED, HOWEVER, that if Parent's Environmental Consultant, based
on its initial environmental investigation, reasonably determines that
additional environmental investigation is required to assess the Company's
Environmental Non-Compliance Conditions (as defined in Section 7.1(c)(i)
below), then Parent shall have an additional fifteen (15) day period in which
to deliver to the Company a Claim Notice with respect to the Company's
Environmental Non-Compliance Conditions and the "Cut-Off Date" shall mean the
forty-fifth day following the date of this Agreement. The Claim Notice must
set forth in reasonable detail the nature of the claim and be accompanied by
reports of Parent's Environmental Consultant and Parent's Year 2000
Consultant with respect to the Company's Environmental Non-Compliance
Conditions and Year 2000 Non-Compliance Conditions (as defined in Section
7.1(c)(iii) below) providing reasonable backup for such claims. If the cost
of any claim resulting from the Environmental Non-Compliance Conditions at a
Company property or location is equal to or exceeds $1,000,000 (an
"Extraordinary Claim"), then the Company shall have five (5) days after the
Company's receipt of the Claim Notice to provide Parent with a written notice
disputing such Extraordinary Claims (a "Counter Notice"). After providing a
Counter Notice to Parent, the Company shall have the right to retain Earth
Sciences Consultants, Inc. ("Company's Environmental Consultant") to consult,
for a period of (15) days after the Company's receipt of the Claim Notice,
with Parent's Environmental Consultant as to the appropriateness of, and the
amount of costs of remediation associated with, such Extraordinary Claims as
set forth in Parent's Environmental Consultant's Report. Within five (5) days
after the end of such fifteen (15) day period, Parent shall provide to the
Company a revised Claim Notice (the "Final Claim Notice") reflecting any
modifications Parent's Environmental Consultant have made, in their sole
discretion, to their report after taking into account such consultation with
Company's Environmental Consultant. The dollar amount of damages with respect
to claims for the Company's Environmental Non-Compliance Conditions and Year
2000 Non-Compliance Conditions (each, an "Established Claim") shall be (i)
the dollar amount of damages claimed by Parent as set forth in its Claim
Notice in the case of claims for the Company's Year 2000 Non-Compliance
Conditions and (ii) the dollar amount of damages claimed by Parent as set
forth in its Claim Notice, or if such Claim Notice is disputed by the
Company, as set forth in the Final Claim Notice, in the case of claims for
the Company's Environmental Non-Compliance Conditions. If, as of ten (10)
days after delivery of the Final Claim Notice to the Company, the sum of all
Established Claims is less than the amount (the "Claim Basket") equal to (x)
$5,000,000 less (y) any Excess Transaction Costs (as determined pursuant to
Section 10.3(c)), then Parent agrees to absorb all such costs without further
remedy. If, on the other hand, as of ten (10) days after delivery of the
Final Claim Notice to the Company, the sum of all Established Claims equals
or exceeds the Claim Basket, then each of the Parent and the Company
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shall have the right to terminate this Agreement pursuant to Sections
9.1(d)(ii) and 9.1(e)(ii), respectively. Notwithstanding the foregoing, if
the dollar amount of damages with respect to claims relating to the Company's
Environmental Non-Compliance Conditions and Year 2000 Non-Compliance
Conditions, as set forth in either the Claim Notice, or if such Claim Notice
is disputed by the Company the Final Claim Notice, equals or exceeds the
Claim Basket, then the Company shall have the right to terminate this
Agreement pursuant to Section 9.1(d)(ii) immediately upon receipt of such a
Claim Notice. This Section 7.1(b) shall constitute Parent's sole and
exclusive remedy with regard to the Company's Environmental Non-Compliance
Conditions and Year 2000 Non-Compliance Conditions and the Company's sole and
exclusive remedy with respect to disputes relating to claims with respect to
the Company's Environmental Non-Compliance Conditions and Year 2000
Non-Compliance Conditions.
(c) For purposes of this Section 7.1, capitalized terms have the
following meanings:
(i) "Environmental Non-Compliance Condition" shall mean (A)
the presence of a hazardous substance discharge at any property owned,
leased or previously owned or leased by the Company or its
Subsidiaries or their predecessors in interest or at any location
where the Company or its Subsidiaries could be held responsible for
investigation or cleanup activities resulting from actual or alleged
offsite disposal of hazardous substances or (B) non-compliance with
any federal, state, local or foreign statute, regulation,
administrative order, rule, law, license, permit or ordinance
concerning human health or safety or pollution or protection of the
environment, including, without limitation, all those relating to the
presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing,
processing, emission, reporting, notification, discharge, release,
threatened release, control, or clean-up of any hazardous materials,
substances or wastes, including, for the purposes of this Section
7.1(c)(i), actual and reasonably anticipated fines, penalties and
forfeitures related to such Environmental Non-Compliance, as such
statutes, regulations and ordinances are enacted and in effect on or
prior to the Cut-Off Date.
(ii) "Environmental Non-Compliance Costs" shall mean an amount
reasonably determined based on good faith estimates and assumptions by
Parent and Parent's Environmental Consultant to be necessary to
indemnify Parent for any known or reasonably anticipated claims,
losses, damages, costs (including attorneys' and consultants' fees and
expenses) associated with any action that would need to be taken to
evaluate, defend a proceeding, investigate, remediate or otherwise
respond to, or liabilities resulting from, an Environmental
Non-Compliance Condition, that (i) is the subject of an environmental
claim by a third party, (ii) in the opinion of Parent's environmental
counsel, imposes upon the Company or its Subsidiaries a duty to act,
or (iii) in the opinion of Parent's Environmental Consultant or
environmental counsel, is of a nature or severity that it is proper
environmental compliance practice or necessary to act to avoid the
risk of either non-compliance with environmental law or for the
avoidance or mitigation of any environmental claims.
(iii) "Year 2000 Non-Compliance Condition" shall mean (A) with
respect to Date Data (as defined below), the failure of such data to
be in proper format for all dates in the twentieth and twenty-first
centuries, and (B) with respect to Date Sensitive Systems (as
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defined below), the inability of each such system to accurately
process all Date Data, including for the twentieth and twenty-first
centuries, without loss of any functionality or performance,
including but not limited to calculating, comparing, sequencing,
storing and displaying such Date Data, when used as a stand-alone
system or in combination with other software or hardware. As used
herein, (x) "Date Data" means any data of the Company of any type
that includes date information or which is otherwise derived from,
dependent on or related to date information, and (y) "Date Sensitive
System" means any software, microcode or hardware system or component
or other personal property or equipment, including any electric or
electronically controlled system or component, that processes any
Date Data and that is installed, in development or on order by the
Company or any Subsidiary of the Company for their internal use, or
which the Company or any Subsidiary of the Company sells, leases,
licenses, assigns or otherwise provides, or the provision or
operation of which the Company and any Subsidiary of the Company
provides the benefit, to its customers, vendors, suppliers,
affiliates or any other third party.
(iv) "Year 2000 Non-Compliance Cost" shall mean an amount
reasonably determined to be necessary based on good faith estimates and
assumptions by Parent or Parent's Year 2000 Consultant to be necessary
to indemnify Parent for any known or reasonably anticipated claims,
losses, damages, costs (including attorneys' and consultants' fees and
expenses) associated with any actions to avoid disruption of the
Company's or its Subsidiaries' business as a result of, or liabilities
resulting from a Year 2000 Non-Compliance Condition; except as provided
for in, or demonstrated by the Company to be part of, the Capital
Expenditure Budget.
Section 7.2 SHAREHOLDERS' MEETING; FILINGS. (a) In connection
with the Shareholders' Meeting, the Company shall (i) use its reasonable
efforts to obtain the necessary approval by its shareholders of this Merger
Agreement and the transactions contemplated hereby and (ii) otherwise comply
in all material respects with all legal requirements applicable to such
meeting.
(b) Parent and the Company shall make all necessary filings with
respect to the Merger, under the Securities Act and the Exchange Act and the
rules and regulations thereunder, under applicable blue sky or similar
securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto.
Section 7.3 EMPLOYMENT ARRANGEMENTS. After the Effective Time,
Parent shall, or shall cause the Surviving Corporation to, honor in
accordance with their terms, all written or announced employment, severance,
consulting and other compensation contracts between the Company or any of its
Subsidiaries and any current or former director, officer or employee thereof,
and all provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under any Company Benefit Plan, each as of
the date hereof except for changes thereto which are (i) not material, (ii)
permitted by this Merger Agreement, or (iii) otherwise agreed to by the
parties hereto.
Section 7.4 EMPLOYEE BENEFITS. Until December 31, 2000, Parent
shall provide, or shall cause the Surviving Corporation to provide, generally
to the officers and employees of the Surviving Corporation and its
Subsidiaries, employee benefits, including, without limitation, pension
benefits,
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health and welfare benefits, severance arrangements, stock option plans and
other executive compensation arrangements, on terms and conditions in the
aggregate that are at least as favorable to employees as those provided under
the Company Benefit Plans as of the date hereof. To the extent Parent
provides employee benefit plans or arrangements maintained by the Parent to
employees of the Surviving Corporation and its Subsidiaries, Parent will give
full credit for purposes of eligibility and vesting under such employee
benefit plans or arrangements for such employees' service with the Company or
its Subsidiaries.
Section 7.5 INDEMNIFICATION. (a) From and after the Effective
Time, Parent shall indemnify, defend and hold harmless the officers,
directors and employees of the Company and its Subsidiaries (the "Indemnified
Parties") against all losses, expenses, claims, damages or liabilities (i)
arising out of the transactions contemplated by this Merger Agreement or
arising as a result thereof or (ii) otherwise arising prior to the Effective
Time to the fullest extent, in the case of (i) or (ii), permitted or required
under (A) applicable law, (B) any indemnification agreements between the
Company and any such person and (C) the Company's Third Amended Articles of
Incorporation and Regulations as filed in the Company SEC Reports as of the
Effective Time. Notwithstanding the foregoing, Parent shall have no
responsibility to indemnify, defend or hold harmless the Indemnified Parties
against any losses, expenses, claims, damages or liabilities (x) arising out
of the transactions contemplated by the Split-Off and the Transition
Agreement (including, without limitation, any liability with respect to the
Form S-1 (or any other registration statement filed pursuant to the terms of
the Transition Agreement) under the Securities Act) or (y) arising out of the
Company Proxy Statement.
(b) From and after the Effective Time, A&S shall indemnify, defend
and hold harmless Parent, the Company and their Subsidiaries, officers,
directors, employees, agents and representatives against all losses,
expenses, claims, damages or liabilities (i) arising out of the Split-Off and
the Transition Agreement (including, without limitation, any liability with
respect to the Form S-1 (or any other registration statement filed pursuant
to the terms of the Transition Agreement) under the Securities Act) or (ii)
arising out of the Company Proxy Statement, except, in each case, for
materials contained in the Form S-1 (or such other registration statement) or
the Company Proxy Statement provided in writing by the Parent to the Company.
Notwithstanding the foregoing, A&S shall have no responsibility to indemnify,
defend, or hold harmless the Company, its Subsidiaries, the Sub, Parent and
each of their respective directors, officers, employees, representatives,
advisors, agents and Affiliates with respect to any claims for Taxes arising
out of the Split-Off and the Transition Agreement, except to the extent
otherwise provided in the Tax Sharing Agreement.
(c) For a period of three (3) years after the Effective Time,
Parent agrees to cause the Surviving Corporation to maintain in effect the
current policies of directors and officers liability insurance maintained by
the Company (provided that Parent may substitute therefor policies with
reputable and financially sound carriers of at least the same coverage and
amounts containing terms and conditions which are no less advantageous) with
respect to claims arising from or related to facts or events which occurred
at or before the Effective Time.
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(d) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Merger Agreement
is commenced, whether before or after the Effective Time, the parties hereto
agree to cooperate and use their respective reasonable efforts to vigorously
defend against and respond thereto.
(e) The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
Section 7.6 CONSENTS. Each of the parties shall cooperate and use
its reasonable best efforts to make all filings and obtain as promptly as
practicable all consents of any Governmental Entity or any other person
required in connection with, and waivers of any violations or rights of
termination that may be caused by, the consummation of the transactions
contemplated by this Agreement. Each of the parties hereto will furnish to
the other party such necessary information and reasonable assistance as such
other persons may reasonably request in connection with the foregoing.
Section 7.7 ANTITRUST FILINGS.
(a) In addition to and without limiting the agreements of Parent
and Sub contained in Section 7.6 hereof, Parent, Sub and the Company will (i)
take promptly all actions necessary to make the filings required of Parent,
Sub or any of their affiliates under the applicable Antitrust Laws (as
defined in Section 7.7(d) hereof), (ii) comply at the earliest practicable
date with any request for additional information or documentary material
received by Parent, Sub or any of their affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act and from the Commission or any other Governmental Entity pursuant
to Antitrust Laws, and (iii) cooperate with the Company in connection with
any filing of the Company under applicable Antitrust Laws and in connection
with resolving any investigation or other inquiry concerning the transactions
contemplated by this Agreement or the Ancillary Agreements commenced by any
of the Federal Trade Commission, the Antitrust Division of the Department of
Justice, state attorneys general, the Commission, or any other Governmental
Entity.
(b) In furtherance and not in limitation of the covenants of Parent
and Sub contained in Section 7.6 and Section 7.7(a) hereof, Parent, Sub and
the Company shall each use all reasonable efforts to resolve such objections,
if any, as may be asserted with respect to the Split-Off, the Merger or any
other transactions contemplated by this Agreement or the Ancillary Agreements
under any Antitrust Law. If any administrative, judicial or legislative
action or proceeding is instituted (or threatened to be instituted)
challenging the Split-Off, the Merger or any other transactions contemplated
by this Agreement or the Ancillary Agreements as violative of any Antitrust
Law, Parent, Sub and the Company shall each cooperate to contest and resist
any such action or proceeding.
(c) Each of the Company, Parent and Sub shall promptly inform the
other party of any material communication received by such party from the
Federal Trade Commission, the Antitrust Division of the Department of
Justice, the Commission, any state attorney general or any other Governmental
Entity regarding any of the transactions contemplated hereby. Parent and/or
Sub will promptly advise the Company with respect to any understanding,
undertaking or agreement
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(whether oral or written) which it proposes to make or enter into with any of
the foregoing parties with regard to any of the transactions contemplated
hereby.
(d) "Antitrust Law" means the Sherman Act, as amended, the Clayton
Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended,
and all other federal, state and foreign statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines, and other laws that
are designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
Section 7.8 ADDITIONAL AGREEMENTS. (a) Subject to the terms and
conditions herein provided (including, without limitation, Section 7.6), each
of the parties hereto agrees to use all reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Merger
Agreement, including, without limitation, (i) cooperating in the preparation
and filing of the Company Proxy Statement and any amendments thereof and (ii)
using all reasonable efforts to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings (including, but
not limited to, filings with all applicable Governmental Entities) and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible), and the Split-Off.
Notwithstanding the foregoing, but subject to Section 7.6, there shall be no
action required to be taken and no action will be taken in order to
consummate and make effective the transactions contemplated by this Merger
Agreement or the Transition Agreement if such action, either alone or
together with another action, would be reasonably likely to result in a
Company Material Adverse Effect or a Parent Material Adverse Effect.
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Merger Agreement,
the proper officers and/or directors of Parent, the Company and the Surviving
Corporation shall take all such necessary action.
Section 7.9 NO SOLICITATION. (a) Neither the Company nor any of
its Subsidiaries shall, directly or indirectly, take (nor shall the Company
authorize or permit its Subsidiaries, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents
or affiliates, to take) any action to (i) encourage, solicit or initiate the
submission of any Acquisition Proposal (as defined below), (ii) enter into
any agreement with respect to any Acquisition Proposal or (iii) participate
in any way in discussions or negotiations with, or furnish any information
to, any person in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal. The Company will promptly
communicate to Parent that such a solicitation or an inquiry has been
received by the Company, or that any such information has been requested from
it or that such negotiations or discussions have been sought to be initiated
with it and will keep Parent reasonably informed of the status and terms of
any Acquisition Proposal. As used herein, "Acquisition Proposal" shall mean
any proposed (A) merger, consolidation, share exchange or similar transaction
involving the Company or its Subsidiaries, (B) sale, lease or other
disposition, directly or indirectly, by merger, consolidation, share exchange
or otherwise of assets of the Company or its Subsidiaries representing 20% or
more of the consolidated assets of the Company and its Subsidiaries (other
than
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A&S), (C) issue, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 20% or more of the voting power of the Company, or
(D) transaction (including a tender offer or exchange offer) in which any
person would acquire beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act) of, or the right to acquire beneficial
ownership, of (whether itself, as a member of any "group" (as such term is
defined under the Exchange Act) or otherwise) 20% or more of any class of
equity securities of the Company or its Subsidiaries.
(b) Notwithstanding anything in this Merger Agreement to the
contrary (including without limitation clause (a) of this Section 7.9), the
Company's board of directors may engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions
with, any Person relating to, or otherwise facilitate any effort or attempt
to make or implement, a written Acquisition Proposal which was not solicited
by the Company or which did not otherwise result in a breach of Section
7.9(a), if and only to the extent that (i) the Company's board of directors
determines in good faith after consultation with outside counsel that it is
necessary to do so to avoid a breach of its fiduciary duties to the Company
or its shareholders under applicable laws, (ii) the Company's board of
directors determines in good faith, after consultation with its financial
advisors and outside counsel, that such written proposal or indication of
interest constitutes a Superior Proposal (as defined below), (iii) the
Shareholders' Meeting shall not have occurred and (iv) the Company's board of
directors provides prior written notice to Parent of the information referred
to in the second sentence of Section 7.9(a). Prior to furnishing nonpublic
information to, or entering into discussions or negotiations with, any other
Persons, the Company shall obtain from such person or entity an executed
confidentiality agreement with terms no less favorable, taken as a whole, to
the Company than those contained in the Confidentiality Agreement, dated as
of October 21, 1998, between Parent and the Company (the "Confidentiality
Agreement"), but which confidentiality agreement shall not include any
provision calling for an exclusive right to negotiate with the Company, and
the Company shall advise Parent of the nature of such nonpublic information
delivered to such person reasonably promptly following its delivery to the
requesting party. Nothing in this Section 7.9 shall (x) permit either Parent
or the Company to terminate this Merger Agreement (except as specifically
provided in Article IX hereof) or (y) affect any other obligation of Parent
or the Company under this Merger Agreement.
(c) A "Superior Proposal" means a bona fide written Acquisition
Proposal which the Company's board of directors concludes in good faith
(after consultation with its financial advisors and outside counsel), taking
into account all legal, financial, regulatory and other aspects of the
proposal and the person making the proposal, (i) would, if consummated,
result in a transaction that is more favorable to the shareholders of the
Company than the transactions contemplated by this Merger Agreement and (ii)
is reasonably capable of being completed (PROVIDED that for purposes of this
definition, the term Acquisition Proposal shall have the meaning assigned to
such term in Section 7.9(a) except that the references to "20%" shall be
deemed references to "50%").
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Section 7.10 SPLIT-OFF OF A&S.
(a) Simultaneously with the execution hereof, the Company and A&S
are entering into the Transition Agreement. Immediately prior to the Closing
Date, the Company, A&S and certain other parties will enter into the Tax
Sharing Agreement. From and after the Effective Time, Parent shall cause the
Surviving Corporation to perform any and all obligations and agreements of
the Company set forth herein or in the Ancillary Agreements or in any other
agreements contemplated herein or therein.
(b) The Company, as promptly as practicable, shall use its best
efforts to cause the shares of A&S to be registered pursuant to the
Securities Act and thereafter effect the Split-Off in accordance with the
terms of the Transition Agreement including, without limitation, by preparing
and filing a registration statement on Form S-1 (or any other registration
statement contemplated to be filed pursuant to the terms of the Transition
Agreement) and using its respective best efforts to cause such registration
statement to be declared effective and preparing and making such other
filings as may be required under applicable state securities laws. The
Company shall promptly provide to Parent copies of all filings made with the
Commission in connection with the Split-Off, including, without limitation,
the Form S-1 (or any other registration statement contemplated to be filed
pursuant to the terms of the Transition Agreement) and any amendments
thereto, all comments made by the Commission with respect to such filings and
all Company responses to such Commission comments. Prior to making such
filings with the Commission or entering into any other agreement with A&S
other than the Transition Agreement, the Company shall consult with Parent
with respect to such filings and other agreements and provide Parent with a
reasonable opportunity to comment on such filings and other agreements.
(c) Parent shall, and shall cause the Surviving Corporation to,
treat the Split-Off for purposes of all federal and state taxes as an
integral part of the Merger and thus report the Split-Off as a redemption,
for purposes of Section 302(a) of the Code, of a number of shares of Company
Common Stock equal in value to the value of the A&S Common Stock distributed
in the Split-Off.
(d) The treatment of any decrease in the net tax benefit expected
to be received by Parent in this Merger as a result of the Split-Off is set
forth in Section 4 of the Tax Sharing Agreement and the treatment of any
increase in the net tax benefit expected to be received by Parent in this
Merger as a result of the Split-Off is set forth in Section 4.1 of the
Transition Agreement.
(e) Prior to the Effective Time, the Company and A&S may elect to
form a holding company for the ownership of the A&S Common Stock. In such
event, (i) the Company shall transfer the shares of A&S Common Stock to the
holding company and shares of common stock of the holding company will be
issued in substitution of the shares of A&S Common Stock in the Split-Off and
(ii) the benefits and obligations of A&S from the transactions contemplated
by the Transition Agreement and Tax Sharing Agreement shall inure to and be
binding upon the holding company; provided that A&S shall not be released
from its obligations under such Agreements.
Section 7.11 CONFIDENTIALITY. Parent, Sub and the Company agree
that the provisions of the Confidentiality Agreement shall remain binding and
in full force and effect (subject, however,
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to the provisions of Section 7.9(b) hereof) and that the terms of the
Confidentiality Agreement are incorporated herein by reference.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall
be subject to the fulfillment at or prior to the Effective Time of the
following conditions:
(a) This Merger Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the holders of
the Company Common Stock.
(b) No statute, rule, regulation, order or decree shall have been
enacted, entered, promulgated or enforced by any court or governmental
authority which prohibits or materially restricts the consummation of the
Merger.
(c) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and any
authorization, consent or approval required under any Antitrust Law shall
have been obtained or any waiting period applicable to the review of the
transactions contemplated hereby shall have expired or been terminated.
(d) The Split-Off Consideration shall have been deposited with the
Depositary.
(e) No preliminary or permanent injunction or other order by any
court or other judicial or administrative body of competent jurisdiction
which prohibits or prevents the consummation of the Merger shall have been
issued and remain in effect (each party, subject to Section 7.6, agreeing to
use its best efforts to have any such injunction lifted).
Section 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects
their agreements contained in this Merger Agreement and the Transition
Agreement required to be performed on or prior to the Effective Time.
(b) The representations and warranties of Parent and Sub contained
in this Merger Agreement shall be true in all material respects (except that
representations and warranties that expressly include a standard of
materiality shall be true in all respects) when made and on and as of the
Effective Time as if made on and as of such date, except for representations
and warranties which are by their express provisions made as of a specific
date or dates, which were or will be true in all material respects (except
that representations and warranties that expressly include a standard of
materiality were or will be true in all respects) at such time or times as
stated therein.
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(c) The Company shall have received a certificate of the President
or Chief Executive Officer or a Vice President of Parent to the effect that
each of the conditions specified above in Sections 8.2(a) and (b) is
satisfied in all respects.
(d) The Cash Consideration shall have been deposited with the
Depositary.
Section 8.3 CONDITIONS TO OBLIGATION OF PARENT AND SUB TO EFFECT
THE MERGER. The obligation of Parent and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the
additional following conditions, unless waived by Parent:
(a) The Company and A&S shall have performed in all material
respects their agreements contained in this Merger Agreement and the
Transition Agreement required to be performed on or prior to the Effective
Time.
(b) The representations and warranties of the Company contained in
this Merger Agreement shall be true in all material respects (except that
representations and warranties that expressly include a standard of
materiality shall be true in all respects) when made and on and as of the
Effective Time as if made on and as of such date, except for representations
and warranties which are by their express provisions made as of a specific
date or dates which were or will be true in all material respects (except
that representations and warranties that expressly include a standard of
materiality were or will be true in all respects) at such date or dates.
(c) Parent and Sub shall have received a certificate of the
President and Chief Executive Officer or the Chief Financial Officer of the
Company to the effect that each of the conditions specified in Sections
8.3(a) and (b) is satisfied in all respects.
(d) Parent shall be reasonably satisfied with the final form of
promissory note referred to in Section 4(b)(v) of the Tax Sharing Agreement,
which promissory note shall be prepared by Parent and A&S in a manner
consistent with the terms set forth in Exhibit A to the Tax Sharing Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
whether before or after approval by the shareholders of the Company:
(a) by mutual consent of the board of directors of Parent and the
board of directors of the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated on or before September 30, 1999; PROVIDED, that the
terminating party is not otherwise in material breach of its representations,
warranties or obligations under this Merger Agreement;
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(c) by Parent or the Company if any court of competent jurisdiction
in the United States or other United States governmental body shall have
issued a final order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the consummation of the
Split-Off or the Merger and such order, decree, ruling or other action is or
shall have become nonappealable;
(d) by the Company (i) if any of the conditions specified in
Sections 8.1 and 8.2 have not been met or waived by the Company at such time
as such condition is no longer capable of satisfaction or (ii) if the sum of
Established Claims exceeds the Claim Basket, PROVIDED, HOWEVER, that prior to
the exercise of this right of termination by the Company, Parent shall have
the right to waive the Claim Basket and elect to proceed with the
transactions contemplated by this Agreement without any adjustment to the
Cash Consideration; PROVIDED, FURTHER, that it shall be a condition to
termination by the Company pursuant to this Section 9.1(d)(ii) that the
Company shall have made all payments to Parent required by Section
10.3(b)(iii)(y);
(e) by Parent (i) if any of the conditions specified in Sections
8.1 and 8.3 have not been met or waived by Parent at such time as such
condition is no longer capable of satisfaction or (ii) if the sum of
Established Claims exceeds the Claim Basket, PROVIDED, HOWEVER, that prior to
the exercise of this right of termination by the Parent, the Company shall
have the right to elect to make a financial adjustment to the Cash
Consideration in an amount equal to the difference between the sum of
Established Claims and the Claim Basket;
(f) by Parent if the Company's board of directors shall have
withdrawn, modified in a manner adverse to Parent, or refrained from making
its recommendation concerning the Merger referred to in Section 3.5 hereof,
or shall have disclosed its intention to change such recommendation;
PROVIDED, that (i) Parent is not otherwise in material breach of its
representations, warranties or obligations under this Merger Agreement and
(ii) Parent has sufficient funds to enable it to finance the consummation of
the Merger;
(g) by Parent, if there has been a Company Material Adverse Change
other than as a result of the Company's Environmental Non-Compliance
Conditions or Year 2000 Non-Compliance Conditions.
(h) by Parent, upon becoming aware that the Company has entered
into a definitive agreement (other than a confidentiality agreement)
providing for, or if the Company's board of directors approves or recommends,
a Superior Proposal pursuant to Section 7.9;
(i) by the Company, at any time prior to the Shareholders' Meeting,
upon three business days' notice to Parent, if the Company's Board of
Directors shall approve a Superior Proposal; PROVIDED, HOWEVER, that (i) the
Company shall have complied with Section 7.9 and (ii) prior to any such
termination, the Company shall, and shall cause its financial and legal
advisors to, negotiate with Parent to make such adjustments in the terms and
conditions of this Merger Agreement as would enable Parent to match or exceed
the consideration offered pursuant to such Superior Proposal, net of amounts
payable by the Company under Section 10.3(b), in order to proceed with the
transactions contemplated hereby; PROVIDED, FURTHER, that it shall be a
condition to termination
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by the Company pursuant to this Section 9.1(i) that the Company shall have
made all payments to Parent required by Section 10.3(b); or
(j) by either Parent or the Company, if the Shareholders' Meeting
shall have been concluded without having obtained votes of the Company's
shareholders sufficient for the requisite shareholder approval of this Merger
Agreement (PROVIDED that the terminating party is not otherwise in material
breach of its obligations under this Merger Agreement).
Section 9.2 EFFECT OF TERMINATION. In the event of termination of
this Merger Agreement by either Parent or the Company, as provided above,
this Merger Agreement shall forthwith become void and (except for the willful
breach of this Merger Agreement by any party hereto) there shall be no
liability on the part of either the Company, Parent or Sub or their
respective officers, directors or shareholders; PROVIDED that Sections
6.1(iv), 7.11, 9.2, 10.3, 10.7 and 10.8 shall survive the termination.
Section 9.3 AMENDMENT. This Merger Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective boards of
directors, at any time before or after approval hereof by the shareholders of
the Company, but, after such approval, no amendment shall be made which (i)
changes the consideration to be received by any class of capital stock of the
Company as provided in Section 3.1(c), (ii) alters or changes any term of the
Articles of Incorporation of the Surviving Corporation (except for such
changes that could otherwise be adopted by the directors of the Surviving
Corporation), or (iii) in any way materially adversely affects the rights of
such shareholders, without the further approval of such shareholders. This
Merger Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
Section 9.4 WAIVER. At any time prior to the Effective Time, the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
documents delivered pursuant hereto, and (iii) waive compliance with any of
the agreements or conditions contained herein; PROVIDED, HOWEVER, that if
such waiver shall materially adversely affect the rights of the shareholders
of the Company, then no such waiver shall be made without the approval of
such shareholders. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. No representations, warranties or agreements in this Merger
Agreement shall survive the Merger, except for the agreements contained in
Sections 3.3, 3.4, 3.8, 7.3, 7.4, 7.5, 7.6, 7.11, 10.1, 10.3, 10.7 and 10.8.
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Section 10.2 NOTICES. All notices or other communications under
this Merger Agreement shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, telex, telecopy or other standard form of telecommunications, or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
(a) If to the Company, to:
Essef Corporation
c/o Anthony & Sylvan Pools Corporation
220 Park Drive
Chardon, Ohio 44024
Facsimile No.: (440) 286-2206
Attention: Mark E. Brody
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 479-8776
Attention: Mary Ann Jorgenson, Esq.
(b) If to Parent or Purchaser, to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Richard J. Cathcart
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with a copy to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Louis L. Ainsworth, Esq.
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile No.: (414) 297-4900
Attention: Benjamin F. Garmer, III, Esq.
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 10.2.
Section 10.3 FEES AND EXPENSES. (a) Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Merger
Agreement and the transactions contemplated by this Merger Agreement shall be
paid by the party incurring such expenses.
(b) Parent and the Company agree that (i) if the Company shall
terminate this Merger Agreement pursuant to Section 9.1(i); (ii) if (A)
Parent or the Company shall terminate this Agreement pursuant to Section
9.1(b), (B) at the time of the event giving rise to such termination the
Company shall have received a solicitation or inquiry giving rise to the
disclosure obligation set forth in the second sentence of Section 7.9(a) and
(C) within 12 months of the termination of this Merger Agreement, the Company
enters into a definitive agreement or consummates a merger, consolidation,
sale of substantially all of the assets of the Company or other change in
control transaction in connection with such solicitation or inquiry; (iii) if
(A) Parent or the Company shall terminate this Agreement pursuant to Section
9.1(f) or (h), (B) at the time of the event giving rise to such termination
the Company shall have received an Acquisition Proposal and (C) within 12
months of the termination of this Merger Agreement, the Company enters into a
definitive agreement with respect to such Acquisition Proposal or consummates
a transaction pursuant to such Acquisition Proposal; or (iv) if Parent or the
Company shall terminate this Merger Agreement pursuant to Section 9.1(d)(ii)
or (e)(ii), as the case may be, then the Company shall pay to an account
designated by Parent in immediately available funds an amount equal to (x) 3%
of the aggregate Cash Consideration to be paid to holders of Company Common
Stock pursuant to Article III in the case of any termination referred to in
clauses (i) or (iii) above; (y) 1 1/2% of the aggregate Cash Consideration in
the case of any termination referred to in clause (ii) above or (z) an amount
equal to the lesser of (1) the actual out-of-pocket costs and expenses
incurred by Parent in connection with this Merger Agreement and (2) $500,000
in the case of any termination referred to in clause (iv) above. The
Termination Fee shall be paid prior to, and shall be a condition to the
effectiveness of,
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any termination referred to in clauses (i) or (iv) above. Any payment
required to be made pursuant to clauses (ii) and (iii) above shall be made on
the next business day after such a transaction pursuant to an Acquisition
Proposal is consummated.
(c) To the extent that the fees and expenses incurred after
December 31, 1998 by the Company to Rhone Group, Squire, Sanders & Dempsey
L.L.P. and other advisers and service providers of the Company or its
Subsidiaries relating to the Split-Off and the Merger exceed $4,000,000, the
amount of the Claim Basket (as determined pursuant to Section 7.1(b)) shall
be reduced by the amount of the difference between (i) the sum of (x) the
fees and expenses relating to the Split-Off and the Merger actually incurred
after December 31, 1998 and (y) a good faith estimate of the fees and
expenses relating to the Split-Off and the Merger yet to be incurred, and
(ii) $4,000,000 ("Excess Transaction Fees"). Two business days prior to the
Cut-Off Date, the Company shall deliver to Parent a schedule that sets forth
the actual fees and expenses relating to the Split-Off and Merger incurred to
date after December 31, 1998 and an estimate of the additional fees and
expenses to complete the Split-Off and the Merger.
Section 10.4 PUBLICITY. So long as this Merger Agreement is in
effect, Parent, Sub and the Company agree to consult with each other before
issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Merger Agreement, and none
of them shall issue any press release or make any public statement prior to
such consultation, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange. The
commencement of litigation relating to this Merger Agreement or the
transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this Section 10.4.
Section 10.5 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Merger Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Merger Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 10.6 INTERPRETATION. (a) When a reference is made in this
Merger Agreement to subsidiaries of Parent or the Company, the word
"Subsidiaries" means corporations more than 50% of whose outstanding voting
securities are directly or indirectly owned by Parent or the Company, as the
case may be; provided, however, that in the case of the Company, A&S shall
not be considered as a Subsidiary. The headings contained in this Merger
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Merger Agreement.
(b) As used in this Merger Agreement, "Parent Material Adverse
Effect" shall mean a material adverse effect on the business, properties,
assets, financial condition, and results of operations of Parent and its
subsidiaries taken as a whole (excluding the effect of a change in general
economic conditions).
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(c) As used in this Merger Agreement, "Company Material Adverse
Effect" shall mean a material adverse effect on the business, properties,
assets, financial condition, and results of operations of the Company and its
Subsidiaries (other than A&S) taken as a whole (excluding the effect of a
change in general economic conditions).
(d) As used in this Merger Agreement, "knowledge" shall mean, with
respect to the matter in question, the actual knowledge of such matter by an
executive officer, with respect to Parent, and by Thomas B. Waldin, Stuart D.
Neidus or Mark E. Brody, with respect to the Company, as applicable.
(e) The inclusion of an item on any schedule to this Merger
Agreement shall not be deemed to be indicative of the materiality of such
item.
Section 10.7 THIRD PARTY BENEFICIARIES. Except as specifically
provided in Section 7.5, this Merger Agreement is not intended to confer upon
any other person any rights or remedies hereunder.
Section 10.8 MISCELLANEOUS. This Merger Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) shall not be assigned by operation of law or
otherwise, except that Sub shall have the right to assign to Parent or any
direct wholly owned Subsidiary of Parent any and all rights and obligations
of Sub under this Merger Agreement; and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Ohio (without giving effect to the provisions thereof relating to
conflicts of law). This Merger Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
Section 10.9 CURE PERIOD. No party shall have any rights under
this Merger Agreement for any actual or threatened breach of a
representation, warranty, covenant or agreement contained herein, if such
breach is capable of being cured, until (i) the non-breaching party has
notified the breaching party of its determination of the existence (or
threatened existence) of a basis for termination, and (ii) the breaching
party shall have had a reasonable time (considering the nature of the breach
and the actions required for cure, but in no event longer than 15 days) to
cure such breach.
Section 10.10 VALIDITY. (a) The invalidity or unenforceability of
any provision of this Merger Agreement shall not affect the validity or
enforceability of the other provisions of this Merger Agreement, which shall
remain in full force and effect.
(b) In the event any court of competent jurisdiction holds any
provision of this Merger Agreement to be null, void or unenforceable, the
parties hereto shall negotiate in good faith the execution and delivery of an
amendment to this Merger Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the parties hereto
with respect to such provision and the economic effects thereof.
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<PAGE>
(c) Each party agrees that, should any court of competent
jurisdiction hold any provision of this Merger Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action
inconsistent herewith, or not take any action required herein, the other
party shall not be entitled to specific performance of such provision or part
hereof or to any other remedy, including but not limited to money damages,
for breach thereof or of any other provision of this Merger Agreement or part
hereof as the result of such holding or order.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be signed by their respective officers thereunder duly
authorized all as of the date first written above.
PENTAIR, INC.
By: /s/ Richard J. Cathcart
---------------------------
Name: Richard J. Cathcart
---------------------------
Title: Executive Vice President
---------------------------
NORTHSTAR ACQUISITION COMPANY
By: /s/ Richard J. Cathcart
---------------------------
Name: Richard J. Cathcart
---------------------------
Title: President
---------------------------
ESSEF CORPORATION
By: /s/ Thomas B. Waldin
---------------------------
Name: Thomas B. Waldin
---------------------------
Title: President
---------------------------
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EXHIBIT A
TRANSITION AGREEMENT
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EXHIBIT B
TAX SHARING AGREEMENT
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<PAGE>
PARENT AND SUB DISCLOSURE SCHEDULE
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COMPANY DISCLOSURE SCHEDULE
- 1 -
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TRANSITION AGREEMENT
DATED AS OF
APRIL 30, 1999
AMONG
ESSEF CORPORATION,
ANTHONY & SYLVAN POOLS CORPORATION
AND
PENTAIR, INC.
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
DEFINITIONS
Section 1.1. General...........................................................1
Section 1.2. References to Time................................................7
ARTICLE II
THE RELATED TRANSACTIONS
Section 2.1. Transfers of Certain Assets and Liabilities.......................8
Section 2.2. Methods of Transfer and Assumption................................8
Section 2.3. Company Approval of Certain A&S Actions...........................8
ARTICLE III
THE SPLIT-OFF
Section 3.1. Cooperation and Actions Prior to the Split-Off....................8
Section 3.2. Net Asset Adjustment.............................................10
Section 3.3. Actions of A&S Prior to the Cut-Off Date.........................11
Section 3.4. Post-Cut-Off Date Operations of A&S..............................11
Section 3.5. The Split-Off....................................................11
Section 3.6. Termination of Certain Claims....................................11
Section 3.7. Post-Closing Procedures..........................................11
ARTICLE IV
INTERCOMPANY TRANSACTIONS AND RELATIONSHIPS
Section 4.1. Cash Dividend....................................................12
Section 4.2. Intercompany Accounts............................................13
Section 4.3. Transition Services..............................................13
ARTICLE V
SURVIVAL AND INDEMNIFICATION
Section 5.1. Survival of Agreements...........................................14
Section 5.2. Indemnification by A&S...........................................14
Section 5.3. Indemnification by the Company...................................16
Section 5.4. Procedure for Indemnification....................................16
Section 5.5. Miscellaneous Indemnification Provisions.........................18
Section 5.6. Pending Litigation...............................................20
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Section 5.7. Construction of Agreements.......................................20
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1. Representations or Warranties; Disclaimers.......................20
Section 6.2. Further Assurances; Subsequent Transfers.........................21
Section 6.3. Use of Names.....................................................22
Section 6.4. Litigation Relating to Transaction...............................22
Section 6.5. Operation Prior to Split-Off.....................................23
Section 6.6. Restrictions on Post-Split-Off Competitive Activities............23
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1. Provision of Corporate Records...................................23
Section 7.2. Access to Information............................................24
Section 7.3. Production of Witnesses..........................................24
Section 7.4. Retention of Records.............................................24
Section 7.5. Confidentiality..................................................24
ARTICLE VIII
EMPLOYEE MATTERS
Section 8.1. Employees........................................................25
Section 8.2. Employee Benefits................................................25
Section 8.3. Other Liabilities and Obligations................................27
Section 8.4. Preservation of Rights to Amend or Terminate Plans...............27
Section 8.5. Reimbursement; Indemnification...................................27
Section 8.6. Nonsolicitation of Employees.....................................27
Section 8.7. Actions By A&S...................................................28
ARTICLE IX
INSURANCE
Section 9.1. General..........................................................28
Section 9.2. Certain Insured Claims...........................................28
ARTICLE X
CONDITIONS; TERMINATION; AMENDMENTS; WAIVERS
Section 10.1. Conditions to Split-Off.........................................29
Section 10.2. Termination.....................................................29
Section 10.3. Amendments; Waivers.............................................30
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Survival of Indemnities; Release.............................30
Section 11.2. Entire Agreement.............................................30
Section 11.3. Fees and Expenses............................................31
Section 11.4. Governing Law................................................31
Section 11.5. Notices......................................................31
Section 11.6. Successors and Assigns; No Third Party Beneficiaries.........32
Section 11.7. Counterparts.................................................33
Section 11.8. Interpretation...............................................33
Section 11.9. Schedules....................................................33
Section 11.10. Legal Enforceability.........................................33
Section 11.11. Consent to Jurisdiction......................................33
Section 11.12. Specific Performance.........................................34
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TRANSITION AGREEMENT
THIS TRANSITION AGREEMENT (this "Agreement"), dated as of April 30,
1999, by and among ESSEF CORPORATION, an Ohio corporation (the "Company"),
ANTHONY & SYLVAN POOLS CORPORATION, an Ohio corporation and an indirect
wholly-owned subsidiary of the Company ("A&S") and PENTAIR, INC., a Minnesota
corporation ("Parent").
RECITALS
WHEREAS, the Board of Directors of the Company has determined to
implement certain of the transfers and other transactions contemplated in
connection with the Merger (as hereafter defined) and the Split-Off (as
hereafter defined);
WHEREAS, the Board of Directors of the Company has also determined
to cause the Split-Off of shares of A&S Common Stock (as hereafter defined)
to the holders as of the Effective Time (as hereafter defined) of the Company
Common Stock (as hereafter defined) and to the holders of certain Stock
Options (as hereafter defined) all as part of, and in conjunction with, the
Merger;
WHEREAS, the Company and A&S have determined that it is desirable to
set forth the principal corporate transactions required to effect such Merger
and Split-Off and to set forth certain other agreements that will govern
certain other matters prior to or following such Split-Off;
WHEREAS, the Company has entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), with Parent and
Northstar Acquisition Company, an Ohio corporation and a wholly-owned
subsidiary of Parent (the "Purchaser"), providing for the Merger (as
hereafter defined), as a result of which the Company, as the corporation
surviving the Merger, will become a wholly-owned subsidiary of Parent; and
WHEREAS, in order to induce the parties to enter into this Agreement
and in consideration of the Company's willingness to enter into the Merger
Agreement, the parties hereto and certain other parties are entering or will
enter into the Tax Sharing Agreement (as hereafter defined) providing for
certain ongoing relationships among the parties;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. GENERAL. For convenience and brevity, certain terms
used in various parts of this Agreement (including the Disclosure Schedule
hereto) are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined or referred to):
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(a) "ACTION" means any action, claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
(b) "ADJUSTMENT CALCULATION" shall have the meaning set forth in
Section 3.2(a) hereof.
(c) "AFFILIATE" of any specified person or entity means (x) any
director or officer of, or any person or entity that beneficially owns at
least 50% of the capital stock or other equity interests of, such specified
person or entity, or (y) any other person or entity directly or indirectly
controlling, controlled by, or under common control with, such specified
person or entity, at any time during the period for which the determination
of affiliation is being made; provided that the Company and the Retained
Subsidiaries, on the one hand, and A&S, on the other hand, shall not, after
giving effect to the Split-Off, be deemed to be Affiliates of each other for
purposes of this Agreement.
(d) "AGREEMENT" means this Transition Agreement, together with all
exhibits and schedules hereto, as the same may be amended from time to time
in accordance with the terms hereof.
(e) "ASSERTED LIABILITY" shall have the meaning set forth in Section
5.4(a) hereof.
(f) "A&S" shall have the meaning set forth in the preamble to this
Agreement.
(g) "A&S ACTION" shall have the meaning set forth in Section 5.6 hereof.
(h) "A&S ASSETS" means (i) the assets of A&S set forth on the A&S
Balance Sheet, as adjusted for transactions occurring in the ordinary course
of business in a manner consistent with past practice between December 31,
1998 and the Effective Time; (ii) the assets listed on Schedule 2.1(a) of the
Disclosure Schedule; and (iii) all right, title and interest, to the extent
held by the Company and its Subsidiaries immediately prior to the Split-Off,
with respect to each of the following items: (A) the A&S Names and A&S
Proprietary Name Rights (such terms, as defined in Section 6.3 hereof) and
(B) any Actions commenced by A&S the subject matter of which is otherwise an
A&S Asset or any Action which relates primarily to an A&S Asset (to the
extent such Actions constitute assets).
(i) "A&S BALANCE SHEET" means the unaudited consolidated balance of the
A&S Business as of December 31, 1998 set forth in Schedule 1.1(i) of the
Disclosure Schedule.
(j) "A&S BUSINESS" means each business and each former business which
is or was conducted by A&S as of the Effective Time or which is or was
included within the A&S Assets.
(k) "A&S COMMON STOCK" means the common stock, without par value, of
A&S.
(l) "A&S EMPLOYEES" means (i) those persons who are employed as
officers or employees of A&S or otherwise employed by A&S immediately prior
to, or effective as of, the Effective Time, (ii) any person employed at the
Company's corporate level prior to the Effective Time listed in, or added any
time prior to the Effective Time to, Schedule 1.1(l) of the Disclosure
Schedule who at the Effective
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Time is to become an employee of A&S, and (iii) all former officers and
employees of A&S who, immediately prior to the termination of their
employment, were employed by A&S. In the event any person shall have been
employed by A&S, as well as by the Company or any of the Retained
Subsidiaries, such person shall be considered an A&S Employee if at the
Effective Time such person's primary employment shall be with A&S or the A&S
Business.
(m) "A&S 401(k) PLAN" shall have the meaning set forth in Section
8.2(a) hereof.
(n) "A&S INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 5.3(a) hereof.
(o) "A&S LIABILITIES" means (i) all of the Liabilities of A&S to third
parties and all Liabilities relating to or arising out of the A&S Assets or
the conduct of the A&S Business (in all cases, whether arising before or
after the Effective Time); (ii) the liabilities set forth in the A&S Balance
Sheet, as adjusted for transactions occurring in the ordinary course of
business in a manner consistent with past practice between December 31, 1998
and the Effective Time; (iii) the liabilities listed in Schedule 2.1(b) of
the Disclosure Schedule; (iv) any Actions commenced by A&S the subject matter
of which is otherwise an A&S Asset or any Action which relates primarily to
an A&S Asset (to the extent such Actions constitute Liabilities); (v) except
as otherwise provided in Article VIII hereof, the Liabilities of the Company
and its subsidiaries, including, without limitation, A&S, in respect of A&S
Employees (in all cases, whether arising before or after the Effective Time);
and (vi) all Liabilities relating to or arising out of the A&S Assets or the
conduct of the A&S Business (in all cases, whether arising before or after
the Effective Time) with respect to which the Company or any Retained
Subsidiary has agreed, prior to the Effective Time, to indemnify any third
party in any manner with respect thereto or has agreed to otherwise be, or is
otherwise, liable with respect thereto, except to the extent the Liability
relates to or arises out of any product purchased by A&S from the Company or
any Retained Subsidiary or is otherwise covered under any warranty provided
by the Company or any Retained Subsidiary with respect to such product.
(p) "A&S NAMES" shall have the meaning set forth in Section 6.3 hereof.
(q) "A&S NET ASSETS" means the total assets of A&S minus the total
liabilities of A&S as set forth in the Interim Balance Sheet (excluding any
indebtedness of A&S to the Company or any of its Subsidiaries other than any
liabilities to the Company or any of its Subsidiaries incurred in connection
with the purchase by A&S of swimming pool equipment).
(r) "A&S PROPRIETARY NAME RIGHTS" shall have the meaning set forth in
Section 6.3 hereof.
(s) "A&S SUBSEQUENT HIRE" shall have the meaning set forth in Section
8.6(b) hereof.
(t) "A&S TRANSFEREE" shall have the meaning set forth in Section 11.6
hereof.
(u) "A&S WELFARE PLANS" shall have the meaning set forth in Section
8.2(b) hereof.
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(v) "CASUALTY PROGRAM" means collectively, the series of programs
pursuant to which various insurance carriers provide insurance coverage to
the Company and its Subsidiaries in respect of claims or occurrences relating
to workers' compensation liability, general liability, products liability,
automobile liability and employer's liability for all periods up to the
Effective Time.
(w) "CLAIM NOTICE" shall have the meaning set forth in Section 5.4(a)
hereof.
(x) "CLOSING" shall have the meaning set forth in the Merger Agreement.
(y) "CLOSING BALANCE SHEET" shall have the meaning set forth in Section
3.7 hereof.
(z) "CLOSING DATE" shall have the meaning set forth in the Merger
Agreement.
(aa) "COMPANY" shall have the meaning set forth in the preamble to this
Agreement.
(ab) "COMPANY COMMON STOCK" means the common stock of the Company,
without par value.
(ac) "COMPANY DIVIDEND" shall have the meaning set forth in Section 4.1
hereof.
(ad) "COMPANY NAMES" shall have the meaning set forth in Section 6.3
hereof.
(ae) "COMPANY PROPRIETARY NAME RIGHTS" shall have the meaning set forth
in Section 6.3 hereof.
(af) "COMPANY PROXY STATEMENT" means the proxy statement or information
statement prepared by the Company for distribution to the holders of the
Company's Common Stock in connection with the Merger and Split-Off.
(ag) "COMPANY SUBSEQUENT HIRE" shall have the meaning set forth in
Section 8.6(a) hereof.
(ah) "COMPANY WELFARE PLANS" shall have the meaning set forth in Section
8.2(b) hereof.
(ai) "CONFIDENTIALITY AGREEMENT" means the confidentiality agreement
dated as of October 21, 1998 between Parent and the Company.
(aj) "CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 7.5 hereof.
(ak) "CONVEYANCE AND ASSUMPTION INSTRUMENT" means, collectively, the
various agreements, instruments and other documents to be entered into to
effect the transfer of assets and the assumption of liabilities set forth in
Article II hereof.
(al) "COURT ORDER" means any judgment, decree, injunction, order or
ruling of any Governmental Entity that is binding on any person or its
property under applicable Law.
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(am) "CUT-OFF DATE" shall have the meaning set forth in Section 3.2(a)
hereof.
(an) "DISCLOSURE SCHEDULE" means the disclosure schedule dated as of
the date hereof and attached hereto. References to a particular schedule of
the Disclosure Schedule shall only refer or modify the specific Section of
this Agreement to which such Schedule relates (i.e., Schedule 2.1(b) of the
Disclosure Schedule shall refer to or modify only Section 2.1(b) of this
Agreement), unless otherwise expressly set forth herein.
(ao) "EFFECTIVE TIME" shall have the meaning set forth in the Merger
Agreement.
(ap) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(aq) "EXCESS NET TAX BENEFIT" shall have the meaning set forth in
Section 4.1(a) hereof.
(ar) "FORM S-1" means the registration statement on Form S-1 to be
filed by A&S with the SEC to effect the registration of the A&S Common Stock
pursuant to the Securities Act.
(as) "GOVERNMENTAL ENTITY" means any United States or any foreign,
federal, state or local government, court, administrative agency or
commission or other governmental or regulatory body or authority.
(at) "INDEMNIFIABLE LOSSES" means, with respect to any claim by an
Indemnified Party for indemnification pursuant to Articles V, VI or VIII
hereof, any and all damages, losses, deficiencies, Liabilities, obligations,
penalties, judgments, settlements, claims, payments, fines, interest, costs
and expenses (including, without limitation, the costs and expenses of any
and all Actions, demands, assessments, judgments, settlements and compromises
relating thereto and the costs and expenses of attorneys', accountants',
consultants' and other professionals', and fees and expenses incurred in the
investigation or defense thereof or the enforcement of rights hereunder),
including direct and consequential damages, but excluding punitive damages
(other than punitive damages awarded to any third party against an
Indemnified Party) suffered by such Indemnified Party with respect to such
claim.
(au) "INDEMNIFIED PARTY" means any party which is seeking
indemnification from an Indemnifying Person pursuant to the provisions of
Articles V, VI or VIII hereof.
(av) "INDEMNIFYING PARTY" means any party hereto from which any
Indemnified Party is seeking indemnification pursuant to the provisions of
Articles V, VI or VIII hereof.
(aw) "INFORMATION" shall have the meaning set forth in Section 7.2
hereof.
(ax) "INTERCOMPANY AGREEMENTS" means any contracts or agreements
between A&S on the one hand, and the Company or any Retained Subsidiary on
the other hand.
(ay) "INTERIM BALANCE SHEET" shall have the meaning set forth in
Section 3.2(a) hereof.
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(az) "LAW" means any statute, law, rule, regulation, ordinance, order,
decree or judgment of any Governmental Entity, including, without limitation,
those covering environmental, energy, safety, health, transportation,
telecommunications, recordkeeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters.
(ba) "LIABILITY" means, with respect to any party, except as otherwise
expressly provided herein, any direct or indirect liability (whether
absolute, accrued, contingent, reflected on a balance sheet (or in the notes
thereto) or otherwise, and whether known or unknown), indebtedness,
obligation, expense, claim, deficiency, guarantee or endorsement of or by any
person (including, without limitation, those arising under any Law or Action
or under any award of any court, tribunal or arbitrator of any kind, and
those arising under any contract, commitment or undertaking).
(bb) "MERGER" shall have the meaning set forth in the Merger Agreement.
(bc) "MERGER AGREEMENT" shall have the meaning set forth in the
recitals to this Agreement.
(bd) "NET ASSET INCREASE ADJUSTMENT" shall have the meaning set forth
in Section 3.2(b) hereof.
(be) "NOTICE PERIOD" shall have the meaning set forth in Section 5.4(a)
hereof.
(bf) "PARENT" shall have the meaning set forth in the preamble to this
Agreement.
(bg) "PARENT EMPLOYEE" shall have the meaning set forth in Section
8.6(a) hereof.
(bh) "PARENT INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 5.2(a) hereof.
(bi) "PERSON" or "PERSON" means and includes any individual,
partnership, joint venture, corporation, association, joint stock company,
trust, unincorporated organization or similar entity and any Governmental
Entity.
(bj) "PLAN" shall have the meaning set forth in Section 8.2(c) hereof.
(bk) "PURCHASER" shall have the meaning set forth in the recitals to
this Agreement.
(bl) "RETAINED ACTION" shall have the meaning set forth in Section 5.6
hereof.
(bm) "RETAINED BUSINESS" means all businesses of the Company and the
Retained Subsidiaries and all business included within the assets, or
obligated by the liabilities, of the Company and the Retained Subsidiaries
(each as described in the Company's Annual Report on Form 10-K for the year
ended September 30, 1998), as conducted by the Company and such Subsidiaries
as of the Effective Time and all former businesses of the Company and the
Retained Subsidiaries; provided that the term "RETAINED BUSINESS" shall not
include the A&S Business, the A&S Assets or the A&S Liabilities.
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(bn) "RETAINED EMPLOYEES" shall mean all current and former officers
and employees of the Company and its Subsidiaries, other than the A&S
Employees.
(bo) "RETAINED SUBSIDIARIES" means all of the Subsidiaries of the
Company, other than A&S.
(bp) "SEC" means the U.S. Securities and Exchange Commission.
(bq) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(br) "SPLIT-OFF" means the issuance of the shares of A&S Common Stock
to holders of Company Common Stock and to holders of Stock Options in
connection with the Merger pursuant to the provisions of the Merger Agreement.
(bs) "SPLIT-OFF CONDITIONS" means each of the conditions set forth in
clauses (i) through (vi) of Section 10.1(a) hereof.
(bt) "STOCK OPTIONS" shall have the meaning set forth in the Merger
Agreement.
(bu) "SUBSIDIARY" or "SUBSIDIARY" of any party means (i) a corporation,
a majority of the voting or capital stock of which is as of the time in
question directly or indirectly owned by such party and (ii) any other
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or similar entity, in which such party, directly
or indirectly, owns a majority of the equity interest thereof or has the
power to elect or direct the election of a majority of the members of the
governing body of such entity or otherwise has control over such entity
(e.g., as the managing partner of a partnership).
(bv) "SUIT" shall have the meaning set forth in Section 11.11 hereof.
(bw) "TAX SHARING AGREEMENT" means the Tax Sharing Agreement, in the
form of Exhibit B to the Merger Agreement, pursuant to which the Parent, the
Company and A&S have provided for certain tax matters, including, without
limitation, indemnification, allocation of tax benefits and filing of tax
returns.
(bx) "TRANSITION SERVICES" shall have the meaning set forth in Section
4.3 hereof.
(by) "TRANSITION SERVICES PERIOD" shall have the meaning set forth in
Section 4.3 hereof.
(bz) "TRANSITION SERVICES INVOICE" shall have the meaning set forth in
Section 4.3 hereof.
(ca) "TRANSACTION SUIT" shall have the meaning set forth in Section 6.4
hereof.
Section 1.2. REFERENCES TO TIME. All references in this Agreement to
times of the day shall be to Eastern Standard Time.
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ARTICLE II
THE RELATED TRANSACTIONS
Section 2.1. TRANSFER OF CERTAIN ASSETS AND LIABILITIES. Subject to
the terms and conditions of this Agreement, at the Effective Time,
(a) the Company shall transfer to A&S (and the Company shall cause
each of its subsidiaries to transfer to A&S) all of their right, title and
interest in and to the assets listed in Schedule 2.1(a) of the Disclosure
Schedule; and
(b) A&S shall assume and shall in due course pay, perform and
discharge (or shall cause to be assumed and cause in due course to be paid,
performed and discharged), the liabilities listed in Schedule 2.1(b) of the
Disclosure Schedule.
Section 2.2. METHODS OF TRANSFER AND ASSUMPTION. In connection
with the transfers of assets other than capital stock and the assumption of
any liabilities, the Company and A&S shall execute or cause to be executed by
the appropriate entities any necessary Conveyance and Assumption Instruments
in such forms as Parent, the Company and A&S shall reasonably agree.
Section 2.3. COMPANY APPROVAL OF CERTAIN A&S ACTIONS. Unless
otherwise provided in this Agreement, the Company shall cooperate with A&S in
effecting, and if so requested by A&S, the Company shall cause Pac-Fab, Inc.,
a wholly-owned subsidiary of the Company and the sole stockholder of A&S, to
ratify any actions that are reasonably necessary or desirable to be taken by
A&S to effectuate the transactions contemplated by this Agreement, in a
manner consistent with the terms of this Agreement, including, without
limitation, adopting, preparing and implementing appropriate plans,
agreements and arrangements for A&S Employees and A&S non-employee directors
(including, without limitation, employee benefit plans, agreements and
arrangements (with such changes thereto as the Board of Directors of the
Company may approve in its reasonable discretion prior to the Effective
Time)).
ARTICLE III
THE SPLIT-OFF
Section 3.1. COOPERATION AND ACTIONS PRIOR TO THE SPLIT-OFF. (a)
As promptly as practicable after the date hereof and prior to the Effective
Time:
(i) Subject to the provisions of paragraph (ii) below, the
Company shall prepare the Company Proxy Statement (which shall set
forth appropriate disclosure concerning A&S, the A&S Business, the
Merger, the Split-Off and certain other matters) and A&S shall file
with the SEC the Form S-1 (or such other form of registration statement
determined by the Company to be appropriate to effect the registration
of the A&S Common Stock). The Company and A&S shall use their
respective reasonable efforts to cause the Form S-1 to be declared
effective under the Securities Act, or if the Company shall determine
that the registration of the A&S Shares
<PAGE>
may not be effected pursuant to a Form S-1, the Company and A&S
shall use best efforts to cause the A&S Common Stock to be
registered pursuant to the registration statement or form determined
to be appropriate to effect such registration. As promptly as
practicable following the effectiveness of the Form S-1 (or other
registration statement, as the case may be), the Company shall mail
the Company Proxy Statement to the holders of the Company Common
Stock.
(ii) The Company shall promptly provide to Parent copies of
all filings made with the Commission in connection with the Split-Off,
including, without limitation, the Form S-1 (or any registration
statement referred to in Section 3.1(a) above) and any amendments
thereto, all comments made by the Commission with respect to such
filings and all Company responses to such Commission comments. Prior to
making such filings with the Commission or entering into any other
agreement with A&S other than this Agreement, the Company shall consult
with Parent with respect to such filings and other agreements and
provide Parent with a reasonable opportunity to comment on such filings
and other agreements.
(iii) The Company and A&S shall cooperate in preparing, filing
with the SEC and causing to become effective any registration
statements or amendments thereto which are appropriate to reflect the
establishment of, or amendments to, any employee benefit and other
plans contemplated by this Agreement.
(iv) The Company and A&S shall take all such action as may be
necessary or appropriate under state securities or "Blue Sky" Laws in
connection with the transactions contemplated by this Agreement.
(v) The Company and A&S shall prepare, and A&S shall file and
seek to make effective, an application to permit listing of the A&S
Common Stock either on a national securities exchange or national
market system as may be selected by A&S in its sole discretion (to the
extent permitted pursuant to the listing requirements of such exchange
or national market system).
(vi) In addition to the actions specifically provided for
elsewhere in this Agreement and except as otherwise expressly set forth
in this Agreement, each of the parties hereto shall use its respective
best efforts to take, or cause to be taken, all actions, and, to
execute and deliver, or cause to be executed and delivered, such
additional documents and instruments, and to do, or cause to be done,
all things, reasonably necessary, proper or advisable under applicable
Laws and agreements to consummate and make effective the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing sentence, each of the parties hereto shall use its respective
best efforts to ensure that the conditions set forth in Article X
hereof are satisfied (insofar as such matters are within the control of
such party). Notwithstanding any other provisions set forth in this
Agreement, neither the Company, nor A&S nor any of their respective
Affiliates shall, without first obtaining the prior written consent of
the Parent, take or commit to take any action, in connection with
obtaining any consent, waiver or approval or effecting any of the
transactions contemplated in connection with the Split-Off or
otherwise, (i)
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except as otherwise expressly provided in this Agreement, that would
result in the payment of any funds (other than normal and usual
filing fees) or the incurrence of any liability by the Company or
any Retained Subsidiary, (ii) that would result in the divestiture
or holding separate of any assets, businesses or operations of the
Company or any of the Retained Subsidiaries, (iii) that might
materially limit or impair Parent's or the Company's or any Retained
Subsidiary's freedom of action with respect to, or its ability to
retain or exercise control over, any assets, businesses or
operations of the Company or any Retained Subsidiaries (other than
any limitations or restrictions expressly set forth in the Merger
Agreement, the Tax Sharing Agreement or any other agreement to be
entered into pursuant to this Agreement or the Merger Agreement), or
(iv) that might otherwise adversely affect Parent.
(b) Prior to the Effective Time, the Company and A&S may elect to
form a holding company for the ownership of the A&S Common Stock. In such
event, (i) the Company shall transfer the shares of A&S Common Stock to the
holding company and shares of common stock of the holding company will be
issued in substitution of the A&S Common Shares in the Split-Off and (ii) the
benefits and obligations from the transactions contemplated by this
Transition Agreement shall inure to and be binding upon the holding company;
provided that A&S shall not be released from its obligations hereunder.
Section 3.2. NET ASSET ADJUSTMENT.
(a) A&S, in consultation with Parent and the Company, shall prepare
and deliver to Parent within 15 days prior to the Closing Date and no later
than July 31, 1999, a balance sheet ("Interim Balance Sheet") of A&S as of
June 30, 1999 ("Cut-Off Date"), together with a calculation of the amount of
any adjustment determined under Section 3.2(b) (the "Adjustment
Calculation"). A&S shall prepare the Interim Balance Sheet in accordance with
generally accepted accounting principles applied on a consistent basis with
the accounting principles applied by A&S in preparation of its year-end 1998
financial statements. Representatives of Parent's accountants shall be
entitled to review, following execution of mutually agreed upon
confidentiality agreements, the work papers, schedules, memoranda and other
documents used in the preparation by A&S of the Interim Balance Sheet and the
Adjustment Calculation.
(b) If the value of the A&S Net Assets, as determined in the
Interim Balance Sheet, shall be greater than $40,836,000, the Company
Dividend (as defined in Section 4.1 below) shall be increased by an amount
equal to the difference between such amounts ("Net Asset Increase
Adjustment"). In addition, if Parent, based on its representatives' review of
the Interim Balance Sheet and Adjustment Calculation, determines that A&S's
payment of accounts payable was not conducted in compliance with Section 6.5
such that the value of A&S Net Assets (determined assuming compliance with
Section 6.5) differs from the value of A&S Net Assets as reflected in the
Interim Balance Sheet, then the parties shall mutually agree upon an
equitable adjustment to the calculation of the value of A&S Net Assets for
purposes of this Section 3.2(b).
<PAGE>
Section 3.3. ACTIONS OF A&S PRIOR TO THE CUT-OFF DATE. By the
Cut-Off Date or as soon as practicable thereafter, A&S shall have obtained
financing upon terms and in such amount reasonably acceptable to A&S to allow
A&S to carryout the transactions contemplated by this Agreement, including
the payment of the Company Dividend prior to the Closing Date (as provided in
Section 4.1 below), and to conduct its business in the ordinary course after
the Cut-Off Date. In connection with A&S's obligation to obtain the financing
described in the preceding sentence and in particular financing between the
Cut-Off Date and the Closing Date, the Company agrees to take such action,
including issuing an interim guaranty for such financing, as is necessary to
enable A&S to obtain such financing on terms and a rate substantially similar
to financing then available to the Company for the period ending on the
Closing Date, with the understanding that any such interim guaranty would
expire at Closing.
Section 3.4. POST-CUT-OFF DATE OPERATIONS OF A&S. Effective as of
the Cut-Off Date, A&S shall operate its business as a stand alone entity (i)
entitled to all income realized after the Cut-Off Date and (ii) as provided
in the Tax Sharing Agreement, responsible for all taxes on income realized
from the activities or operations of A&S after the Cut-Off Date and entitled
to any tax benefits attributable to any losses or other tax attributes
resulting from the activities or operations of A&S after the Cut-Off Date.
Section 3.5. THE SPLIT-OFF. The Split-Off shall be effected
pursuant to the provisions of Article III of the Merger Agreement; provided,
however that such Split-Off shall be conditioned on the satisfaction (or
waiver, to the extent expressly permitted by the provisions of Section 10.1
hereof) of each of the Split-Off Conditions. All shares of A&S Common Stock
issued in the Split-Off shall be duly authorized, validly issued, fully paid,
non-assessable and free of preemptive rights.
Section 3.6. TERMINATION OF CERTAIN CLAIMS. Following the
Effective Time, A&S shall have no claims against the Company, any Retained
Subsidiary or any Affiliate of either based on any breach by the Company, any
Retained Subsidiary or any of their respective Affiliates of any obligations
under this Agreement that occurred on or prior to the Effective Time, all of
such claims being hereby irrevocably waived and terminated as of the
Effective Time; provided that the foregoing shall not limit the Company's
liability for any breach by the Company or any Retained Subsidiary of any of
their respective obligations under this Agreement that occurs following the
Effective Time.
Section 3.7. POST-CLOSING PROCEDURES. After the Closing, Parent
shall have the right to cause its independent auditors to conduct, at its
sole expense, a roll-back audit of A&S's year-end audited financial
statements to determine the accuracy of the balance sheet of A&S as of the
Closing Date (the "Closing Balance Sheet"). Such audit will be conducted in
accordance with procedures to be mutually agreed upon by the auditors of A&S
and Parent to verify the appropriateness at, or as of the Cut-Off Date, of
(i) the classification of assets and non-interest bearing liabilities between
A&S and the Company, (ii) the application of funds by A&S prior to the
Cut-Off Date, or (iii) tax allocations and other accruals. In conducting such
activities, Parent shall be given the opportunity to discuss A&S's year-end
audit with A&S's auditors and review work papers prepared by A&S's auditors
in connection with the preparation of A&S's year-end audited financial
statements. If Parent's independent auditors determine that inaccuracies
existed in the Closing Balance Sheet, then adjustments shall be made to the
<PAGE>
calculations, allocations and payments made in connection with the
transactions contemplated by this Agreement. If Parent and A&S fail to agree
on the resolution of any of the matters in this Section 3.7, then such matter
shall be referred to the Accountant (as defined in Section 1(b) of the Tax
Sharing Agreement) for a binding determination. Parent and A&S shall deliver
to the Accountant copies of any schedules or documentation that may be
reasonably required by the Accountant to make its determination. Parent and
A&S shall be entitled to make presentations to the Accountant in connection
therewith. Parent and A&S shall use all reasonable efforts to cause the
Accountant to promptly complete such determination.
ARTICLE IV
INTERCOMPANY TRANSACTIONS AND RELATIONSHIPS
Section 4.1. CASH DIVIDEND.
(a) DECLARATION; AMOUNT. After June 30, 1999 and prior to the
Effective Time, A&S shall declare a cash dividend (the "Company Dividend")
payable to the Company in an amount equal to $17,000,000 plus any Net Asset
Increase Adjustment (as determined pursuant to Section 3.2(b)) and minus the
amount by which the Net Tax Benefit (as defined in Section 4(b) of the Tax
Sharing Agreement) exceeds $4,200,000 (such excess to be referred to herein
as the "Excess Net Tax Benefit").
(b) DISTRIBUTION.
(i) Immediately prior to the Effective Time, A&S shall
distribute the Company Dividend in the following manner: (1) by
distributing an amount (the "Initial Distribution") calculated in
accordance with the formula described in Section 4.1(a), and, for
purposes of that calculation, by computing an estimated Excess Net
Tax Benefit using as the value of the A&S Common Stock the
Pre-Closing A&S Trading Value (as defined in Section 4.1(d)(i)
below) two (2) days prior to the Closing Date; (2) by making the
distribution referred in clause (1) above subject to an obligation
by the Company to return to A&S such part of the Initial
Distribution as may exceed an amount equal to the Company Dividend
as computed using the Closing A&S Trading Value (as defined in
Section 4.1(d)(ii) below); and (3) by distributing to the Company a
right to receive an additional distribution from A&S, as soon as
possible after the Closing Date, to the extent that the Company
Dividend computed using the Closing A&S Trading Value, exceeds the
amount of the Initial Distribution.
(ii) Pursuant to the obligation referred to in Section
4.1(b)(i)(2) above or the right referred to in Section 4.1(b)(i)(3)
above, as the case may be, the Company shall return to A&S a portion
of the Initial Distribution, or A&S shall make an additional
distribution to the Company, such that the Initial Distribution as
adjusted by this paragraph equals the amount of the Company Dividend
computed using the Closing A&S Trading Value. Such amount shall be
paid under this Section 4.1 as soon as practicable following the
Closing Date.
<PAGE>
(c) EFFECT. Upon payment of the Initial Distribution, any
remaining intercompany liabilities of A&S other than liabilities incurred in
connection with the purchase of swimming pool equipment from the Company and
its Subsidiaries shall be converted, and classified as a contribution, to the
capital of A&S and thereafter, A&S shall have no further obligation with
regard to such liabilities.
(d) DEFINITIONS. As used in this Section 4.1, the capitalized
terms used herein and not otherwise defined have the following meanings:
(i) "PRE-CLOSING A&S TRADING VALUE" shall mean the excess of
the high and low trading prices of Company Common Stock over $19.09.
(ii) "CLOSING A&S TRADING VALUE" shall mean the value
determined pursuant to the provisions of Section 5 of the Tax
Sharing Agreement.
Section 4.2. INTERCOMPANY ACCOUNTS. Following the date hereof, (i)
no transactions related to intercompany receivables, payables, loans, cash
overdrafts and other accounts in existence as of the date of this Agreement
between A&S, on the one hand, and the Company or any Retained Subsidiary, on
the other hand, shall be entered into except in the ordinary course of
business and in a manner consistent with past practice, and (ii) except with
the prior written consent of the Parent or for Intercompany Agreements which
are on their terms and conditions entered into in the ordinary course of
business and in a manner consistent with past practices, neither the Company,
any Retained Subsidiary or A&S shall enter into any Intercompany Agreement
following the date hereof and prior to the Effective Time.
Section 4.3. TRANSITION SERVICES.
(a) Following the Effective Time and ending on the one (1) year
anniversary of the Effective Time (such period, the "Transition Services
Period"), the Company shall provide, or make available, to A&S, at such times
and in such amounts as may be reasonably requested by A&S, the following
services (the "Transition Services") and A&S will pay for such Transition
Services on a cost basis as agreed to by the parties:
(i) tax preparation and filing services, including the
services of Robert Brunozzi, the Company's current Director of
Taxes; provided such director is employed by the Parent at the time
such services are requested by A&S;
(ii) legal services, to be provided by the Company's general
counsel, Kevan Langner; provided such counsel is employed by the
Parent or the Company at the time such services are requested by A&S;
(iii) information and technology support services of the
types set forth in Schedule 4.3 of the Disclosure Schedule; and
<PAGE>
(iv) such other additional services as may be reasonably
requested by A&S; provided that the scope of any services, as well
as the time and the manner in which such services are to be
provided, shall be mutually agreeable between the parties.
Following the end of the calendar month in which any such Transition
Services are performed, the Company shall provide to A&S an invoice (the
"Transition Services Invoice") setting forth in summary detail the Transition
Services which were provided during such calendar month and the appropriate
cost thereof. A&S shall pay to the Company in immediately available funds, in
a reasonably prompt manner following the delivery by the Company of a
Transition Services Invoice, the amounts due with respect to the Transition
Services reflected on such Transition Services Invoice. Notwithstanding
anything herein to the contrary, neither Parent nor the Company shall have
any liability whatsoever to A&S or A&S's Affiliates or any third party for
any loss, liability, damage, cost or deficiency suffered by any such person
resulting from, caused by or arising out of the Company's performance of the
Transition Services.
(b) In addition to the Transition Services to be provided by the
Company, for a period of two (2) months following the Effective Time A&S
shall be entitled to occupy and use without charge such office space at 220
Park Drive, Chardon, Ohio 44024 reasonably designated by A&S to be necessary
to enable A&S to continue to run its current operations at such location.
ARTICLE V
SURVIVAL AND INDEMNIFICATION
Section 5.1. SURVIVAL OF AGREEMENTS. The obligations under this
Article V of A&S, on the one hand, and the Company and the Retained
Subsidiaries, on the other hand, shall survive the sale or other transfer by
it of any assets or businesses or the assignment by it of any Liabilities. To
the extent that A&S transfers directly or indirectly to any other person all
or substantially all of the A&S Assets or the A&S Business, A&S will cause
the transferee of such A&S Assets or A&S Business to assume specifically its
obligations under this Agreement with respect thereto and will cause such
transferee to fulfill its obligations related to the A&S Liabilities. Such
assumption will not relieve A&S of its obligations in respect thereof. To the
extent that the Company or any of the Retained Subsidiaries transfers
directly or indirectly to any other person all or substantially all of the
Retained Business, the Company will cause the transferee of such Retained
Business to assume specifically its obligations under this Agreement with
respect thereto and will cause such transferee to fulfill its obligations
related to the Retained Liabilities. Such assumption will not relieve the
Company of its obligations in respect thereof. A&S, on the one hand, and the
Company, on the other hand, agree that such transferee may exercise all of
A&S's or the Company's rights hereunder, as the case may be, with respect to
such Assets or businesses.
<PAGE>
Section 5.2. INDEMNIFICATION BY A&S.
(a) In addition to any indemnification required by Articles VI and
VIII hereof, subject to the terms and conditions set forth in this Agreement,
from and after the Effective Time, A&S shall indemnify, defend and hold
harmless the Company, each Retained Subsidiary, the Purchaser and Parent and
each of their respective directors, officers, employees, representatives,
advisors, agents and Affiliates (collectively, the "Parent Indemnified
Parties") from, against and in respect of any and all Indemnifiable Losses of
the Parent Indemnified Parties arising out of, relating to or resulting from,
directly or indirectly, (i) any misrepresentation or breach of any warranty
in this Agreement made by A&S or, on or prior to the Effective Time, made by
the Company, (ii) any breach of any agreement or covenant under this
Agreement by A&S or, on or prior to the Effective Time, by the Company, (iii)
any and all A&S Liabilities, (iv) the conduct of the A&S Business or any part
thereof on or following the Effective Time, (v) any transfer of A&S Assets
to, or assumption of A&S Liabilities by, A&S in accordance with this
Agreement or otherwise in connection with the Split-Off (other than any costs
and expenses which have been expressly assumed by the Company pursuant to the
provisions of this Agreement), (vi) any Indemnifiable Loss resulting from any
claims that any statements or omissions relating to or describing, directly
or indirectly, A&S, the A&S Business, any A&S Asset or any A&S Liability, and
which occur on or prior to the Effective Time in the Company Proxy Statement
or the Form S-1 (in each case other than with respect to any statements or
omissions made in reliance upon and in conformity with information furnished
in writing by Parent, the Purchaser or their Affiliates, representatives or
advisors and other than any statements or omissions which relate solely to
the Merger Agreement and this Agreement and the transactions contemplated
thereby and hereby), which are false or misleading with respect to any
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (vii) any
Indemnifiable Loss arising out of or relating to Transaction Suits resulting
from, directly or indirectly, (a) any statement or omission on the part of
A&S or any of their Affiliates in the documents referred to in Section
5.2(a)(vi) above, (b) the A&S Business, A&S Assets and A&S Liabilities or (c)
any holder of Company Common Stock exercising appraisal rights under the Ohio
General Corporation Law with respect to the value of the Split-Off
Consideration (as defined in the Merger Agreement) and (viii) any
Indemnifiable Loss resulting from actions the Company or Pac-Fab, Inc. take
pursuant to Section 2.3 hereof.
(b) Notwithstanding A&S's obligations to indemnify Parent
Indemnified Parties pursuant to Section 5.2(a) hereof, A&S shall be obligated
to indemnify the Parent Indemnified Parties only for those Indemnifiable
Losses under clause (i) of Section 5.2(a) hereof as to which the Parent
Indemnified Parties have given A&S written notice thereof on or prior to the
third anniversary of the Effective Time and under clause (vi) of Section
5.2(a) hereof as to which the Parent Indemnified Parties have given A&S
written notice thereof on or prior to the expiration of any applicable
statute of limitations period (it being understood that there shall be no
corresponding time limitation with respect to any Indemnifiable Losses
arising under clauses (ii), (iii), (iv), (v), (vii) or (viii) of Section
5.2(a) hereof). Notwithstanding the foregoing, if on or before the expiration
of such indemnification period any Parent Indemnified Party has given notice
to A&S pursuant to Section 5.4 hereof of any matter which would be the basis
for a claim of indemnification by such Parent Indemnified Party pursuant to
Section 5.2(a),
<PAGE>
such Parent Indemnified Party shall have the right after the expiration of
such indemnification period to assert or to continue to assert such claim and
to be indemnified with respect thereto.
Section 5.3. INDEMNIFICATION BY THE COMPANY.
(a) In addition to any indemnification required by Articles VI and
VIII hereof, subject to the terms and conditions set forth in this Agreement,
from and after the Effective Time, the Company shall indemnify, defend and
hold harmless A&S and each of their respective directors, officers,
employees, representatives, advisors, agents and Affiliates (collectively,
the "A&S Indemnified Parties") from, against and in respect of any and all
Indemnifiable Losses of the A&S Indemnified Parties arising out of, relating
to or resulting from, directly or indirectly, (i) any breach of any agreement
or covenant under this Agreement by Parent or Purchaser or, following the
Effective Time, by the Company, (ii) the conduct of the Retained Business or
any part thereof on, prior to or following the Effective Time, and (iii) any
Indemnifiable Loss resulting from any claims that any statements or omissions
relating to or describing, directly or indirectly, Parent or the Purchaser,
and which occur on or prior to the Effective Time in the Company Proxy
Statement or the Form S-1 (in each case only to the extent of any statements
or omissions made in reliance upon and in conformity with information
furnished in writing by Parent, the Purchaser or their Affiliates,
representatives or advisors), which are false or misleading with respect to
any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing and anything to the contrary in this Agreement or any other
agreement to be entered into pursuant to this Agreement, the Company shall
not be required to indemnify, defend and hold harmless any A&S Indemnified
Party from and against any Indemnifiable Loss resulting from any claims that
the statements included in the Company Proxy Statement and the Form S-1 (in
each case other than statements or omissions made in reliance upon and in
conformity with information furnished in writing by Parent, the Purchaser or
their Affiliates, representatives or advisors expressly for use therein) are
false or misleading with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Notwithstanding the Company's obligations to indemnify the A&S
Indemnified Parties pursuant to Section 5.3(a) hereof, the Company shall be
obligated to indemnify the A&S Indemnified Parties only for those
Indemnifiable Losses under clause (iii) of Section 5.3(a) hereof as to which
the A&S Indemnified Parties have given the Company written notice thereof on
or prior to the expiration of any applicable statute of limitations period
(it being understood that there shall be no corresponding time limitation
with respect to any Indemnifiable Losses arising under clause (i) or (ii) of
Section 5.3(a) hereof). Notwithstanding the foregoing, if on or before the
expiration of such indemnification period any A&S Indemnified Party has given
notice to the Company pursuant to Section 5.4 hereof of any matter which
would be the basis for a claim of indemnification by such A&S Indemnified
Party pursuant to Section 5.3(a), such A&S Indemnified Party shall have the
right after the expiration of such indemnification period to assert or to
continue to assert such claim and to be indemnified with respect thereto.
<PAGE>
Section 5.4. PROCEDURE FOR INDEMNIFICATION. All claims for
indemnification under this Article V shall be asserted and resolved as
follows:
(a) In the event that any claim or demand, or other circumstance or
state of facts which could give rise to any claim or demand, for which an
Indemnifying Party may be liable to an Indemnified Party hereunder is
asserted against or sought to be collected by a third party (an "Asserted
Liability"), the Indemnified Party shall promptly notify the Indemnifying
Party in writing of such Asserted Liability, specifying the nature of such
Asserted Liability and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim or demand) (the "Claim Notice"); provided that no delay
on the part of the Indemnified Party in giving any such Claim Notice shall
relieve the Indemnifying Party of any indemnification obligation hereunder
unless (and then solely to the extent that) the Indemnifying Party is
materially prejudiced by such delay. The Indemnifying Party shall have twenty
(20) days (or less if the nature of the Asserted Liability requires) from its
receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party whether or not the Indemnifying Party desires, at the Indemnifying
Party's sole cost and expense and by counsel of its own choosing, which shall
be reasonably satisfactory to the Indemnified Party, to defend against such
Asserted Liability; provided that if, under applicable standards of
professional conduct a conflict on any significant issue between the
Indemnifying Party and any Indemnified Party exists in respect of such
Asserted Liability, then the Indemnifying Party shall reimburse the
Indemnified Party for the reasonable fees and expenses of one additional
counsel to be retained in order to resolve such conflict, promptly upon
presentation by the Indemnified Party of invoices or other documentation
evidencing such amounts to be reimbursed. If the Indemnifying Party
undertakes to defend against such Asserted Liability, the Indemnifying Party
shall control the investigation, defense and settlement thereof; provided
that (i) the Indemnifying Party shall use its reasonable efforts to defend
and protect the interests of the Indemnified Party with respect to such
Asserted Liability, (ii) the Indemnified Party, prior to or during the period
in which the Indemnifying Party assumes control of such matter, may take such
reasonable actions as the Indemnified Party deems necessary to preserve any
and all rights with respect to such matter, without such actions being
construed as a waiver of the Indemnified Party's rights to defense and
indemnification pursuant to this Agreement, and (iii) the Indemnifying Party
shall not, without the prior written consent of the Indemnified Party,
consent to any settlement which (A) imposes any Liabilities on the
Indemnified Party (other than those Liabilities which the Indemnifying Party
agrees to promptly pay or discharge), and (B) with respect to any
non-monetary provision of such settlement, would be likely, in the
Indemnified Party's reasonable judgment, to have an adverse effect on the
business operations, assets, properties or prospects of Parent, the Company
or the Retained Business (in the case of a Parent Indemnified Party), A&S or
the A&S Business (in the case of an A&S Indemnified Party), or such
Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall
have the right to control, pay or settle any Asserted Liability which the
Indemnifying Party shall have undertaken to defend so long as the Indemnified
Party shall also waive any right to indemnification therefor by the
Indemnifying Party. If the Indemnifying Party undertakes to defend against
such Asserted Liability, the Indemnified Party shall cooperate fully with the
Indemnifying Party and its counsel in the investigation, defense and
settlement thereof. If the Indemnified Party desires to participate in any
such defense it may do so at its sole cost and expense. If the Indemnifying
Party does not undertake within the Notice Period to defend against such
Asserted Liability, then the Indemnifying Party shall have the right to
participate
<PAGE>
in any such defense at its sole cost and expense, but the Indemnified Party
shall control the investigation, defense and settlement thereof (provided
that the Indemnified Party may not settle any such Asserted Liability without
obtaining the prior written consent of the Indemnifying Party (which consent
shall not be unreasonably withheld by the Indemnifying Party; provided that
in the event that the Indemnifying Party is in material breach at such time
of the provisions of this Section 5.4, then the Indemnified Party shall not
be obligated to obtain such prior written consent of the Indemnifying Party)
at the reasonable cost and expense of the Indemnifying Party (which shall be
paid by the Indemnifying Party promptly upon presentation by the Indemnified
Party of invoices or other documentation evidencing the amounts to be
indemnified). The Indemnified Party and the Indemnifying Party agree to make
available to each other, their counsel and other representatives, all
information and documents available to them which relate to such claim or
demand (subject to the confidentiality provisions of Section 7.5 hereof);
provided that no party hereto shall be obligated to disclose any information
which would result in the waiver of any attorney-client, attorney work
product or other similar privileges, if the disclosure of such information
would be materially prejudicial to such disclosing party. The Indemnified
Party and the Indemnifying Party and the Company and its employees also agree
to render to each other such assistance and cooperation as may reasonably be
required to ensure the proper and adequate defense of such claim or demand.
(b) In the event that an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party. The Indemnifying Party shall have twenty
(20) days from the date such Claim Notice is delivered during which to notify
the Indemnified Party in writing of any good faith objections it has to the
Indemnified Party's Claim Notice or claims for indemnification, setting forth
in reasonable detail each of the Indemnifying Party's objections thereto. If
the Indemnifying Party does not deliver such written notice of objection
within such 20-day period, the Indemnifying Party shall be deemed to have
accepted responsibility for the prompt payment of the Indemnified Party's
claims for indemnification, and shall have no further right to contest the
validity of such indemnification claims. If the Indemnifying Party does
deliver such written notice of objection within such 20-day period, the
Indemnifying Party and the Indemnified Party shall attempt in good faith to
resolve any such dispute within thirty (30) days of the delivery by the
Indemnifying Party of such written notice of objection. If the Indemnifying
Party and the Indemnified Party are unable to resolve any such dispute within
such 30-day period, then either the Indemnifying Party or the Indemnified
Party shall be free to pursue any remedies which may be available to such
party under applicable Law.
<PAGE>
Section 5.5. MISCELLANEOUS INDEMNIFICATION PROVISIONS.
(a) The Indemnifying Party agrees to indemnify any successors of
the Indemnified Party to the same extent and in the same manner and on the
same terms and conditions as the Indemnified Party is indemnified by the
Indemnifying Party under this Article V. In the event that any claim for
indemnification under either Articles V, VI or VIII hereof meets the criteria
of more than one of the types of claims for which indemnification is provided
for under such provisions, the Indemnified Party, in its sole discretion,
shall classify such claim and only be required to include such claim, and the
recoveries for indemnification therefrom, in one of such categories. No
investigation made by any party hereto shall affect any representation or
warranty of the other parties hereto contained in this Agreement, the
Disclosure Schedule or any certificate, document or other instrument
delivered in connection herewith. The consummation by Parent of the Merger
pursuant to the terms and conditions of the Merger Agreement, either with or
without knowledge of a breach of warranty or covenant or misrepresentation by
any party hereto, shall not constitute a waiver of any claim by any Parent
Indemnified Party for Indemnifiable Losses with respect to such breach or
misrepresentation. In determining the amount of Indemnifiable Losses to which
a Parent Indemnified Party or A&S Indemnified Party (as the case may be) is
entitled to indemnification hereunder, an arbitration panel, court or
tribunal may take into consideration, where appropriate and without
duplication, any diminution in the aggregate value of the Retained Business
or the A&S Business (as the case may be). Notwithstanding anything to the
contrary contained in this Agreement, the assignment of any party's rights
hereunder to any other person or entity shall not limit, affect or prejudice
the ability of the assigning party to continue to enforce any rights of
indemnification hereunder or other rights hereunder in accordance with the
terms and conditions of this Agreement.
(b) In determining the amount of any indemnity payable under this
Article V, such amount shall be reduced by (x) any related tax benefits if
and when actually realized or received (but only after taking into account
any tax benefits (including, without limitation, any net operating losses or
other deductions) to which the Indemnified Party would be entitled without
regard to such item), except to the extent such recovery has already been
taken into account in determining the amount of any indemnity payable under
Articles V, VI or VIII hereof, and (y) any insurance recovery if and when
actually realized or received, in each case in respect of such Asserted
Liability. Any such recovery shall be promptly repaid by the Indemnified
Party to the Indemnifying Party following the time at which such recovery is
realized or received pursuant to the previous sentence, minus all reasonably
allocable costs, charges and expenses incurred by the Indemnified Party in
obtaining such recovery. Notwithstanding the foregoing, if (x) the amount of
Indemnifiable Losses for which the Indemnifying Party is obligated to
indemnify the Indemnified Party is reduced by any tax benefit or insurance
recovery in accordance with the provisions of the previous sentence, and (y)
the Indemnified Party subsequently is required to repay the amount of any
such tax benefit or insurance recovery or such tax benefit or insurance
recovery is disallowed, then the obligation of the Indemnifying Party to
indemnify with respect to such amounts shall be reinstated immediately and
such amounts shall be paid promptly to the Indemnified Party in accordance
with the provisions of this Agreement.
(c) In the event that a dispute between any Indemnifying Party and
any Indemnified Party concerning the existence of a right or obligation to
indemnity under this Agreement is determined by
<PAGE>
any arbitration panel or any court or tribunal, the reasonable fees and
expenses of the attorneys for the party which is principally prevailing in
such action shall be paid by the party which is not principally prevailing in
such action.
(d) All amounts owing under this Article V shall bear interest at a
fluctuating rate of interest equal to the rate of interest from time to time
announced by KeyBank, N.A. in Cleveland, Ohio as its prime lending rate,
computed from the time such damage, cost or expense was incurred or suffered
to the date of payment therefor.
(e) The remedies provided by this Article V shall be the parties'
sole and exclusive remedies for the recovery of any Indemnifiable Losses
resulting from, arising out of or related to misrepresentations, breaches of
warranties, and non-fulfillment of obligations under this Agreement, except
those arising from, arising out of or related to fraud; provided that the
provisions of this Section 5.5(e) shall not limit the ability of any party to
seek injunctive or similar relief pursuant to Section 11.12 hereof.
Section 5.6. PENDING LITIGATION. Following the Effective Time, (a)
A&S shall have exclusive authority and control over the investigation,
prosecution, defense and appeal of all pending Actions relating primarily to
the A&S Business, the A&S Assets or the A&S Liabilities (each, an "A&S
Action"), and may settle or compromise, or consent to the entry of any
judgment with respect to, any such Action without the consent of the Company,
and (b) the Company shall have exclusive authority and control over the
investigation, prosecution, defense and appeal of all pending Actions
relating primarily to the Retained Business (each, a "Retained Action"), and
may settle or compromise, or consent to the entry of any judgment with
respect to, any such Action without the consent of A&S; provided that if both
the Company and A&S are named as parties to any A&S Action or Retained
Action, neither the Company nor A&S (nor any of their respective
Subsidiaries) may settle or compromise, or consent to the entry of any
judgment with respect to, any such Action without the prior written consent
of the other party (which consent may not be unreasonably withheld) if such
settlement, compromise or consent to such judgment includes any form of
injunctive relief binding upon such other party. A&S shall indemnify, defend
and hold harmless each of the Parent Indemnified Parties, and the Company
shall indemnify and hold harmless each of the A&S Indemnified Parties, in the
manner provided in this Article V, from and against all Indemnifiable Losses
arising out of or resulting from each such Action over which such
Indemnifying Party has authority and control pursuant to this Section 5.6.
Section 5.7. CONSTRUCTION OF AGREEMENTS. Notwithstanding any other
provision in this Agreement to the contrary, in the event and to the extent
that there shall be a conflict between the provisions of this Article V and
the provisions of any other part of this Agreement or any exhibit or schedule
hereto, the provisions of this Article V shall control, and in the event and
to the extent that there shall be a conflict between the provisions of this
Agreement (including, without limitation, the provisions of this Article V)
and the provisions of the Tax Sharing Agreement, the provisions of the Tax
Sharing Agreement shall control.
<PAGE>
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1. REPRESENTATIONS OR WARRANTIES; DISCLAIMERS.
(a) It is the explicit intent of each party hereto that no party to
this Agreement or to the Merger Agreement is making any representation or
warranty whatsoever, express or implied, in this Agreement or in any other
agreement contemplated hereby, except those representations and warranties
expressly set forth in this Agreement. Each of the parties hereto agrees, to
the fullest extent permitted by Law, that none of them nor any of their
Affiliates, agents or representatives shall have any liability or
responsibility whatsoever to any such other party hereto or such other
party's Affiliates, agents or representatives on any basis (including,
without limitation, in contract or tort, under federal or state securities
laws or otherwise) based upon any information provided or made available, or
statements made, to any such other party or such other party's Affiliates,
agents or representatives (or any omissions therefrom), including, without
limitation, in respect of the specific representations and warranties set
forth in this Agreement and the Merger Agreement and the covenants and
agreements set forth in the Merger Agreement, except (i) as and only to the
extent expressly set forth in the indemnification provisions of Article V
hereof and as otherwise expressly set forth herein (subject to the
limitations and restrictions contained herein), and (ii) with respect to
breaches of the covenants and agreements set forth in this Agreement.
(b) Without limiting the generality of the foregoing, it is
understood and agreed (a) that neither Parent, the Company nor any of the
Retained Subsidiaries is, in this Agreement or in any other agreement or
document contemplated by this Agreement, representing or warranting in any
way as to the value or freedom from encumbrance of, or any other matter
concerning, any A&S Assets, (b) that the A&S Assets are being transferred "as
is, where is" and (c) that, subject to the obligations of the Company set
forth in Section 6.2 hereof, A&S shall bear the risk that any conveyances of
the A&S Assets might be insufficient. Similarly, it is understood and agreed
that neither Parent, the Company nor any of the Retained Subsidiaries is, in
this Agreement or in any other agreement or document contemplated by this
Agreement, representing or warranting to A&S or any A&S Indemnified Party in
any way that the obtaining of the consents and approvals, the execution and
delivery of any amendatory agreements and the making of the filings and
applications contemplated by this Agreement shall satisfy the provisions of
any or all applicable agreements or the requirements of all applicable Laws
or judgments.
(c) A&S represents and warrants to the Company that (i) since
December 31, 1998, the A&S Business has been conducted in the ordinary course
of business consistent with past practice; (ii) neither the Company nor any
of the Retained Subsidiaries will, after giving effect to the Split-Off, be
liable directly or indirectly, as borrower, surety, guarantor, indemnitor or
otherwise, with respect to any of the A&S Liabilities; (iii) except as set
forth in Schedule 6.1(c)(iii) of the Disclosure Schedule, there are no
Intercompany Agreements in effect as of the date hereof; (iv) there are no
A&S Assets which have been used within the Retained Business since December
31, 1998, other than those A&S Assets which are listed on Schedule 6.1(c)(iv)
of the Disclosure Schedule; (v) except as set forth in Schedule 6.1(c)(v) of
the Disclosure Schedule, A&S shall not immediately after giving effect to the
Split-Off, own, hold
<PAGE>
or lease, in whole or in part, any of the assets, properties, licenses and
rights which are reasonably necessary to carry on the Retained Business as
presently conducted; and (vi) except as set forth in Schedule 6.1(c)(vi) of
the Disclosure Schedule or as provided in Section 4.2, since December 31,
1998, no other intercompany transfers, dividends or payments have taken, or
will take, place outside the ordinary course of business between A&S, on the
one hand, and the Company or any Retained Subsidiary, on the other hand.
Section 6.2. FURTHER ASSURANCES; SUBSEQUENT TRANSFERS. Each of the
parties hereto will execute and deliver such further instruments of transfer
and distribution and will take such other actions as any party hereto may
reasonably request in order to effectuate the purposes of this Agreement and
to carry out the terms hereof.
Section 6.3. USE OF NAMES. Following the Effective Time, A&S shall
have the sole and exclusive ownership of and right to use, as between the
Company and each of the Retained Subsidiaries, on the one hand, and A&S, on
the other hand, the "Anthony & Sylvan Pools Corporation" name and each of the
names used (or formerly used) in the A&S Business (the "A&S Names"), and each
of the trade marks, trade names, service marks and other proprietary rights
exclusively related to such A&S Names (the "A&S Proprietary Name Rights") and
any trade marks, trade names, service marks or other proprietary rights
mutually agreed among the Parties prior to the Effective Time. Following the
Effective Time, the Company and each of the Retained Subsidiaries shall have
the sole and exclusive ownership of and right to use, as between A&S, on the
one hand, and the Company and each of the Retained Subsidiaries, on the other
hand, all names used (or formerly used) by the Company or any of the Retained
Subsidiaries as of such date other than the A&S Names (the "Company Names"),
and all other trade marks, trade names, service marks and other proprietary
rights owned or used by the Company or any of the Retained Subsidiaries as of
such date other than the A&S Proprietary Name Rights (the "Company
Proprietary Name Rights"). Notwithstanding the foregoing, following the
Effective Time, (x) the Company shall, and shall cause its Subsidiaries and
other Affiliates to, take all action reasonably necessary to cease using, and
change as soon as commercially practicable (including by amending any charter
documents), any corporate or other names which are the same as or confusingly
similar to any of the A&S Names or any of the A&S Proprietary Name Rights,
and (y) A&S shall, and shall cause its Subsidiaries and other Affiliates to,
take all action reasonably necessary to cease using, and change as soon as
commercially practicable (including by amending any charter documents), any
corporate or other names which are the same as or confusingly similar to any
of the Company Names or any of the Company Proprietary Name Rights.
<PAGE>
Section 6.4. LITIGATION RELATING TO TRANSACTION.
(a) Following the date hereof until the Effective Time, in the
event that any Action is commenced against the Company or any of its
Subsidiaries (including A&S) challenging either the Merger Agreement, this
Agreement or the Tax Sharing Agreement or any of the transactions
contemplated therein or herein (any such Action, a "Transaction Suit"), then
the Company shall provide promptly to Parent copies of all material pleadings
sent or received after the date hereof by the Company or its counsel with
respect to any such Transaction Suits. Parent shall be entitled to
participate in the defense of each Transaction Suit and to employ counsel at
its own expense to assist in the handling of each such Transaction Suit.
Neither the Company nor any of its Subsidiaries (including A&S) shall settle
or compromise any Transaction Suit or consent to the entry of any judgment
with respect to any such Transaction Suit, without the prior written consent
of Parent (which consent shall not be unreasonably withheld).
(b) Following the Effective Time, the Company shall provide
promptly to A&S copies of all material pleadings sent or received after the
Effective Time by the Company or its counsel with respect to any Transaction
Suits to which A&S or any of its Affiliates is a party. A&S shall be entitled
to participate in the defense of each Transaction Suit to which it or any of
its Affiliates is a party, and to employ counsel at its own expense to assist
in the handling of each such Transaction Suit. Following the Effective Time,
neither the Parent nor the Company nor any of their respective Subsidiaries
shall settle or compromise any Transaction Suit to which A&S or any of its
Affiliates is a party or consent to the entry of any judgment with respect to
any such Transaction Suit, without the prior written consent of A&S (which
consent shall not be unreasonably withheld).
Section 6.5. OPERATION PRIOR TO SPLIT-OFF. Prior to the Effective
Time, A&S and Company agree to operate their respective businesses in the
ordinary course of business and in a manner consistent with past practice. In
addition, during the period prior to the Cut-Off Date, A&S shall (i) continue
to sweep cash from its various accounts to the Company in the ordinary course
of its business in a manner consistent with past practices and (ii) pay its
accounts payable and take payment discounts on such accounts payable in the
ordinary course of its business in a manner consistent with past practices.
Section 6.6. RESTRICTIONS ON POST-SPLIT-OFF COMPETITIVE ACTIVITIES.
As an inducement to the parties hereto to execute this Agreement and
complete the transactions contemplated hereby, and in order to preserve the
goodwill associated with the A&S Business and the Retained Business, Parent
and the Company, on one hand, and A&S, on the other hand, hereby covenant and
agree that for a period of three (3) years from the Effective Time, they will
not, directly or indirectly: (i) enter, engage in, continue in or carry on
(x) in the case of Parent and the Company, the swimming pool installation
business, or (y) in the case of A&S, the business of manufacturing water
pressure vessels or swimming pool and spa equipment, which as of the date of
this Agreement are manufactured by the Company or any Retained Subsidiary; or
(ii) engage in any practice the purpose of which is to evade the provisions
of this covenant not to compete; provided, however, that the foregoing shall
not prohibit the ownership of securities of corporations engaged in the
prohibited businesses which are listed on a national securities exchange or
traded in the national over-the-counter market in an amount which shall not
<PAGE>
exceed 5% of the outstanding shares of any such corporation. The parties
agree that the geographic scope of this covenant not to compete shall extend
throughout the world. In the event a court of competent jurisdiction
determines that the provisions of this covenant not to compete are
excessively broad as to duration, geographical scope or activity, it is
expressly agreed that this covenant not to compete shall be construed so that
the remaining provisions shall not be affected, but shall remain in full
force and effect, and any such excessively broad provisions shall be deemed,
without further action on the part of any person, to be modified, amended
and/or limited, but only to the extent necessary to render the same valid and
enforceable in such jurisdiction.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1. PROVISION OF CORPORATE RECORDS. Except as provided in
the following sentence, on or about the Effective Time, the Company shall
deliver to A&S all corporate books and records, in its possession, (including
all active agreements, active litigation files and government filings) which
are corporate records of A&S, including, without limitation, original
corporate minute books, stock ledgers and certificates and corporate seals of
A&S. Notwithstanding the foregoing and subject to the confidentiality
provisions of Section 7.5 hereof, the Company shall have the right to retain
copies of any such documents which also relate to the Retained Business.
Section 7.2. ACCESS TO INFORMATION. Subject to the confidentiality
provisions of Section 7.5 hereof, from and after the Effective Time (i) A&S
shall afford to the Company and its authorized accountants, counsel and other
designated representatives reasonable access (including, without limitation,
using reasonable efforts to give access to persons or firms possessing
Information (as defined below)), subject to any access, disclosure, copying,
time or other limitations imposed by applicable law or A&S, to all records,
books, contracts, instruments, computer data and other data and information
(collectively, "Information") within A&S's possession relating to the A&S
Business, insofar as such access is reasonably required by the Company in
connection with the operation of the Retained Business, and (ii) the Company
shall afford to A&S and its authorized accountants, counsel and other
designated representatives reasonable access (including, without limitation,
using reasonable efforts to give access to persons or firms possessing
Information), subject to any access, disclosure, copying, time or other
limitations imposed by applicable law or the Company, to all Information
within the Company's possession relating to the Retained Business, insofar as
such access is reasonably required by A&S in connection with the operation of
the A&S Business. Information may be requested under this Article VII for,
without limitation, audit, accounting, claims, litigation and tax purposes,
as well as for purposes of fulfilling disclosure and reporting obligations.
Section 7.3. PRODUCTION OF WITNESSES. From and after the Effective
Time, each party shall use reasonable efforts to make available to the other
party, upon written request, its officers, directors, employees and agents as
witnesses to the extent that any such person may reasonably be required in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
<PAGE>
Section 7.4. RETENTION OF RECORDS. Except as otherwise required by
Law or agreed to in writing, A&S and the Company shall each retain, for a
period of at least seven (7) years following the Effective Time, all
significant Information relating to (i) in the case of the Company, the A&S
Business and (ii) in the case of A&S, the Retained Business. Notwithstanding
the foregoing, either A&S or the Company may destroy or otherwise dispose of
any of such Information at any time, provided that, prior to such destruction
or disposal, (a) A&S or the Company, as the case may be, shall provide no
less than ninety (90) or more than one hundred twenty (120) days' prior
written notice to the other party, specifying the Information proposed to be
destroyed or disposed of and (b) if the other party shall request in writing
prior to the scheduled date for such destruction or disposal that any of the
Information proposed to be destroyed or disposed of be delivered to the other
party, A&S or the Company, as the case may be, shall promptly arrange for the
delivery of such of the Information as was requested, at the expense of the
requesting party.
Section 7.5. CONFIDENTIALITY.
(a) Each party shall hold, and shall cause its officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the
reasonable opinion of its counsel, by other requirements of Law, all
confidential, proprietary or other non-public information or trade secrets
concerning the other party (or such other party's business operations or the
business operations of such other party's Affiliates) which is furnished it
by such other party or its representatives (collectively, the "Confidential
Information"). None of the parties hereto nor any of their respective
Affiliates shall release or disclose to any other person or entity, any such
Confidential Information (except, to the extent reasonably required, for
disclosure to those of such party's auditors, attorneys and other
representatives who agree to be bound by the provisions of this Section 7.5).
Notwithstanding the foregoing, in the event any party hereto is requested to
disclose any Confidential Information to any third party pursuant to any
judicial or administrative process or, in the reasonable opinion of its
counsel, any other requirements of Law, the party from whom such disclosure
is sought shall (x) notify the other parties hereto as soon as reasonably
practicable of such request for disclosure, (y) disclose only that portion of
the Confidential Information which it reasonably believes, following the
advice of counsel, is necessary in order to comply with such judicial or
administrative process or other requirements of Law, and (z) cooperate with
the other parties hereto in seeking to narrow the scope of any such third
party request for disclosure).
(b) Notwithstanding the foregoing, the term "Confidential
Information" shall not include information (i) which is or becomes generally
available to the public other than as a result of disclosure of such
information by the disclosing party or any of its Affiliates or
representatives, (ii) becomes available to the recipient of such information
on a non-confidential basis from a source which is not, to the recipient's
knowledge, bound by a confidentiality or other similar agreement, or by any
other legal, contractual or fiduciary obligation which prohibits disclosure
of such information to the other party hereto, or (iii) which can be
demonstrated to have been developed independently by the representatives of
such recipient which representatives have not had any access to any
information which would otherwise be deemed to be "Confidential Information"
pursuant to the provisions of this Section 7.5.
<PAGE>
ARTICLE VIII
EMPLOYEE MATTERS
Section 8.1. EMPLOYEES. Effective as of the Effective Time, all
A&S Employees shall remain or become employees of A&S in the same capacities
as then held by such employees (or in such other capacities as A&S shall
determine in its sole discretion), and the employment of any A&S Employee by
the Company or the Retained Subsidiaries shall cease.
Section 8.2. EMPLOYEE BENEFITS.
(a) A&S 401(k) PLAN. A&S maintains a defined contribution plan and
trust intended to qualify under Sections 401(a), 401(k) and 501(a) of the
Internal Revenue Code of 1986, as amended (the "A&S 401(k) Plan"), for the
benefit of A&S Employees. A&S agrees to indemnify and hold harmless the
Company, its officers, directors, employees, agents and affiliates from and
against any and all Indemnifiable Losses arising out of or relating to the
A&S 401(k) Plan, including all benefits accrued by A&S Employees thereunder
prior to the Effective Time.
(b) WELFARE BENEFIT PLANS. As of the Effective Time, A&S Employees
shall cease to participate in the employee welfare benefit plans (as such
term in defined in ERISA) maintained or sponsored by the Company (the
"Company Welfare Plans") and shall commence to participate in welfare benefit
plans of A&S (the "A&S Welfare Plans"). On and after the Effective Time, the
Company shall only be responsible for any claims by A&S Employees for
benefits relating to claims incurred prior to the Effective Time. The Company
shall use its best efforts to ensure that, except as provided otherwise in
the Merger Agreement or this Agreement, the consummation of the transactions
contemplated by this Agreement shall not entitle any employee to severance
benefits under any severance plan or arrangement of the Company or any of its
Subsidiaries. Notwithstanding the foregoing, the Company agrees to permit A&S
Employees (and their beneficiaries and dependents) to continue to participate
from the Effective Time to and including December 31, 1999 in the Company's
group medical plan maintained by the Company in which such persons were
participating prior to the Effective Time. A&S agrees to be responsible for
the actual costs incurred to provide such continuation of participation and
coverage and will promptly reimburse the Company for any costs advanced by it.
(c) DEFERRED COMPENSATION PLANS. A&S agrees to assume the
Company's responsibilities under the Company's Deferred Compensation Plan
("Plan") with respect to those employees or directors identified on Schedule
8.2(c) of the Disclosure Schedule and to make all payments required under the
terms of such Plan. In consideration for such assumption, the Company agrees
to contribute to A&S, immediately prior to the Effective Time, an amount of
money equal to the accrued liability of the Company under such Plan as of the
Effective Time, reduced by the tax benefit that the Company would otherwise
receive as a result of deducting such accrued liability. For purposes of this
Agreement, such tax benefit will be deemed to equal 39% of such accrued
liability.
(d) CERTAIN LIABILITIES. The Company hereby agrees to indemnify
A&S against, and agrees to hold it harmless from any and all Indemnifiable
Losses incurred or suffered as a result of any claim
<PAGE>
by any Retained Employee which arises under federal, state or local statute
(including, without limitation, Title VII of the Civil Rights Act of 1964,
the Civil Rights Act of 1991, the Age Discrimination in Employment Act of
1990, the Equal Pay Act, the Americans with Disabilities Act of 1990, ERISA
and all other statutes regulating the terms and conditions of employment),
regulation or ordinance, under the common law or in equity (including any
claims for wrongful discharge or otherwise), or under any policy, agreement,
understanding or promise, written or oral, formal or informal, between the
Company and the Retained Employee, arising out of actions, events or
omissions that occurred (or, in the case of omissions, failed to occur) prior
to, or after, the Effective Time. A&S hereby agrees to indemnify the Company
against and agrees to hold the Company harmless from any and all
Indemnifiable Losses incurred or suffered as a result of any claim by any A&S
Employee which arises under federal, state or local statute (including,
without limitation, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Age Discrimination in Employment Act of 1990, the
Equal Pay Act, the Americans with Disabilities Act of 1990, ERISA and all
other statutes regulating the terms and conditions of employment), regulation
or ordinance, under the common law or in equity (including any claims for
wrongful discharge or otherwise), or under any policy, agreement,
understanding or promise, written or oral, formal or informal, between the
Company and/or A&S, on the one hand, and the A&S Employee, on the other hand,
arising out of actions, events or omissions that occurred (or, in the case of
omissions, failed to occur) prior to, or after, the Effective Time. The
indemnification provided for in this Section 8.2 shall be subject to the
terms and conditions of the indemnification provisions of Article V hereof.
Section 8.3. OTHER LIABILITIES AND OBLIGATIONS. As of the
Effective Time, with respect to claims relating to any employee liability or
obligation not otherwise provided for in this Agreement or the Merger
Agreement, including, without limitation, accrued holiday, vacation and sick
day benefits, (a) the Company shall assume and be solely responsible for all
liabilities and obligations whatsoever of both the Retained Business and the
A&S Business for all such claims made by Retained Employees and (b) A&S shall
assume and be solely responsible for all liabilities and obligations
whatsoever of both the Retained Business and the A&S Business for all such
claims made by all A&S Employees.
Section 8.4. PRESERVATION OF RIGHTS TO AMEND OR TERMINATE PLANS.
No provision of this Agreement, shall be construed as a limitation on the
right of the Company or A&S to amend any plan or terminate its participation
therein which the Company or A&S would otherwise have under the terms of such
plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any employee or beneficiary of such employee under a plan
that such employee or beneficiary would not otherwise have under the terms of
such plan itself.
Section 8.5. REIMBURSEMENT; INDEMNIFICATION. A&S and the Company
acknowledge that the Company, on the one hand, and A&S, on the other hand,
may incur costs and expenses (including, without limitation, contributions to
plans and the payment of insurance premiums) pursuant to any of the employee
benefit or compensation plans, programs or arrangements which are, as set
forth in this Agreement, the responsibility of the other party. Accordingly,
the Company and A&S agree to reimburse each other, as soon as practicable but
in any event within thirty (30) days of receipt from the other party of
appropriate verification, for all such costs and expenses reduced by the
amount of any tax reduction or recovery of tax benefit realized by the
Company or A&S, as the case may be, in respect
<PAGE>
of the corresponding payment made by it. All liabilities retained, assumed or
indemnified by A&S pursuant to this Article VIII shall in each case be deemed
to be liabilities of A&S, and all liabilities retained, assumed or
indemnified by the Company pursuant to this Article VIII shall in each case
be deemed to be liabilities of the Company, and, in each case, shall be
subject to the indemnification provisions set forth in Article V hereof.
Section 8.6. NONSOLICITATION OF EMPLOYEES. For a period ending two
(2) years after the date of this Agreement,
(a) A&S shall not, directly, or indirectly, (i) solicit or induce,
or attempt to solicit or induce, any Retained Employee (other than a Retained
Employee employed prior to the Effective Time at the Company's corporate
level), any employee of the Company or any Retained Subsidiary hired after
the date of this Agreement ("Company Subsequent Hire") or any employee of the
Parent or its Subsidiaries ("Parent Employee") to leave the employ of the
Company, the Parent or any of their Subsidiaries for any reason whatsoever,
or (ii) hire any Retained Employee, any Company Subsequent Hire or Parent
Employee; provided however, that the prohibition imposed by this subparagraph
(ii) shall not apply to any person whose employment by the Company, Parent or
any of their Subsidiaries is terminated by such entity; and
(b) Neither the Company, Parent nor any of their respective
Subsidiaries shall, directly or indirectly, (i) solicit or induce, or attempt
to solicit or induce, any A&S Employee or any employee of A&S or any
subsidiary thereof hired after the date of this Agreement ("A&S Subsequent
Hire") to leave the employ of A&S or any subsidiary thereof for any reason
whatsoever, or (ii) hire any A&S Employee or any A&S Subsequent Hire;
provided however, that the prohibition imposed by this subparagraph (ii)
shall not apply to any person whose employment by A&S or any subsidiary
thereof is terminated by such entity.
Section 8.7. ACTIONS BY A&S. Any action required to be taken under
this Article VIII may be taken by A&S, a Subsidiary of A&S or an entity
formed pursuant to the provisions of Section 3.2(b).
ARTICLE IX
INSURANCE
Section 9.1. GENERAL. Except as otherwise agreed in writing
between the parties, the Company shall maintain until the Effective Time all
policies of liability, fire, extended coverage, fidelity, fiduciary, workers'
compensation and other forms of insurance in effect as of the date hereof
insuring the products, properties, assets and operations of A&S; provided,
however, that coverage of the products, properties, assets and operation of
A&S under such policies shall cease as of the Effective Time.
Section 9.2. CERTAIN INSURED CLAIMS. The Company shall (a) use
reasonable efforts, upon A&S's written request and at A&S's sole expense, to
continue to maintain and renew for the benefit of A&S the insurance policies
under the Casualty Program with respect to claims having an occurrence
<PAGE>
date (as the term "occurrence date" is customarily defined) prior to the
Effective Time, relating to, or arising out of the conduct of, the A&S
Business, and (b) use reasonable efforts and cooperate with A&S, upon A&S's
written request and at A&S's sole expense, to obtain coverage, recoveries and
other benefits under such policies for the benefit of A&S, including, without
limitation, by filing and pursuing claims with respect to obtaining such
coverage, recoveries and other benefits; provided that in no event shall the
Company be obligated to litigate or pursue any other extra-contractual
remedies against any insurer; provided further that all claims pursuant to
this Section 9.2 shall be submitted, investigated, processed and paid in
accordance with the claims handling procedures used by the Company and its
Affiliates from time to time with respect to other like claims. The Company
will reimburse A&S for any recovery obtained by it pursuant to such claims.
The Company shall make available to A&S such of its employees as A&S may
reasonably request as witnesses or deponents in connection with A&S's pursuit
of claims.
ARTICLE X
CONDITIONS; TERMINATION;
AMENDMENTS; WAIVERS
Section 10.1. CONDITIONS TO SPLIT-OFF.
(a) The obligations of each of the Company and A&S to effect the
Split-Off (other than those obligations which are normally expected to
precede the Split-Off) shall be subject to the satisfaction of the following
conditions: (i) the Purchaser shall have notified the Company that it is
prepared to immediately accept for payment shares of Company Common Stock
pursuant to the terms and conditions of the Merger Agreement, (ii) the Form
S-1 (or the registration statement referred to in Section 3.1(a) hereof)
shall have been declared effective by the SEC, (iii) no Court Order or Law
shall have been enacted, promulgated, issued or entered against any of the
parties hereto which (x) prohibits or materially restricts consummation of
any of the transactions contemplated by this Agreement and (y) remains in
effect as of the date on which the satisfaction of this condition is
determined, (iv) the Company and the Retained Subsidiaries (other than A&S)
shall have obtained all consents required to be obtained by the Company as a
result of or in connection with the transactions contemplated by this
Agreement in order to avoid a material default under any material contract or
agreement to or by which the Company or any of their respective Subsidiaries
is a party or may be bound, or otherwise necessary to permit the Company and
each of the Retained Subsidiaries to conduct their business in a manner
consistent with its past practices, (v) A&S shall have declared the Company
Dividend and paid the Initial Distribution, and (vi) all consents and
approvals of, and notices to and filings with, any Governmental Entity or any
other person or entity arising out of or relating to the consummation of the
transactions contemplated by this Agreement, shall have been obtained or made
(as the case may be).
(b) The parties hereto acknowledge and agree that (x) Parent may
waive, on behalf of all parties hereto, the conditions set forth in clauses
(iii), (iv) and (vi) of Section 10.1(a) above so long as (1) Parent
reasonably believes that consummation of the Split-Off at such time will have
no material adverse effect on A&S or the A&S Business and (2) Parent agrees
to indemnify A&S pursuant to the provisions of Article V hereof with respect
to any Indemnifiable Losses which result from any material
<PAGE>
adverse effect on A&S or the A&S Business which results directly from such
waiver, and (y) the Company may not waive any of the conditions set forth in
Sections 10.1(a)(i) through 10.1(a)(vi) above without first obtaining the
prior written consent of Parent. The respective obligations of each party
hereto to perform those of its obligations which are to be performed
following consummation of the Split-Off, shall be conditioned on the
consummation of the Split-Off in accordance with the provisions of this
Agreement.
Section 10.2. TERMINATION. This Agreement (i) may be terminated
and the Split-Off abandoned at any time prior to the Effective Time by the
mutual written agreement of each of the parties hereto or (ii) shall be
terminated automatically and the Split-Off abandoned upon any termination of
the Merger Agreement in accordance with the terms and conditions thereof. In
the event that this Agreement shall be terminated pursuant to this Section
10.2, all obligations of the parties hereto under this Agreement shall
terminate without further liability or obligation of any party hereto to the
other parties hereto under this Agreement or otherwise, except (i) for any
breach by such party of the terms and provisions of this Agreement prior to
the date of such termination and (ii) as stated in Section 11.3 hereof.
Section 10.3. AMENDMENTS; WAIVERS. This Agreement may be amended,
modified or supplemented only by written agreement of each of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument executed by
such party. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants, agreements or conditions contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party to exercise any right or privilege hereunder shall be deemed a
waiver of such party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any subsequent time or
times hereunder.
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 SURVIVAL OF INDEMNITIES; RELEASE. The representations
and warranties made in Section 6.1 of this Agreement shall survive for a
period of three years from the Effective Time, but shall not survive any
termination of this Agreement; provided that claims with respect to breaches
of covenants and agreements set forth in this Agreement shall survive for the
applicable statute of limitations period. Except as otherwise expressly
provided in this Agreement (including, without limitation, the
indemnification provisions of Article V hereof), each of the parties (a)
agrees that no claims or causes of action may be brought against the Company,
A&S, Parent or the Purchaser or any of their Affiliates, agents or
representatives based upon, directly or indirectly, any of the
representations and warranties contained in this Agreement after three years
following the Effective Time (other than causes of actions commenced after
such three-year period to seek recourse for claims asserted during such
three-year period that are not resolved by the parties), and (b) hereby
waives and releases all other claims and causes of action, that may be
asserted or brought against the Company, A&S, Parent or the Purchaser or any
of their Affiliates, agents or representatives directly or indirectly based
upon or arising under this Agreement or the Merger Agreement, or the
transactions contemplated hereby or thereby. Notwithstanding the foregoing,
this Section 11.1 shall not limit any covenant or agreement of the parties in
this Agreement, the Merger Agreement or the Tax Sharing Agreement which
contemplates performance after the Effective Time (including, without
limitation, the covenants and agreements set forth in Sections 2.1(b) and 6.2
hereof), except for the covenants and agreements in the Merger Agreement to
the extent of their performance prior to the Effective Time.
Section 11.2 ENTIRE AGREEMENT. This Agreement (including the
schedules and exhibits and the agreements and other documents referred to
herein, including, without limitation, the Merger Agreement, the Tax Sharing
Agreement and the Confidentiality Agreement) constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes
all other prior negotiations, commitments, agreements and understandings,
both written and oral, between the parties or any of them with respect to the
subject matter hereof.
Section 11.3 FEES AND EXPENSES. Except as otherwise provided in
this Agreement, the Merger Agreement or the Tax Sharing Agreement and subject
to the proviso below, all costs and expenses incurred by the Company and each
of the Retained Subsidiaries and by A&S in connection with (x) the
preparation, execution and delivery of this Agreement, the Merger Agreement
and the Tax Sharing Agreement and (y) consummating such party's obligations
hereunder and thereunder (including, without limitation, investment banking,
legal, accounting, audit and printing costs and expenses), shall be paid by
the Company, upon the submission to the Company of appropriate documentation
detailing such costs and expenses.
Section 11.4 GOVERNING LAW. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Ohio, without giving effect to the choice of law principles thereof.
<PAGE>
Section 11.5 NOTICES. All notices and other communications
hereunder shall be (and shall be deemed to have been duly given upon receipt)
by delivery in person, by cable, telegram, telex, telecopy or other standard
form of telecommunication, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
(a) If to the Company, to:
Essef Corporation
c/o Anthony & Sylvan Pools Corporation
220 Park Drive
Chardon, Ohio 44024
Facsimile No.: (440) 286-2206
Attention: Mark E. Brody
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 479-8776
Attention: Mary Ann Jorgenson, Esq.
(b) If to A&S, to:
Anthony & Sylvan Pools Corporation
220 Park Drive
Chardon, Ohio 44024
Facsimile No.: (440) 286-2206
Attention: Stuart D. Neidus
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 479-8776
Attention: Mary Ann Jorgenson, Esq.
<PAGE>
(c) If to Parent or Purchaser, to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Richard J. Cathcart
with a copy to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Louis L. Ainsworth, Esq.
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile No.: (414) 297-4900
Attention: Benjamin F. Garmer, III, Esq.
Section 11.6 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES.
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto
(whether by operation of law or otherwise) without the prior written consent
of the other parties hereto (which consent may not be unreasonably withheld),
except that any party shall have the right, without the consent of any other
party hereto, to assign all or a portion of its rights, interests and
obligations hereunder to one or more direct or indirect subsidiaries, but no
such assignment of obligation shall relieve the assigning party from its
responsibility therefor. Notwithstanding the foregoing, A&S shall be
permitted to assign its rights and obligations under this Agreement to one of
its Affiliates (the "A&S Transferee") prior to the Effective Time so long as
(x) such assignment shall not relieve A&S from its joint responsibility
therefor and (y) such assignment does not adversely affect any of the rights,
benefits or obligations of Parent or any of the Parent Indemnified Parties
under this Agreement or the Merger Agreement; provided that in the event of
any such assignment to the A&S Transferee, all references to A&S shall be
automatically deemed to be references to A&S. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and, except for
the provisions of Section 8.1 hereof, nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies
<PAGE>
of any nature whatsoever under or by reason of this Agreement; provided,
however, that the Indemnified Parties are intended to be third party
beneficiaries of the provisions of Article V hereof, and shall have the right
to enforce such provisions as if they were parties hereto.
Section 11.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.8 INTERPRETATION. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 11.9 SCHEDULES. The Disclosure Schedule shall be construed
with and as an integral part of this Agreement to the same extent as if the
same had been set forth verbatim herein.
Section 11.10 LEGAL ENFORCEABILITY. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as
is enforceable.
Section 11.11 CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably and unconditionally (a) agrees that all suits, actions or other
legal proceedings arising out of this Agreement or any of the transactions
contemplated hereby (a "Suit") shall be brought and adjudicated solely in the
United States District Court for the Northern District of Ohio, or, if such
court will not accept jurisdiction, in any court of competent civil
jurisdiction sitting in Cleveland, Ohio, (b) submits to the non-exclusive
jurisdiction of any such court for the purpose of any such Suit and (c)
waives and agrees not to assert by way of motion, as a defense or otherwise
in any such Suit, any claims that it is not subject to the jurisdiction of
the above courts, that such Suit is brought in an inconvenient forum or that
the venue of such Suit is improper. Each of the parties hereto also
irrevocably and unconditionally consents to the service of any process,
summons, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 11.5 hereof and agrees that any such form of
service shall be effective in connection with any such Suit; provided that
nothing contained in this Section 11.11 shall affect the right of any party
to serve process, pleadings, notices or other papers in any other manner
permitted by applicable Law.
Section 11.12 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement,
each non-breaching party would be irreparably and immediately harmed and
could not be made whole by monetary damages. It is accordingly agreed that
the parties hereto (a) will waive, in any action for specific performance,
the defense of adequacy of a remedy at law and (b) shall be entitled, in
addition to any other remedy to which they may be entitled at law or in
equity, to compel specific performance of this Agreement in any action
instituted in any court referred to in Section 11.11 hereof.
<PAGE>
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers, all as of the date
first written above.
ESSEF CORPORATION
By: /s/ Thomas B. Waldin
---------------------------
Name: Thomas B. Waldin
---------------------------
Title: President
---------------------------
ANTHONY & SYLVAN POOLS CORPORATION
By: /s/ Stuart D. Neidus
---------------------------
Name: Stuart D. Neidus
---------------------------
Title: Chief Executive Officer
---------------------------
PENTAIR, INC.
By: /s/ Richard J. Cathcart
---------------------------
Name: Richard J. Cathcart
---------------------------
Title: Executive Vice President
---------------------------
<PAGE>
DISCLOSURE SCHEDULE
<PAGE>
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT is dated as of the 30th day of April,
1999, by and between Pentair, Inc., a Minnesota corporation ("Pentair"),
Essef Corporation, an Ohio corporation ("Essef"), and Anthony & Sylvan Pools
Corporation, an Ohio corporation ("A&S").
R E C I T A L S
WHEREAS, Essef currently owns 100 percent of the total voting power
and value of the issued and outstanding stock of A&S and is the common parent
of an "affiliated group," as defined in Section 1504(a) of the Internal
Revenue Code of 1986, as amended ("Code"); and
WHEREAS, Pentair and Essef have executed an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the shareholders of Essef
will receive both cash and shares of A&S in exchange for all of their shares
of Essef and, at the conclusion of the merger, Pentair will own 100 percent
of the outstanding shares of Essef; and
WHEREAS, A&S has heretofore joined with Essef in filing Consolidated
Tax Returns for a consolidated group that includes Essef, A&S, and certain
other corporations (the "Essef Group") for a taxable year that ends on
September 30, and most recently ended on September 30, 1998, and Essef, A&S,
and Pentair consider it in their mutual best interests to provide herein for
the allocation of the federal income tax, and state, local, and foreign
income, franchise, and other tax liabilities (collectively, "Tax
Liabilities") of A&S and the remainder of the Essef Group for taxable years
ended prior to the Closing Date of the Merger Agreement (the "Closing Date")
and for the taxable year that includes the Closing Date;
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. DEFINITIONS. For purposes of this Agreement:
a. "Consolidated return," "consolidated group," "taxable year,"
"carryback," and similar terms used herein and bearing on federal
income tax liability shall have the respective meanings ascribed to
them in the Code and the Treasury Regulations thereunder, and, where
applicable, specifically the provisions thereof relating to
consolidated federal income tax returns. For state, local, or foreign
tax purposes, such terms shall be interpreted and applied in a manner
so as to achieve as nearly as possible the intention reflected herein
with respect to the federal income tax.
b. "Accountant" means Ernst & Young LLP, or such other United States
of America accounting firm as A&S and Essef may mutually agree.
c. "Tax" or "Taxes" means any federal, state, local, foreign, or other
tax of any kind whatsoever (together with any interest, penalties, or
additions imposed with respect thereto), including, without limitation,
income, gross receipts, license, payroll, employment, excise,
<PAGE>
severance, stamp, occupation, service, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, rental, lease,
ad valorem, or other tax.
d. "Tax Affiliate" means, with respect to any Person, any other Person
who, directly or indirectly, controls, is controlled by, or is under
common control with, such Person; provided, however, that for purposes
of this Agreement, Tax Affiliates of Essef will not include A&S.
e. "Tax Benefit" means a reduction in the amount of Taxes that would
otherwise be payable, whether resulting from a deduction, credit,
reduced gain or increased loss from the disposition of an asset, or
otherwise; a person will be deemed to have recognized a Tax Benefit at
the time the amount of Taxes such person otherwise would pay is
reduced;
f. "Tax Returns" means all returns, declarations, reports, claims for
refunds, information returns, statements, and other forms required to
be filed with respect to any Taxes, including any schedule or
attachment thereto, and including any amendments or supplements
thereof.
g. "Final Determination" means with respect to any Tax for any period
the later of (i) the date on which the statute of limitations for
instituting a claim for refund of such Tax has expired, or if such
claim was filed, the expiration of the time for instituting suit with
respect thereto; and (ii) the date on which all administrative and
judicial proceedings with respect to any such assessments or refunds
have been finally settled through agreement of the parties to the
proceeding or by an administrative or judicial decision from which no
appeal can be taken or the time for taking any such appeal has expired.
h. "Income Taxes" means any Tax based on or measured by or with
respect to gross or net income (including, without limitation, capital
gain taxes, minimum taxes, income taxes collected by withholding and
Taxes on Tax preference items) or receipts (together with any interest,
penalties, and additions to Tax imposed with respect thereto).
i. "Income Tax Return" means any Tax Return with respect to Income
Taxes.
j. "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated association, a limited liability company, a governmental
entity (or any department, agency, or political subdivision thereof),
or any other entity.
k. "Split-Off" shall have the same meaning as in the Merger Agreement.
l. "Transition Agreement" means that certain agreement dated April 30,
1999 among Essef, A&S, and Pentair for the purpose of implementing
certain of the transfers and other transactions contemplated by the
Merger Agreement, and particularly the Split-Off.
<PAGE>
2. TAXES ALLOCATED TO PENTAIR AND ESSEF. Pentair and Essef will be
responsible for, will pay or cause to be paid, and will indemnify and hold
A&S harmless from and against any and all liability for the following Taxes:
a. all Taxes imposed on or asserted against Essef, Pentair, or any of
their Tax Affiliates (including any obligations for Tax Liabilities of
other Persons that have been assumed, by indemnity or otherwise, by
Essef, Pentair, or any of their Tax Affiliates) with respect to any
taxable periods, and, subject to Section 4(a) hereof, all Taxes imposed
on or asserted against A&S (including any obligations for Tax
Liabilities of other Persons that have been assumed, by indemnity or
otherwise, by A&S or any of its Tax Affiliates on or before the Closing
Date) with respect to all taxable periods that end on or prior to the
Closing Date, including any short taxable year of A&S that ends on the
Closing Date either by operation of law or pursuant to an election made
as provided in Section 3(a) hereof;
b. subject to Section 4(a) hereof, all Taxes imposed on or asserted
against A&S arising out of the inclusion of A&S in any consolidated
return filed by Essef, Pentair, or any of their Tax Affiliates,
including, without limitation, any liability asserted under section
1502-6 of the U.S. Treasury regulations and any similar provisions
relating to state, local, or foreign Taxes;
c. subject to the provisions of Section 4(b) hereof, all Taxes imposed
on Essef, A&S, or any of their Tax Affiliates as a result of the
Split-Off pursuant to the Merger Agreement;
d. all Taxes arising as a result of any election filed under section
338 of the Code, or any similar provision of state, local, or foreign
law, as a result of Pentair's acquisition of the shares of Essef
pursuant to the Merger Agreement; and
e. all Taxes allocated to Essef, Pentair, or any of their Tax
Affiliates pursuant to Section 3 hereof.
3. STRADDLE PERIODS.
a. With respect to any taxable period of A&S that would (absent an
election) include, but not end until after, the Closing Date (a
"Straddle Period"), Pentair, Essef (including its Tax Affiliates), and
A&S will, to the extent permitted by applicable law, elect with the
relevant Tax authority to close such Straddle Period as of the close of
the Closing Date.
b. Pentair and Essef will be responsible for, will pay or cause to be
paid, and will indemnify and hold A&S harmless from and against, any
Income Taxes owed by A&S for the portion of any Straddle Period up to
and including June 30, 1999. For purposes of this Section 3(b), Income
Taxes for the portion of a Straddle Period up to and including June 30,
1999, will be determined based upon an interim closing of the books of
A&S as of June 30, 1999, based upon the accounting practices and
procedures used by A&S in preparing its Tax Returns.
<PAGE>
c. As to any Tax other than an Income Tax (a "Non-Income Tax") for any
Straddle Period, Pentair and Essef will be responsible for, will pay or
cause to be paid, and will indemnify and hold A&S harmless from and
against, (i) with respect to any Non-Income Tax that is determined
based upon specific transactions (including, but not limited to, value
added, sales and use Taxes), all Non-Income Taxes applicable to
transactions that have occurred during the period through June 30,
1999, and (ii) with respect to any Non-Income Tax that is not based
upon specific transactions (including, but not limited to, license,
real property, personal property, franchise and doing business Taxes),
a portion of such Non-Income Tax equal to the full amount of such
Non-Income Tax multiplied by a fraction, the numerator of which is the
number of days in the Straddle Period ending on June 30, 1999 and the
denominator of which is the number of days in the entire Straddle
Period; provided that Pentair's and Essef's allocation will be adjusted
appropriately to reflect the actual proportionate period of property
ownership or the activity of A&S during the Straddle Period, as
applicable, for any such Non-Income Taxes imposed with respect to the
ownership of specific items of property held by A&S or the activity of
A&S, as applicable, during the Straddle Period.
d. Pentair and Essef will pay to A&S the amount of any Tax Benefit
recognized by Essef that is attributable to any loss or other Tax
attribute that, if the Split-Off had occurred on June 30, 1999, would
have been reported by A&S on its own Tax Returns, or that otherwise
results from the activities or operations of A&S after June 30, 1999.
4. TAXES ALLOCATED TO A&S.
a. Other than those Taxes for which Pentair or Essef is responsible
pursuant to Sections 2 and 3 hereof, A&S will be responsible for, will
pay or cause to be paid, and will indemnify and hold Pentair and Essef
harmless from and against any and all Taxes imposed on A&S if, in the
case of Income Taxes, the taxable income accrued after June 30, 1999,
or if, in the case of other Taxes, the event giving rise to the Tax
occurred after June 30, 1999.
b. Within 30 calendar days of the Closing Date, A&S will pay to Essef
the amount, if any, computed under this subsection, which will be
determined as prescribed below.
i. First, calculate the Tax that Essef will owe on the gain
recognized as a result of the Split-Off of the A&S stock (the "A&S
Stock Tax") pursuant to the Merger Agreement, using (x) an assumed
effective tax rate of 39 percent, (y) the stock value determined
under Section 5 hereof, and (z) the tax basis reflected in Essef's
books and records at the beginning of the Closing Date, as
adjusted for the net amount of dividend distributed by A&S
pursuant to Section 4.1 of the Transition Agreement, after any
adjustments required by the Code and the Treasury regulations.
ii. Second, calculate the Tax Benefit that Essef will recognize
because of payments (whether in cash or otherwise) made in
satisfaction of compensatory stock options (including options
accelerated in connection with the Merger), pursuant to the Merger
Agreement (the "Essef Stock Option Tax Benefit"), using an assumed
effective tax rate of 39 percent.
<PAGE>
iii. Third, calculate the nondeductible cash payments that Essef
is obligated to make as a result of the accelerated vesting of
compensatory stock options (the "Parachute Cost").
iv. Fourth, calculate the surplus (the "Surplus") or shortfall
(the "Shortfall") in the proceeds (the "Proceeds") received by or
credited to Essef upon the exercise of the compensatory stock
options referenced in (ii) above. The Surplus shall be the amount
by which the Proceeds exceed $5.8 million and the Shortfall shall
be the amount by which $5.8 million exceeds the Proceeds. However,
there shall be no Shortfall for purposes hereof unless the
Proceeds are less than $5.55 million and there shall be no Surplus
for purposes hereof unless the Proceeds are greater than $6.05
million.
v. To the extent that the excess of (x) the sum of the Essef
Stock Option Tax Benefit plus the Surplus over (y) the sum of the
A&S Stock Tax plus the Parachute Cost plus the Shortfall (which
excess is referred to as the "Net Tax Benefit") is less than $4.2
million, A&S will pay to Essef the amount by which $4.2 million
exceeds the Net Tax Benefit. At A&S's option, any amount owing to
Essef under this subsection may be satisfied and discharged by
A&S's delivering to Essef a promissory note consistent with the
terms set forth in Exhibit A hereto.
vi. To the extent that the Net Tax Benefit exceeds $4.2 million,
the consequences thereof are not the subject of this Agreement but
will be addressed as prescribed in Section 4.1 of the Transition
Agreement.
vii. Apart from any amount payable under this Section, A&S will
have no obligation to Essef, Pentair, or any of their Tax
Affiliates on account of the A&S Stock Tax or the Essef Stock
Option Tax Benefit.
viii. The time deadlines prescribed herein will apply
notwithstanding any other timing provisions of this Agreement.
The calculations contemplated by this subsection will be made
initially by A&S within 30 calendar days after the Closing
Date and will then promptly be presented to Essef for its
review and approval. If Essef disagrees with any of the
calculations, it will notify A&S within 30 calendar days of
receiving the calculations from A&S. In the event of such a
disagreement, representatives of the parties will meet to
resolve their differences. If they are unable to resolve all
disagreements within 10 calendar days after Essef has notified
A&S of the disagreement, any remaining disagreements will be
resolved as prescribed in Section 14 hereof. The due date for
any payments required under this subsection will be extended
by the period of time required to resolve any disagreements
between Essef and A&S with regard to the calculations.
5. For purposes of computing the capital gain tax referenced in Sections
2(c) and 4(b) hereof, the parties agree as follows:
<PAGE>
a. The A&S stock is expected to be publicly traded, beginning on the
Closing Date, on the NASDAQ market. The parties will value the A&S
stock at the mean between the high and the low trading prices on the
first full day of trading following the Closing, unless, after
reviewing the results of the first five trading days following the
Closing, either Pentair or A&S, each in its sole discretion, determines
that such value does not reflect the value of the A&S shares for tax
purposes on the Closing Date.
b. If either Pentair or A&S makes the determination referenced
immediately above, the parties will commence discussions and attempt to
agree on the value for the A&S stock (the "Value") based upon the
trading pattern of the A&S stock and on other relevant facts and
circumstances, including an appraisal obtained from Rhone Group of the
fair market value of the A&S stock on the Closing Date, which appraisal
will reflect in substantial part the trading prices obtained in the
public securities market for the Essef stock in the last several days
prior to the Closing Date.
c. If after 15 calendar days following the commencement of the
discussions referenced above, Pentair and A&S have not agreed on the
Value, the question will be referred to binding arbitration by an
arbitrator (the "Arbitrator") mutually agreeable to both Pentair and
A&S. The Arbitrator shall be either a tax partner in one of the five
largest public accounting firms doing business in the United States or
a tax partner in a law firm having at least 20 professionals listed
firm-wide in the most recent edition of The Tax Directory published by
Tax Analysts. In either case, the Arbitrator shall be an individual
with expertise in the issues of law and fact that relate to the
valuation of corporate stock distributed in corporate spin-offs or
split-offs. The Arbitrator shall base his decision on the
considerations referenced in Section 5(b).
6. REFUNDS OF INDEMNIFIED TAXES.
a. A&S will promptly remit to Pentair or Essef an amount equal to all
refunds (including interest thereon and any amounts applied against a
Tax Liability for other taxable periods) of any Taxes for which A&S is
indemnified pursuant to this Agreement ("Essef's Refunds").
b. Pentair and Essef will promptly remit (and will cause their Tax
Affiliates to promptly remit) to A&S an amount equal to all refunds
(including interest thereon and any amounts applied against a Tax
Liability for other taxable periods) of any Taxes for which Essef is
indemnified pursuant to this Agreement ("A&S's Refunds").
c. Upon the request of Essef, A&S will file claims for Essef's Refunds
in such form as Essef may reasonably request. Essef will have the sole
right to prosecute any claims for Essef's Refunds (by suit or
otherwise) at Essef's expense and with counsel of Essef's choice. A&S
will cooperate fully with Essef and its counsel in connection with any
claims for Essef's Refunds.
d. Upon the request of A&S, Essef will file claims for A&S's Refunds
in such form as A&S may reasonably request. A&S will have the sole
right to prosecute any claims for
<PAGE>
A&S's Refunds (by suit or otherwise) at A&S's expense and with counsel
of A&S's choice. Essef will cooperate fully with A&S and its counsel
in connection with any claims for A&S's Refunds.
e. Except as otherwise provided in this Agreement, any refunds of
Taxes other than Essef's Refunds or A&S's Refunds will be the property
of the payee of such refunds and no other party to this Agreement or
its Tax Affiliates will have any right to such refunds.
7. TAX CARRYBACKS
a. If A&S incurs any net operating loss, net capital loss, or other
deduction or credit in any taxable period ending after the Closing Date
(a "Post-Closing Carryback") that may be carried back to any taxable
period ending on or before the Closing Date, Essef and Pentair will
cooperate with A&S in filing an appropriate refund claim or amended Tax
Return and will assign and promptly remit to A&S the amount of any
refund of Tax received by, or Tax Benefit recognized by, Pentair or
Essef or any of their Tax Affiliates, as a result of such Post-Closing
Carryback.
b. If Pentair or Essef makes any remittance to A&S under Section 7(a)
hereof and all or part of such Post-Closing Carryback is subsequently
disallowed, then A&S shall promptly pay to Essef or Pentair that
portion of the remittance that relates to the portion of the
Post-Closing Carryback that is disallowed and, in addition thereto, any
other costs or expenses incurred by Pentair or Essef in respect to the
disallowed portion of the Post-Closing Carryback, including any
interest attributable thereto that is assessed by the taxing authority.
8. NO OBLIGATION TO FILE AMENDED TAX RETURNS. Except as otherwise
specifically provided in this Agreement, neither A&S, Pentair, or Essef, nor
any of their respective Tax Affiliates, will be obligated to file any amended
Tax Return or other Tax refund claim.
9. PREPARATION AND FILING OF TAX RETURNS.
a. Pentair or Essef will prepare or cause to be prepared, and file or
cause to be filed (i) all consolidated, combined, or unitary Income Tax
Returns of Essef or any of its Tax Affiliates that include A&S and that
are listed in Schedule 9(a)(i) hereto, and (ii) all Income Tax Returns
required to be filed by or on behalf of A&S for taxable periods ending
on or before the Closing Date (including by reason of any election
under Section 3 hereof) and that are listed in Schedule 9(a)(ii)
hereto, and (iii) all other Tax Returns required to be filed by or on
behalf of A&S on or before the Closing Date. Pentair and Essef covenant
that, except for the returns referenced in Schedule 9(a)(i) hereto,
neither they nor any of their Tax Affiliates will file or cause to be
filed any consolidated, combined, or unitary returns that include A&S
without giving A&S at least 30 days notice of their intent to do so and
obtaining the prior written approval of A&S to being so included.
b. A&S will prepare or cause to be prepared, and file or cause to be
filed, all Tax Returns of A&S other than those set forth in Section
9(a) hereof. A&S will prepare all A&S Tax Returns for taxable periods
including, but ending after, the Closing Date ("Straddle
<PAGE>
Period Returns") in a manner consistent with A&S's past Tax accounting
practice and, in the absence thereof, reasonable Tax accounting
practices selected by A&S.
c. Neither Pentair, Essef, nor A&S, nor any of their Tax Affiliates,
will exercise any election available under section 1.1502-76(b)(2) of
the U.S. Treasury regulations or any corresponding provisions of other
Tax laws for any Straddle Period.
d. A&S will assist Pentair or Essef in timely obtaining any required
signatures or other filing requirements in respect of Tax Returns
prepared by Pentair or Essef for A&S pursuant to section 9(a).
e. Upon request of either A&S or Essef, the other party shall make
available prior to filing (and after filing) for inspection and copying
all Tax Returns and related workpapers with respect to Taxes to the
extent that (i) such Tax Return relates to Taxes for which the
requesting party may be liable, (ii) such Tax Return relates to Taxes
for which the requesting party may be liable in whole or in part for
any additional Taxes owing as a result of adjustments to the amount of
Taxes reported on such Tax Return, (iii) the requesting party
reasonably determines that it must inspect such Tax Return to confirm
compliance with the terms of this Agreement. A&S and Essef shall
attempt in good faith to resolve any issues arising out of the review
of such Tax Returns.
10. PROCEDURES FOR SETTLEMENT OF TAX ALLOCATIONS.
a. This Section 10(a) will govern the settlement as between A&S, on
the one hand, and Essef and Pentair, on the other hand, of all Straddle
Period Tax allocations for Taxes that are reported on a Straddle Period
Return. With respect to each Straddle Period Return that involves Taxes
subject to allocation pursuant to Section 3(b) hereof, A&S will, at
least sixty (60) days prior to the final due date (including
extensions) of such Straddle Period Return, provide to Essef (i) a copy
of such Straddle Period Return (including supporting schedules and
workpapers) and (ii) a statement (including supporting schedules and
workpapers) certifying the amount of Tax shown on such Straddle Period
Return that is allocable to Essef pursuant to Section 3(b) hereof
reduced by any payments made by A&S prior to the Closing Date, and by
Essef and its Tax Affiliates at any time, in respect of such Taxes
(whether as estimated Taxes or otherwise) (the "Statement"). Essef and
its authorized representatives will have the right to review the
Statement for thirty (30) days following its receipt of the Statement
(the "30-Day Review Period"). If Essef disagrees with the allocation in
the Statement, it will notify A&S in writing of such disagreement prior
to the close of the 30-Day Review Period, and Essef and A&S will
consult and attempt to resolve in good faith the disagreement. In the
event, Essef and A&S are unable to resolve the disagreement within
fifteen (15) days following the end of the 30-Day Review Period, Essef
and A&S will jointly request that the disagreement be resolved pursuant
to the procedures prescribed in Section 14 hereof. Not later than five
(5) days after the later of (i) the end of the 30-Day Review Period, or
(ii) if there is a disagreement, the date notice is provided to Essef
and A&S regarding the resolution of the disagreement pursuant to
Section 14, Essef or Pentair shall pay to A&S or A&S will pay to Essef
or Pentair, as the case may be, an amount equal to the difference
between the Taxes shown on the Statement or in such notice (as the case
may be)
<PAGE>
as being allocable to Essef pursuant to Section 3(b) hereof, and (ii)
any payments made by A&S on or prior to the Closing Date, and by Essef
and its Tax Affiliates at any time, in respect of such Taxes (whether
as Estimated Taxes or otherwise).
b. This Section 10(b) will govern the settlement as between A&S, on
the one hand, and Essef and Pentair, on the other hand, of all Straddle
Period Tax allocations for Taxes that are not required to be reported
on a Straddle Period Return (e.g., Taxes that are assessed without the
filing of a Tax Return). With respect to each such Tax subject to
allocation pursuant to Section 3(b) hereof, A&S will, at least thirty
(30) days prior to the final due date of such Tax, provide to Essef (i)
a copy of the Tax assessment or other supporting schedules and
workpapers and (ii) a statement (including supporting schedules and
workpapers) certifying the amount of Tax that is allocable to Essef
pursuant to Section 3(b) hereof reduced by any payments made by A&S on
or prior to the Closing Date, and by Essef and its Tax Affiliates at
any time, in respect of such Taxes (whether as estimated Taxes or
otherwise) (the "Statement"). Essef and its authorized representatives
will have the right to review the Statement for ten (10) days following
Essef's receipt of the Statement (the "10-Day Review Period"). If Essef
disagrees with the allocation in the Statement, it will notify A&S in
writing of such disagreement prior to close of the 10-Day Review
Period, and Essef and A&S will consult and attempt to resolve in good
faith the disagreement. In the event Essef and A&S are unable to
resolve the disagreement within ten (10) days following the end of the
10-Day Review Period, Essef and A&S will jointly request to resolve the
disagreement pursuant to Section 14. Not later than five (5) days after
the later of (i) the end of the 10-Day Review Period, or (ii) if there
is a disagreement, the date notice is provided to Essef and A&S
regarding the resolution of the disagreement pursuant to Section 14,
Essef or Pentair will pay to A&S or A&S will pay to Essef, as the case
may be, an amount equal to the difference between (i) the Taxes shown
on the Statement or in such notice (as the case may be) as being
allocable to Essef pursuant to Section 3(b) hereof, and (ii) any
payments made by the A&S on or prior to the Closing Date, and by Essef
and its Tax Affiliates at any time, in respect of such Taxes (whether
as estimated Taxes or otherwise).
11. COOPERATION; ACCESS TO INFORMATION; TAX RECORDS.
a. Essef and A&S will cooperate fully with each other with respect to,
and will make available to each other, such Tax data and other
information as may be reasonably required for (i) the preparation of
any Tax Returns required to be prepared by Essef or A&S under this
Agreement, (ii) determining the liability for and amount of any Taxes
due or the right to and amount of any refund of Taxes, (iii)
examinations of Tax Returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed.
Such cooperation shall include making all information and documents in
their possession relating to such Tax Returns, Tax Liabilities or
refunds, examinations, or administrative or judicial proceedings
available to the other party as provided in Section 11(b) hereof. Essef
and A&S shall also make available to the other, as reasonably requested
and available, personnel (including officers, directors, employees and
agents of Essef and A&S and their Tax Affiliates) responsible for
preparing, maintaining and interpreting information and documents
relevant to Taxes, and personnel reasonably required as witnesses or
for purposes of providing information or documents in connection with
any administrative or judicial
<PAGE>
proceedings relating to Taxes. Any information or documents provided
under this Section 11, shall be kept confidential by the party
receiving the information or documents, except as may otherwise be
necessary in connection with the filing of Tax Returns or in
connection with any administrative or judicial proceedings relating
to Taxes.
b. Essef and A&S and their respective Tax Affiliates shall make
available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax records in their
possession to the extent reasonably required by the other party in
connection with the preparation of Tax Returns, audits, litigation, or
the resolution of items under this Agreement. Essef, A&S, and their
respective Tax Affiliates shall preserve and keep such Tax records in
their possession until the expiration of any applicable statutes of
limitation and as otherwise required by law, but in any event for a
period not less than eight (8) years after the Closing Date.
Notwithstanding the foregoing, a party or its Tax Affiliates may
dispose of records sooner upon ninety (90) days prior notice to the
other party. Such notice shall include a list of the records to be
disposed of describing in reasonable detail each file, book or other
record accumulation being disposed. The notified party shall have the
opportunity, at its cost and expense, to copy or remove, within such
ninety (90) day period, all or any part of such Tax records. For
purposes of this Section 11, Tax records include Tax Returns, journal
vouchers, cash vouchers, general ledgers, material contracts, return
workpapers, and any other records pertaining to or used in the
preparation of Tax Returns.
12. AUDITS.
a. A&S or Essef (the "Notifying Party") will promptly notify the other
(the "Notified Party") in writing upon the receipt of notice of any
pending or threatened Tax audits or assessments (i) relating to any
taxable period of A&S ending on, prior to, or including the Closing
Date, or (ii) that may affect the determination of Taxes for which the
Notified Party is or may be obligated to indemnify the Notifying Party
pursuant to this Agreement. The notice required under this Section
12(a) is referred to in this Agreement as the "Audit Notification."
b. Subject to Section 12(c) hereof, the Notified Party will have the
right, at its election, (i) to represent the Notifying Party and to
exclusively control the handling of any Tax audit or assessment
referred to in Section 12(a) hereof, including in any administrative or
court proceeding relating thereto, (ii) to employ counsel of its choice
at its expense and to control the conduct of such audit, assessment, or
proceeding, including settlement or other disposition thereof and (iii)
to settle the contest of any Tax or agree to an adjustment to any Tax
referred to in Section 12(a) (the rights under (i), (ii) and (iii) are
referred to in this Agreement collectively as the "Representation
Right"); PROVIDED, however, that the Representation Right will apply
only to any issues or items (x) relating to any taxable period of A&S
ending on, prior to, or including the Closing Date, or (y) that may
affect the determination of Taxes for which the Notified Party is or
may be obligated to indemnify the Notifying Party pursuant to this
Agreement. As reasonably necessary, the Notifying Party will fully
cooperate, and will cause its Tax Affiliates to fully cooperate, at the
Notified Party's expense, with the Notified Party and its counsel in
the defense against or compromise
<PAGE>
of any claim in any said audit, assessment, or proceeding, such
cooperation to include (but not be limited to) the grant of any
necessary powers of attorney.
c. To exercise the Representation Right, the Notified Party must
first, within a reasonable period following the receipt of the Audit
Notification, (i) notify the Notifying Party in writing that the
Notified Party intends to exercise the Representation Right, and (ii)
deliver to the Notifying Party a written statement acknowledging the
Notified Party's obligation to indemnify the Notifying Party in
accordance with the terms of this Agreement with respect to the Taxes
as to which the Notified Party exercises the Representation Right.
d. The Notifying Party's personnel shall have the right to participate
in any administrative or judicial proceedings for which the Notified
Party exercises its Representation Right (including assisting with
field audits, administrative appeals, and subsequent litigation) in so
far as they relate to the Notifying Party, and such participation shall
be reflected by the grant of appropriate powers of attorney.
e. A&S and Essef shall have exclusive control of all administrative
and judicial proceedings related to their respective Taxes other than
those described in Section 12(a).
f. For so long as the Notified Party is exercising its Representation
Right, it shall not be required to indemnify the Notifying Party
pursuant to Section 13 hereof until there occurs a Final Determination
of the liability of A&S for the Tax.
13. PROCEDURES FOR OBTAINING INDEMNIFICATION.
a. If either Essef or A&S (the "Indemnified Party") determines that it
or any of its Tax Affiliates is or may be entitled to indemnification
by the other party (the "Indemnifying Party") under this Agreement as a
result of the allocations of responsibility for Taxes set forth in
Sections 2 through 4, the Indemnified Party will promptly deliver to
the Indemnifying Party a written notice and demand therefor (the
"Notice") specifying the basis for its claim for indemnification, the
nature of the claim, and, if known, the amount for which the
Indemnified Party reasonably believes it or any of its Tax Affiliates
is entitled to be indemnified. The Notice must be received by the
Indemnifying Party no later than thirty (30) days before the expiration
of the applicable Tax statute of limitations; provided, however, that
if the Indemnified Party does not receive notice from the applicable
governmental taxing authority ("Government Notice") that an item exists
that could give rise to a claim for indemnification hereunder more than
thirty (30) days before the expiration of the applicable Tax statute of
limitations, then the Notice must be received by the Indemnifying Party
immediately after the Indemnified Party receives the Government Notice.
Unless the Indemnifying Party objects to the claim for indemnification
(in the manner set forth in Section 13(b) hereof), and subject to
Section 12(f), the Indemnifying Party will pay the Indemnified Party
the amount set forth in the Notice, in cash or other immediately
available funds, within thirty (30) days after receipt of the Notice;
provided, however, that if the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified is not known at
the time of the Notice, the Indemnified Party will deliver to the
Indemnifying
<PAGE>
Party a further notice specifying such amount as soon as reasonably
practicable after such amount is known and payment will then be made
as set forth above.
b. The Indemnifying Party may object to the claim for indemnification
(or the amount thereof) set forth in any Notice by giving the
Indemnified Party, within thirty (30) days following receipt of such
Notice, written notice setting forth the Indemnifying Party's grounds
for so objecting (the "Objection Notice"). If the Indemnifying Party
does not give the Indemnified Party the Objection Notice within such
thirty (30)-day period, the Indemnifying Party may exercise any and all
of its rights under applicable law to collect such amount.
c. If Essef and A&S are unable to settle any dispute regarding a claim
for indemnification within thirty (30) days after receipt of the
Objection Notice, they will, in accordance with Section 14, jointly
request to resolve the dispute as promptly as possible under the
procedures set forth in Section 14.
d. Failure by the Indemnified Party to promptly deliver to the
Indemnifying Party a Notice in accordance with Section 13(a) hereof
will not relieve the Indemnifying Party of any of its obligations under
this Agreement except to the extent the Indemnifying Party is
prejudiced by such failure.
e. The indemnification provisions of this Section 13 shall be the
exclusive remedy following the Closing Date for the allocation of Taxes
pursuant to this Agreement.
14. PROCEDURES FOR RESOLVING DISPUTES. Except as provided in Section 5, if
Essef and A&S fail to mutually agree on the resolution of any of the matters
in this Agreement that require the agreement of the parties, then such matter
shall be referred to the Accountant for a binding determination. Essef and
A&S shall deliver to the Accountant copies of any schedules or documentation
that may be reasonably required by the Accountant to make its determination.
Essef and A&S shall be entitled to make presentations to the Accountant in
connection therewith. Essef and A&S shall use all reasonable efforts to cause
the Accountant to promptly complete such determination. The determination of
the Accountant shall be final and binding on all parties. The costs incurred
in retaining the Accountant to make a determination shall be shared equally
by Essef and A&S.
15. PAYMENT. If a party (the "Payor") fails to make a payment due and owing
under this Agreement to the other party or any of its Tax Affiliates (the
"Payee") within 10 business days after the parties hereto agree (or there is
a binding determination by the Accountant) that such payment is due and
owing, the Payor will pay to the Payee interest on such payment from and
including the date the parties reach such agreement (or such binding
determination is made) to but excluding the day the Payor makes such payment,
at a rate equal to seven percent (7%) per annum.
16. AMENDMENTS. Any amendment, supplement, variation, alternation, or
modification to this Agreement must be made in writing and duly executed by
an authorized representative or agent of each of the parties hereto.
<PAGE>
17. ASSIGNMENT. This Agreement and all the rights and obligations granted
hereby shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns, it being expressly agreed that this
Agreement shall not be assigned nor shall any rights or obligations arising
hereunder be transferred by one party without the prior written consent of
the other parties. Prior to the Closing Date, Essef and A&S may elect to form
a holding company for the ownership of the A&S stock. In that event, (i)
Essef will transfer the shares of A&S stock to the holding company and shares
of common stock of the holding company will be issued in substitution of the
A&S stock in the Split-Off and (ii) the benefits and obligations contemplated
by this Tax Sharing Agreement will be binding upon and inure to the holding
company, provided that A&S will not be released from its obligations
hereunder.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes any and all prior or contemporaneous
understandings, negotiations, or agreements between the parties relating to
the transactions contemplated hereby or the subject matter of this Agreement,
and shall be binding upon and inure to the benefit of the parties hereto and
their respective legal representatives.
19. NO WAIVER. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants, or conditions of this
Agreement, to exercise any right or privilege conferred in this Agreement, or
to waive any breach of any of the terms, covenants, or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights, or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
20. NO DOUBLE RECOVERY. No provision of this Agreement shall be construed
to provide an indemnity or other recovery for any Taxes, costs, damages, or
other amounts for which the damaged person has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or in equity.
21. SEVERABILITY. Any provisions of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdictions, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any other jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, each party hereby waives any law that renders
any provision hereof prohibited or unenforceable in any respect.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and all such counterparts shall be
deemed to constitute one and the same instrument.
23. FEES, COSTS AND EXPENSES. Except as otherwise provided herein, each
party shall be responsible for its own fees, costs, and expenses incurred by
it in connection with this Agreement.
24. THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended to
create, nor shall anything in this Agreement be deemed to create or have
created, any third party beneficiary rights.
<PAGE>
25. CONSTRUCTION. All references to this Agreement shall include all
attachments hereto, and words importing the singular shall include the plural
and vice versa, and words importing a gender shall include other genders.
26. HEADINGS. The descriptive section headings contained in this Agreement
are for convenience of reference only and shall not control or affect the
meaning or construction of any provision of this Agreement.
27. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when personally
delivered, five (5) business days after mailing when mailed by certified
mail, return receipt requested, or one (1) business day after sending via
Federal Express or similar overnight courier service, or when receipt is
confirmed when sent by facsimile. Such notices or other communications shall
be sent to the following addresses, unless other addresses are subsequently
specified in writing:
a. If to the Essef, to:
Essef Corporation
c/o Anthony & Sylvan Pools Corporation
220 Park Drive
Chardon, Ohio 44024
Facsimile No.: (440) 286-2206
Attention: Mark E. Brody
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 479-8776
Attention: Mary Ann Jorgenson, Esq.
b. If to A&S, to:
Anthony & Sylvan Pools Corporation
220 Park Drive
Chardon, Ohio 44024
Facsimile No.: (440) 286-2206
Attention: Stuart D. Neidus
<PAGE>
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 479-8776
Attention: Mary Ann Jorgenson, Esq.
c. If to Pentair, to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Richard J. Cathcart
with a copy to:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile No.: (651) 639-5203
Attention: Louis L. Ainsworth, Esq.
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile No.: (414) 297-4900
Attention: Benjamin F. Garmer, III, Esq.
28. GOVERNING LAW. This Agreement shall be governed by and controlled as to
its validity, enforcement, interpretation, construction, effect, and in all
other respects by the laws of the State of Ohio (without giving effect to any
choice or conflict of law provision or rule thereof) applicable to contracts
made and to be performed in that State.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their duly authorized representatives as of the day and year first
above written.
ESSEF CORPORATION
By: /s/ Thomas B. Waldin
---------------------------
Name: Thomas B. Waldin
---------------------------
Title: President
---------------------------
ANTHONY & SYLVAN POOLS CORPORATION
By: /s/ Stuart D. Neidus
---------------------------
Name: Stuart D. Neidus
---------------------------
Title: Chief Executive Officer
---------------------------
PENTAIR, INC.
By: /s/ Richard J. Cathcart
---------------------------
Name: Richard J. Cathcart
---------------------------
Title: Executive Vice President
---------------------------
<PAGE>
EXHIBIT A
<PAGE>
- ------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
FALCON BUILDING PRODUCTS, INC.
and
PENTAIR, INC.
Dated as of August 12, 1999
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
PURCHASE AND SALE OF THE SHARES
<S> <C> <C>
Section 1.1 Purchase and Sale of the Shares..................................... 1
Section 1.2 Purchase Price...................................................... 1
Section 1.3 Closing Payment..................................................... 1
Section 1.4 Post Closing Purchase Price Adjustment.............................. 2
Section 1.5 Closing............................................................. 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 2.1 Organization........................................................ 4
Section 2.2 Capitalization...................................................... 4
Section 2.3 Authority Relative to this Agreement................................ 5
Section 2.4 Consents and Approvals; No Violations............................... 5
Section 2.5 Financial Statements................................................ 6
Section 2.6 Absence of Certain Changes; No Undisclosed Liabilities.............. 6
Section 2.7 No Default.......................................................... 7
Section 2.8 Litigation.......................................................... 7
Section 2.9 Certain Agreements.................................................. 7
Section 2.10 Taxes............................................................... 7
Section 2.11 Environmental Matters............................................... 8
Section 2.12 Employee Benefit Matters............................................ 9
Section 2.13 Brokers............................................................. 10
Section 2.14 Labor Relations..................................................... 10
Section 2.15 Intellectual Property............................................... 10
Section 2.16 Real Property....................................................... 11
Section 2.17 Compliance with Laws; Licenses and Permits.......................... 11
Section 2.18 Product Warranty and Product Liability.............................. 12
Section 2.19 Employment Compensation............................................. 12
Section 2.20 Certain Relationships............................................... 12
Section 2.21 Year 2000........................................................... 13
Section 2.22 Insurance........................................................... 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 3.1 Organization........................................................ 13
i
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<CAPTION>
Section 3.2 Authority Relative to this Agreement................................ 14
Section 3.3 Consents and Approvals; No Violations............................... 14
Section 3.4 Brokers............................................................. 14
Section 3.5 Funds Available..................................................... 15
Section 3.6 Absence of Proceedings.............................................. 15
Section 3.7 Investment Intent................................................... 15
Section 3.8 Status as Accredited Investor....................................... 15
Section 3.9 No Outside Reliance................................................. 15
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of the Company.................................. 15
Section 4.2 Access to Information............................................... 17
Section 4.3 Government Approvals................................................ 18
Section 4.4 Third Party Consents................................................ 18
Section 4.5 Public Announcements................................................ 18
Section 4.6 Directors' and Officers' Indemnification............................ 18
Section 4.7 Employee Contracts.................................................. 19
Section 4.8 Resignation of Directors............................................ 19
Section 4.9 Notification of Certain Matters..................................... 19
Section 4.10 Settlement of Intercompany Accounts................................. 19
Section 4.11 Receivables Securitization Program.................................. 19
Section 4.12 Straddle Period Tax Provisions...................................... 20
Section 4.13 Pension and Savings Plans........................................... 21
Section 4.14 Insurance........................................................... 23
Section 4.15 Certain Agreements.................................................. 23
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 Conditions to Purchaser's Obligations............................... 23
Section 5.2 Conditions to Seller's Obligations.................................. 24
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 Termination......................................................... 25
Section 6.2 Effect of Termination............................................... 25
Section 6.3 Amendment........................................................... 26
Section 6.4 Extension; Waiver................................................... 26
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<CAPTION>
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-Survival of Representations and Warranties; Agreements.......... 26
Section 7.2 Entire Agreement; Assignment........................................ 26
Section 7.3 Notices............................................................. 26
Section 7.4 Governing Law....................................................... 27
Section 7.5 Descriptive Headings................................................ 28
Section 7.6 Counterparts........................................................ 28
Section 7.7 Fees and Expenses................................................... 28
Section 7.8 Miscellaneous....................................................... 28
Section 7.9 Specific Performance................................................ 28
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.4 Net Operating Assets at March 31, 1999
Schedule 2.1 States of Qualification
Schedule 2.2(a) Company Capitalization
Schedule 2.2(b) Subsidiary Capitalization
Schedule 2.4 No Violations
Schedule 2.5 Financial Statements
Schedule 2.6 Certain Changes; Disclosed Liabilities
Schedule 2.7 No Default
Schedule 2.8 Litigation
Schedule 2.9 Certain Agreements
Schedule 2.10 Taxes
Schedule 2.11 Environmental Matters
Schedule 2.12(a) Employee Benefit Matters: Benefits Plans
Schedule 2.12(b) Employee Benefit Matters: Certain Plans
Schedule 2.14 Labor Relations
Schedule 2.15 Intellectual Property
Schedule 2.16(a) Real Property: List of Real Properties
Schedule 2.16(b) Real Property: Consents and Defaults
Schedule 2.16(c) Real Property: Title
Schedule 2.17 Compliance with Laws; Licenses and Permits
Schedule 2.18 Product Warranty and Product Liability
Schedule 2.19 Employment Compensation
Schedule 2.20 Certain Relationships
Schedule 2.21 Year 2000
Schedule 2.22 Insurance
Schedule 4.1 Conduct of the Business of the Company
Schedule 4.7 Employee Contracts
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Schedule 4.13(b) Actuarial Assumptions
Schedule 5.1(e) Terminated Agreements
Schedule 5.1(f) Consents
Schedule 7.8(c) Knowledge
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of August 12, 1999 (the
"AGREEMENT"), is by and between Falcon Building Products, Inc., a Delaware
corporation ("SELLER"), and Pentair, Inc., a Minnesota corporation
("PURCHASER").
WHEREAS, Seller is the owner of 100% of the issued and outstanding
capital stock (the "SHARES") of Falcon Manufacturing, Inc., a Delaware
corporation (the "COMPANY");
WHEREAS, the Company is the owner of 100% of the issued and
outstanding capital stock of DeVilbiss Air Power Company, a Delaware
corporation (the "SUBSIDIARY"); and
WHEREAS, Seller desires to sell to Purchaser the Shares, and
Purchaser desires to purchase for the amount provided herein, and on the
terms and subject to the conditions set forth in this Agreement, the Shares.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other covenants and agreements set forth herein, the parties hereto hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
Section 1.1 PURCHASE AND SALE OF THE SHARES. Subject to the terms
and conditions hereof, on the Closing Date, Seller shall sell, assign,
transfer and deliver to Purchaser, free and clear of all liens, the Shares,
and Purchaser shall purchase the Shares from Seller, at the price and in the
manner set forth in this Article I.
Section 1.2 PURCHASE PRICE. The aggregate purchase price for the
Shares is Four Hundred Sixty Million Dollars ($460,000,000) (the "BASE
PURCHASE PRICE"), subject to adjustment as provided in Section 1.4 hereof.
Section 1.3 CLOSING PAYMENT. At the Closing, Purchaser shall
deliver to Seller payment, by wire transfer to a bank account designated in
writing by Seller at least two business days prior to the Closing Date, of
immediately available funds in an amount equal to the Base Purchase Price
plus or minus the Estimated Adjustment Amount (as defined herein). The
"Estimated Adjustment Amount" means the amount by which the Base Purchase
Price would be adjusted pursuant to Section 1.4 hereof based upon an
estimated Closing Date balance sheet of the Company and the Subsidiary
prepared in good faith by Seller in a manner consistent with the accounting
methods and practices followed in the preparation of the March Balance Sheet
(as defined in Section 2.5), which balance sheet will be delivered to
Purchaser not less than five (5) business days prior to the Closing Date. The
Base Purchase Price plus or minus the Estimated Adjustment Amount is referred
to herein as the "CLOSING DATE AMOUNT".
<PAGE>
Section 1.4 POST CLOSING PURCHASE PRICE ADJUSTMENT.
(a) As soon as practicable after the Closing Date, but in any
event not later than the 60th day after the Closing Date, Seller shall
prepare and deliver to Purchaser a consolidated balance sheet of the
Company and the Subsidiary as of the Closing Date in the form set forth
in Schedule 1.4, prepared in a manner consistent with the accounting
methods and practices followed in the preparation of the March Balance
Sheet (the "CLOSING BALANCE SHEET"), and a certificate of Seller that
the Closing Balance Sheet has been prepared in such manner. Purchaser
shall assist Seller in the preparation of the Closing Balance Sheet and
shall provide Seller and its independent auditors access at all
reasonable times to the personnel, properties, books and records of the
Company and the Subsidiary for such purpose. Purchaser's independent
auditors may participate in the preparation of the Closing Balance
Sheet; PROVIDED, HOWEVER, that Purchaser acknowledges that Seller shall
have the primary responsibility and authority for preparing the Closing
Balance Sheet.
(b) During the 30-day period following Purchaser's receipt of
the Closing Balance Sheet, Purchaser and its independent auditors shall
be permitted to review the working papers relating to the Closing
Balance Sheet. The Closing Balance Sheet shall become final and binding
upon the parties on the 30th day following delivery thereof, unless
Purchaser gives written notice of its disagreement with the Closing
Balance Sheet (a "NOTICE OF DISAGREEMENT") to Seller prior to such
date. Any Notice of Disagreement shall (i) specify in reasonable detail
the nature of any disagreement so asserted, (ii) only include
disagreements based on mathematical errors or based on Net Operating
Assets not being calculated in accordance with this Section 1.4 and
(iii) be accompanied by a certificate of Purchaser that it has complied
with the covenants set forth in Section 1.4(e). If a Notice of
Disagreement is received by Seller in a timely manner, then the Closing
Balance Sheet (as revised in accordance with this sentence) shall
become final and binding upon Seller and Purchaser on the earlier of
(A) the date Seller and Purchaser resolve in writing any differences
they have with respect to the matters specified in the Notice of
Disagreement or (B) the date any disputed matters are finally resolved
in writing by the Accounting Firm (as defined herein). During the
30-day period following the delivery of a Notice of Disagreement,
Seller and Purchaser shall seek in good faith to resolve any
differences that they may have with respect to the matters specified in
the Notice of Disagreement. During such period, Seller and its auditors
shall have access to the working papers of Purchaser and its auditors
prepared in connection with their certification of the Notice of
Disagreement. At the end of such 30-day period, Seller and Purchaser
shall submit to a nationally recognized independent public accounting
firm (the "ACCOUNTING FIRM") for review and resolution any and all
matters that remain in dispute and were properly included in the Notice
of Disagreement. The Accounting Firm shall be Arthur Andersen or, if
such firm is unable or unwilling to act, such other nationally
recognized independent public accounting firm as shall be agreed upon
by the parties hereto in writing. The scope of the disputes to be
resolved by the Accounting Firm shall be limited to whether the
calculation of Net Operating Assets was done in accordance with this
Section 1.4, and whether there were mathematical errors in such
calculation.
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The Accounting Firm is not to make any other determination. Seller
and Purchaser agree to use reasonable efforts to cause the
Accounting Firm to render a decision resolving the matters submitted
to the Accounting Firm within 30 days following submission or, if
earlier, as soon as reasonably practicable after submission.
Judgment may be entered upon the determination of the Accounting
Firm in any court having jurisdiction over the party against which
such determination is to be enforced. The cost of the fees and
expenses of the Accounting Firm pursuant to this Section 1.4 shall
be borne by Purchaser and Seller in inverse proportion as they may
prevail on matters resolved by the Accounting Firm, which
proportionate allocations shall also be determined by the Accounting
Firm at the time the determination of the Accounting Firm is
rendered on the merits of the matters submitted. Each of Seller and
Purchaser shall be responsible for the fees and disbursements of
their respective independent auditors incurred as a result of this
Section 1.4(b).
(c) The Base Purchase Price shall be increased by the amount
by which Net Operating Assets (as finally determined in accordance with
this Section 1.4) exceeds $132,353,000 or the Base Purchase Price shall
be decreased by the amount by which Net Operating Assets (as finally
determined in accordance with this Section 1.4) is less than
$132,353,000, as the case may be. The Base Purchase Price as so
increased or decreased shall hereinafter be referred to as the
"ADJUSTED PURCHASE PRICE". If the Closing Date Amount is less than the
Adjusted Purchase Price, Purchaser shall, and if the Closing Date
Amount is more than the Adjusted Purchase Price, Seller shall, within
five business days after the Closing Balance Sheet becomes final and
binding on the parties, make payment by wire transfer in immediately
available funds of the amount of such difference, together with
interest thereon at a rate of six percent (6%), calculated on the basis
of the actual number of days elapsed divided by 365, from the Closing
Date to the date of payment. Either party may, in its discretion, make
a payment to the other pursuant to this Section 1.4 prior to final
determination of the Closing Balance Sheet for purpose of reducing the
interest it may be obligated to pay pursuant to such provision.
(d) The term "NET OPERATING ASSETS" means the amount by which
the sum of (i) Trade Receivables Net, (ii) Inventories Net, (iii) Other
Current Assets and (iv) Property, Plant & Equipment (before Accumulated
Depreciation) exceeds the sum of (A) Trade Payables, (B) Other Accounts
Payable, (C) Accrued Income Taxes-State, and (D) Other Accrued Expenses
as set forth on the Closing Balance Sheet.
(e) During the period of time from and after the Closing Date
through the resolution of any adjustment to the Purchase Price
contemplated by this Section 1.4, Purchaser shall afford to Seller and
any accountants, counsel or financial advisers retained by Seller in
connection with any adjustment to the Purchase Price contemplated by
this Section 1.4 reasonable access upon advance notice and during
normal business hours to all the properties, books, contracts,
personnel and records of the Company and the Subsidiary relevant to the
adjustment contemplated by this Section 1.4.
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<PAGE>
Section 1.5 CLOSING. Upon the terms and subject to the conditions
contained herein, the closing of the transactions contemplated hereby (the
"CLOSING") shall take place at the offices of Gibson, Dunn & Crutcher LLP,
200 Park Avenue, 48th Floor, New York, New York 10166, or any other mutually
agreed upon location, at 9:00 a.m. New York City time on the date (the
"CLOSING DATE") which is three (3) business days after the conditions set
forth in Article V hereof have been satisfied or waived, or any other
mutually agreed upon time. At the Closing, the parties will deliver to each
other such certificates and other documents as are reasonably agreed upon.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 2.1 ORGANIZATION.
(a) Seller is a corporation validly existing and in good
standing under the laws of its jurisdiction of incorporation and has
all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted.
(b) Each of the Company and the Subsidiary is a corporation
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now conducted, and is duly qualified or licensed or in good
standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the
failure to have such power or authority or to be qualified or licensed
and in good standing would not constitute a Material Adverse Effect (as
defined herein). The states in which each of the Company and the
Subsidiary is, as of the date hereof, qualified to do business are
listed on Schedule 2.1. Except for the Company's ownership of 100% of
the capital stock of the Subsidiary, neither the Company nor the
Subsidiary owns or controls, directly or indirectly, any other equity
interest in any corporation, partnership, joint venture, limited
liability company, trust, firm or other entity. The Company has
heretofore made available to Purchaser accurate and complete copies of
the certificate of incorporation and by-laws, as in effect on the date
hereof, of the Company and the Subsidiary.
Section 2.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
1,100 shares of common stock, par value $1.00 per share, of which 1,000
shares are issued and outstanding. All of the issued and outstanding
Shares have been validly issued, fully paid and are nonassessable and
were not issued in violation of any preemptive rights or rights of any
person to acquire such Shares. Except as disclosed on Schedule 2.2(a),
all such Shares are owned by Seller free and clear of all liens,
charges, security interests, claims or
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<PAGE>
encumbrances, and there are no subscriptions, options, warrants,
calls or other agreements or commitments to which Seller or the
Company is a party relating to the issuance, sale, purchase,
redemption, conversion, exchange, transfer or voting of any shares
of capital stock of the Company, and there are no outstanding
stockholder agreements, voting trusts, proxies or other agreements
or understandings with respect to or concerning the purchase, sale
or voting of any of the equity securities of the Company.
(b) The authorized capital stock of the Subsidiary consists of
3,000 shares of common stock, par value $0.10 per share, of which 100
shares are issued and outstanding. All such shares have been validly
issued, fully paid and are non-assessable and were not issued in
violation of any preemptive rights or rights of any person to acquire
such securities. Except as disclosed on Schedule 2.2(b), all such
shares are owned by the Company free and clear of all liens, charges,
security interests, claims or encumbrances, and there are no
subscriptions, options, warrants, calls or other agreements or
commitments to which Seller, the Company or the Subsidiary is a party
relating to the issuance, sale, purchase, redemption, conversion,
exchange, transfer or voting of any shares of capital stock of the
Subsidiary, and there are no outstanding stockholder agreements, voting
trusts, proxies or other agreements or understandings with respect to
or concerning the purchase, sale or voting of any of the equity
securities of the Subsidiary.
Section 2.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the other documents and instruments to be
executed and delivered by Seller pursuant hereto and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Seller. No other corporate approvals are required on the part of
Seller, the Company or the Subsidiary or their respective stockholders to
authorize the execution and delivery of this Agreement or the other documents
and instruments to be executed and delivered by Seller to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and, assuming the due authorization, execution
and delivery hereof by Purchaser, constitutes a valid and binding agreement of
Seller, enforceable against Seller in accordance with its terms, except that
such enforceability (a) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (b) is subject to general principles of equity.
Section 2.4 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT"), no filing with, and no permit, authorization, consent or
approval of, any governmental body or authority is necessary for the
consummation by Seller of the transactions contemplated by this
Agreement.
(b) Except as disclosed on Schedule 2.4, the execution and
delivery of this Agreement by Seller and the consummation by Seller of
the transactions contemplated
5
<PAGE>
hereby and compliance by Seller with any of the provisions hereof
will not (i) violate any provision of the certificate of
incorporation or by-laws of Seller, the Company or the Subsidiary,
(ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default or give rise
to any right of termination, cancellation, material modification or
acceleration under, or result in the creation of any lien or
encumbrance on any asset of the Company or the Subsidiary under, any
note, bond, mortgage, indenture, license, contract, lease, agreement
or other instrument or obligation to which Seller, the Company or
the Subsidiary is a party or by which any of them or any of their
properties or assets may be bound, except for such violations,
breaches, defaults, rights, liens and encumbrances that would not,
individually or in the aggregate, constitute a Material Adverse
Effect or (iii) assuming compliance with the HSR Act, violate any
order, writ, injunction, decree, statute, treaty, rule or regulation
applicable to Seller, the Company, the Subsidiary or any of their
properties or assets.
Section 2.5 FINANCIAL STATEMENTS. Attached as Schedule 2.5 are
true and correct copies of the Company's unaudited consolidated balance sheet
and statement of income for the year ended December 31, 1998, and the
Company's unaudited consolidated balance sheets and statements of income for
the three months ended March 31, 1999 (the "MARCH BALANCE SHEET") and the six
months ended June 30, 1999 (collectively, the "FINANCIAL Statements"). Except
as disclosed on Schedule 2.5, the Financial Statements have been prepared in
accordance with generally accepted accounting principles, subject to the
Company Accounting Policies (as described in Schedule 2.5), applied on a
consistent basis, have been prepared in accordance with the books and records
of the Company and the Subsidiary and fairly present in all material respects
the consolidated financial position of the Company and the Subsidiary as at
the dates thereof and the consolidated results of the Company and the
Subsidiary's operations for the periods then ended except, in the case of
interim financial statements, for normal year-end adjustments.
Section 2.6 ABSENCE OF CERTAIN CHANGES; NO UNDISCLOSED LIABILITIES.
Except as set forth in Schedule 2.6 or as contemplated by this Agreement,
since December 31, 1998, the Company and the Subsidiary have conducted their
businesses in the ordinary course consistent with past practices and have not
(a) suffered any change, condition, event or occurrence which, individually
or in the aggregate, is reasonably likely to constitute a Material Adverse
Effect, (b) entered into or modified any material transaction, other than
according to the ordinary and usual course of such businesses or (c) made any
material change in the Company's accounting principles. Except (x) for
liabilities or obligations incurred in the ordinary course of business, (y)
for liabilities or obligations incurred in connection with the transactions
contemplated by this Agreement and (z) as set forth on Schedule 2.6, since
December 31, 1998, the Company and the Subsidiary have not incurred any
liabilities or obligations (whether absolute, accrued, contingent or
otherwise) and, to the knowledge of Seller, there is no basis for any such
liability or obligation, that would be required to be reflected or reserved
against in a consolidated balance sheet of the Company prepared in accordance
with generally accepted accounting principles. None of the liabilities
described in clauses (x), (y) or (z) of the preceding sentence has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
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Section 2.7 NO DEFAULT. Except as disclosed on Schedule 2.7,
neither the Company nor the Subsidiary is in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (a)
its certificate of incorporation or its by-laws, (b) any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Company or the Subsidiary is now a party or by which it or any of
its properties or assets may be bound except in the case of (b) for any
defaults or violations which, individually or in the aggregate, have not had
and are not reasonably likely to have a Material Adverse Effect.
Section 2.8 LITIGATION. Except as disclosed on Schedule 2.8 there
is no action, suit, arbitration, claim, proceeding or governmental
investigation pending nor, to the knowledge of Seller, has Seller, the
Company or the Subsidiary received any written notice or threat of any
action, suit, arbitration, claim, proceeding or governmental investigation
involving the Company or the Subsidiary before any court or other
governmental or regulatory body which is reasonably likely to result in a
liability of the Company or the Subsidiary in excess of $500,000 or have a
material adverse effect on the ability of Seller to consummate the
transactions contemplated by this Agreement.
Section 2.9 CERTAIN AGREEMENTS. Except as disclosed on Schedule
2.9, and excluding contracts, agreements or commitments for the sale or
purchase of products by the Subsidiary in the ordinary course of its business
as of the date hereof, neither the Company nor the Subsidiary is a party to
or bound by any contract, agreement or commitment (a) with respect to which
the aggregate of payments to become due from or to the Company or the
Subsidiary are in excess of $1,000,000 or for which the cost to terminate
such contract, agreement or commitment is in excess of $1,000,000 or (b)
which is otherwise material to the Company and the Subsidiary taken as a
whole. Except as disclosed on Schedule 2.9, neither the Company nor the
Subsidiary is a party to or bound by any contract, agreement or commitment
regarding the employment, services, consulting, termination or severance from
employment of any director, officer or employee of the Company or the
Subsidiary that provides for payments in excess of $100,000 in any year.
Section 2.10 TAXES. For the purposes of this Agreement, the term
"taxes" shall mean all taxes (including without limitation, leasing,
franchise, excise, income, gross receipts, sales, use, occupational, tangible
and intangible personal property, real property and stamp taxes and taxes
imposed under the Internal Revenue Code of 1986, as amended (the "CODE"),
payments in lieu of taxes, levies, imposts, duties, assessments, fees
(including, without limitation, license, documentation, recording and
registration fees), charges and withholdings of any nature whatsoever,
together with any penalties, fines, additions to tax, assessments or interest
thereon, whether disputed or undisputed, howsoever due and owing to any
federal, state, county, local or foreign government or to any governmental
agency, subdivision or taxing authority of any of the foregoing by the
Company or the Subsidiary or (for any taxable year with respect to which tax
liability could be imposed on the Company or the Subsidiary pursuant to
Treasury Regulation Section 1.1502-6) each consolidated, combined or
affiliated group of which the Company or the Subsidiary is or has been a
member. Except as disclosed on Schedule 2.10, the Company, the Subsidiary and
each consolidated, combined or affiliated group of which the Company or the
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Subsidiary is or has been a member for any taxable year for which tax
liability could be imposed on the Company or the Subsidiary (a) have filed
all federal, state, foreign and local tax returns in respect of income or
similar taxes required to be filed for tax years ended prior to the date of
this Agreement and in respect of which such filings have become due, except
for those tax returns for which requests for extensions have been filed, and
all such returns are complete and correct in all material respects, (b) have
paid or accrued all taxes shown to be due and payable on such returns, and
(c) have "open" years for federal income tax returns only as disclosed on
Schedule 2.10. Except as disclosed on Schedule 2.10, (i) there are no audits
or other examinations of the federal and state income tax returns of the
Company or the Subsidiary pending or underway by the IRS or the appropriate
state taxing authorities, and (ii) neither the Company nor the Subsidiary has
received from the IRS or from the taxing authorities of any state, county,
local or other jurisdiction any notice of underpayment of income taxes or
other deficiency which has not been paid or accrued, nor has any objection
been received with respect to any return or report filed by the Company or
the Subsidiary. Except as disclosed on Schedule 2.10, neither the Company nor
the Subsidiary is a party to any agreement providing for the allocation or
sharing of taxes. The provision made for taxes on the March Balance Sheet was
sufficient for the payment of all taxes owed as of the date thereof. Since
the date of the March Balance Sheet, neither the Company nor the Subsidiary
has incurred any taxes other than taxes incurred in the ordinary course of
business consistent in type and amount with past practices.
Section 2.11 ENVIRONMENTAL MATTERS. Except as disclosed on
Schedule 2.11, to the knowledge of Seller, the properties, assets and
operations of the Company and the Subsidiary are in compliance with
applicable federal, state and local laws, rules, regulations, orders,
decrees, judgments, permits, licenses, common law and other requirements
relating to the protection of human health or the environment including those
relating to the generation, handling, disposal, transportation, release,
threatened release or remediation of Hazardous Materials (as defined herein),
other than any such failures to be in compliance which are not, in the
aggregate, reasonably likely to constitute a Material Adverse Effect. With
respect to such properties, assets and operations, except as disclosed on
Schedule 2.11, (a) there are no conditions, circumstances, omissions, actions
or plans of the Company or the Subsidiary that are reasonably expected to
interfere with, prevent compliance with, impose liability under, or which
give rise to any claim under, any applicable Environmental Law, (b) neither
the Company nor the Subsidiary has received written notice from any court or
governmental or regulatory body that the Company or the Subsidiary is in
violation or allegedly in violation of, does not comply or allegedly does not
comply with, is responsible or potentially responsible for the investigation
or cleanup of Hazardous Materials under, or that there is a basis for
liability or alleged liability under, any applicable Environmental Law, (c)
there is no civil, criminal or administrative action, suit, demand, claim,
hearing, notice of violation, investigation, proceeding, order, decree,
directive, notice or demand letter pending or outstanding relating to
Environmental Laws and relating to the Company or the Subsidiary or any uses,
activities or operations at or in connection with the Real Property
threatened against the Company or the Subsidiary or the Real Property
relating to any Environmental Laws and (d) neither the Company nor the
Subsidiary has received written notice of a claim pursuant to any agreement
that requires it to pay, reimburse, guaranty, pledge, defend, indemnify or
hold harmless any person for or against liabilities or costs arising in
connection with Hazardous Materials or under Environmental Laws. "Hazardous
Material"
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means any substance: (i) the presence of which requires investigation or
remediation under any Environmental Law or (ii) which is defined, regulated
or designated as a "hazardous waste," "hazardous substance," pollutant, or
contaminant under any Environmental Law including, without limitation,
asbestos, polychlorinated biphenyls, petroleum, crude oil or natural gas, or
fractions thereof.
Section 2.12 EMPLOYEE BENEFIT MATTERS.
(a) All employee benefit plans covering current or former
employees of the Company and the Subsidiary or with respect to which
the Company or the Subsidiary has liability (excluding any benefit
plans referred to in the Agreement, dated October 1, 1994, among the
Company, the Pension Benefit Guaranty Corporation (the "PBGC") and the
other signatories thereto) are listed on Schedule 2.12(a), except such
benefit plans which are not material (the "BENEFIT PLANS"). True and
complete copies of the Benefit Plans and material related documents
have been made available to Purchaser. Except as provided in Schedule
2.12(a), to the extent applicable, the Benefit Plans comply in all
material respects with the requirements of applicable law including,
without limitation, the Employment Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code, and any Benefit Plan intended
to be qualified under Section 401(a) of the Code has received a
favorable determination from the Internal Revenue Service (the "IRS")
or such Benefit Plan has been submitted to the IRS for determination of
its qualified status. There has been no application for waiver or
waiver of the minimum funding standards imposed by Section 412 of the
Code and no "accumulated funding deficiency" within the meaning of
Section 412(a) of the Code exists with respect to any Benefit Plan.
Except as provided in Schedule 2.12(a), neither the Company nor the
Subsidiary has incurred any material liability or penalty (i) under
Section 4975 of the Code or Section 406 of ERISA with respect to any
Benefit Plan, or (ii) to the PBGC (except for PBGC premiums). Except as
provided in Schedule 2.12(a), each Benefit Plan has been maintained and
administered in all material respects in compliance with its terms and
with applicable law including, without limitation, ERISA and the Code
to the extent applicable thereto. To the knowledge of Seller and the
Company, there are no pending, nor has Seller, the Company or the
Subsidiary received notice of any threatened, material claims (other
than routine claims for benefits) against or otherwise involving any of
the Benefit Plans. All material contributions required to be made as of
the date of this Agreement to the Benefit Plans to which the Company or
the Subsidiary is required to contribute have been made or provided
for.
(b) Except as provided in Schedule 2.12(b), no Benefit Plan
provides for post-employment health, life insurance, or other welfare
benefit coverage, other than as may be required under "COBRA" pursuant
to Part VI of Title I of ERISA. Except as set forth on Schedule 2.12,
each Benefit Plan can be amended or terminated at any time without
approval from any person (other than the board of directors of the plan
sponsor or the plan administrator), without advance notice (other than
the notice required by Section 204(h) of ERISA for defined benefit
pension plans), and without liability other than for benefits accrued
prior to such amendment or termination. Except as disclosed in
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Schedule 2.12(b), with respect to each Benefit Plan and any other
similar arrangement or plan either currently or previously
terminated, maintained, or contributed to by any entity which either
is currently or was previously under common control with the Company
as determined under Code Section 414 or ERISA Section 4001(a)(14),
no event has occurred and no condition exists that after the Closing
Date could subject Purchaser, directly or indirectly, to any
liability under Section 412, 413, 4971, 4975, or 4980B of the Code
or Section 302, 502, 515, 601, 606, or Title IV of ERISA. Except as
set forth on Schedule 2.12(b), no agreement, commitment, or
obligation exists to increase any benefits under any Benefit Plan or
to adopt any new Benefit Plan. No Benefit Plan has any unfunded
accrued benefits that are not fully reflected in the Financial
Statements to the extent required by generally accepted accounting
principles. No Benefit Plan is a multiemployer plan (as defined in
ERISA Sections 3(37) or 4001(a)(3). Neither the Company nor the
Subsidiary contributes to or maintains any multiple-employer plan
within the meaning of Section 413 of the Code.
(c) Seller has provided Purchaser with a list of each
Transferred Employee who participates in the SERP (as defined in
Section 4.13(i)) and the current level of benefits provided to such
SERP participants.
Section 2.13 BROKERS. No broker, finder or investment banker
(other than Salomon Smith Barney Inc.) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by and on behalf of Seller,
the Company or the Subsidiary.
Section 2.14 LABOR RELATIONS. Except as set forth in Schedule
2.14, as of the date hereof (a) there are no collective bargaining agreements
to which either the Company or the Subsidiary is a party or by which it is
bound and (b) to the knowledge of Seller, there are no pending or threatened
activities regarding the establishment, modification or extension of any such
collective bargaining agreement.
Section 2.15 INTELLECTUAL PROPERTY. Set forth on Schedule 2.15 is
a complete list of, as of the date thereon, all patents and trademarks owned
or licensed by the Company or the Subsidiary. Except as set forth in Schedule
2.15, the Company or the Subsidiary owns or possesses adequate rights to use
all patents, trademarks, trade names, inventions, processes, designs,
formulas, know-how and other intellectual property rights used by it in the
conduct its business as presently conducted. Except as set forth in Schedule
2.15, to the knowledge of the Company, neither the Company nor the Subsidiary
has received any written notice or claim since December 31, 1998 asserting
that the Company or the Subsidiary has infringed or is infringing the
intellectual property rights of any third party.
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Section 2.16 REAL PROPERTY.
(a) Set forth on Schedule 2.16(a) is a complete list of all
real property (i) owned by the Company or the Subsidiary (the "OWNED
PROPERTY"), or in which the Company or the Subsidiary has legal,
beneficial or equitable title together with the principal uses for
which each such Owned Property is used and (ii) with respect to which
the Company or the Subsidiary is lessee, sublessee, licensee or other
occupant or user (the "LEASED PROPERTY" and, collectively with the
Owned Property, the "REAL PROPERTY"), together with the principal uses
for which each Leased Property is used.
(b) Seller has not received written notice of and has no
knowledge of any claim of adverse possession or prescriptive rights
involving any of the Real Property which has had or is reasonably
likely to have a Material Adverse Effect. All of the Real Property is
currently being ingressed and egressed by the Company or the Subsidiary
to and from the public street systems for all usual street and road
purposes. The Company has no knowledge of any order or decree requiring
repair, alteration, or correction of any existing condition affecting
any Real Property owned by the Company. Neither the Company nor the
Subsidiary has received written notice of any material breach or event
of default on its part under the lease for any Leased Property which is
material to its business and has no knowledge of any material breach or
default on the part of any other party to such lease. All material
leases for Leased Property are in full force and effect and are valid
and enforceable against the parties thereto in accordance with their
terms. No material rental or other payments are delinquent under any
such leases. Except as set forth on Schedule 2.16(b), the transactions
contemplated hereby do not require the consent of any party to, and
will not constitute an event of default under or permit any party to
terminate or change the existing terms of, any material lease.
(c) Except as disclosed on Schedule 2.16(c), the Company or
the Subsidiary, as applicable, has good and marketable title in fee
simple to the Owned Property, good leasehold title to the Leased
Property, and good title to all assets, businesses, plants, buildings,
fixtures and improvements located on the Owned Property, in each case
free and clear of any mortgages, deeds of trust, liens, security
interests, judgments, options, encroachments, easements, rights-of-way
and other imperfections of title. Except as disclosed on Schedule
2.16(c), neither the Company's nor the Subsidiary's assets, business or
properties are subject to any restrictions with respect to the
transferability thereof, and the Company's and the Subsidiary's title
thereto will not be affected in any material way by the transactions
contemplated hereby.
Section 2.17 COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Except as
set forth on Schedule 2.17, each of the Company and the Subsidiary is in
compliance in all material respects with, and has for the past two years
complied in all material respects with, all applicable laws, regulations and
orders. Except as set forth on Schedule 2.17, neither the Company nor the
Subsidiary has received written notice from any governmental or regulatory
body of any violation or alleged violation of, or is subject to material
liability for past or continuing violation of, any applicable laws,
regulations and orders. The Company and the Subsidiary have all
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material licenses, permits, approvals, authorizations and consents of all
governmental or regulatory bodies and all certification organizations
required, and all exemptions from requirements to obtain or apply for any of
the foregoing, for the conduct of the business and the operation of the
Company's and the Subsidiary's facilities. Except as set forth in Schedule
2.17, the Company and the Subsidiary are and have been in compliance, in all
material respects, with all such permits, licenses, approvals, authorizations
and consents.
Section 2.18 PRODUCT WARRANTY AND PRODUCT LIABILITY. Schedule 2.18
contains a true, correct and complete copy of the standard warranty or
warranties of the Subsidiary for sales of Products and, except as expressly
identified therein, there are no warranties, deviations from standard
warranties, commitments or obligations with respect to the return, repair or
replacement of Products. Schedule 2.18 sets forth the provision for warranty
expense reflected on the Subsidiary's financial statements for the years
ending December 31, 1997 and December 31, 1998 and for the six months ending
June 30, 1999. Schedule 2.18 also contains a description of all pending
product warranty and product liability claims. There are no defects in
design, construction or manufacture of Products that would adversely affect
performance or create an unusual risk of injury to persons or property.
Except as set forth on Schedule 2.18, since June 17, 1997 none of the
Products has been the subject of any replacement, field fix, retrofit,
modification or recall campaign and, to the Subsidiary's knowledge, no facts
or conditions exist which could reasonably be expected to result in such a
recall campaign. All Products have been designed, manufactured and labeled so
as to meet and comply in all material respects with all governmental
standards and specifications and all applicable laws currently in effect, and
have received all governmental approvals necessary to allow their sale and
use. "PRODUCTS" means any and all products currently or at any time
previously designed, manufactured, distributed or sold by the Subsidiary or
any predecessor under any brand name or mark under which products are or have
been manufactured, distributed or sold by the Subsidiary.
Section 2.19 EMPLOYMENT COMPENSATION. Schedule 2.19 contains a
true and correct list of all employees to whom the Company or the Subsidiary
is paying compensation, including bonuses and incentives, at an annual rate
in excess of $100,000 for services rendered or otherwise.
Section 2.20 CERTAIN RELATIONSHIPS. Schedule 2.20 describes each
lease, contract, agreement or other commitment between the Company or the
Subsidiary, on the one hand, and any Affiliate or officer or director of the
Company or the Subsidiary, on the other hand, obligating the Company or the
Subsidiary to make payments to such Affiliate or officer or director other
than agreements related to the employment of any such officer or director. No
Affiliate or officer or director of the Subsidiary has any direct or indirect
interest in (a) any entity that does business with the Company or the
Subsidiary in connection with the operation of, or is competitive with, the
business of the Company and the Subsidiary or (b) any property, asset or
right that is used by the Company or the Subsidiary in the conduct of its
business. "AFFILIATE" means the Company or the Subsidiary and any entity of
which the Company or the Subsidiary owns, directly or indirectly, a 10% or
greater equity interest.
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Section 2.21 YEAR 2000. Except as identified on Schedule 2.21, to
the Company's and the Subsidiary's knowledge, none of the Products and none
of the personal property, equipment or assets owned or leased by the Company
or the Subsidiary, including but not limited to computer software, databases,
hardware, controls and peripherals, has characteristics or qualities that may
cause it to fail to operate and produce data on and after January 1, 2000
(including taking into effect that such year is a leap year), or use data
based on time periods on or after January 1, 2000 (including taking into
effect that such year is a leap year), or use data based on time periods on
or after January 1, 2000 (including taking into effect that such year is a
leap year) accurately and without delay, interruption or error solely as a
result of the fact that the time at which and the date on which such software
is operating is on or after 12:00 a.m. on January 1, 2000 (including taking
into effect that such year is a leap year) (a "YEAR 2000 DEFECT")). Except as
identified on Schedule 2.21, to the Company's and the Subsidiary's knowledge,
none of the property or assets owned or leased by the Company or the
Subsidiary will fail to perform in any material respect or require any
material repair, rewrite, conversion or other adaptation because of a Year
2000 Defect. To the Company's and the Subsidiary's knowledge, no software
licensed by the Company or the Subsidiary contains a Year 2000 Defect. The
Company and the Subsidiary have no obligations under warranty or service or
other agreements to rectify a Year 2000 Defect of any person or to indemnify
any person in the event the Company or the Subsidiary experience a Year 2000
Defect.
Section 2.22 INSURANCE. Schedule 2.22 sets forth a complete list
and description of all policies (including the carrier, a description of
coverage and the years for which such policies are applicable) of workers'
compensation, general and product liability, automotive liability and
umbrella or excess liability insurance for which the Company or the
Subsidiary are named insureds (collectively, the "INSURANCE POLICIES").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 3.1 ORGANIZATION. Purchaser is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified or licensed or in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to have such power or
authority or to be qualified or licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect. Purchaser
has heretofore made available to Seller accurate and complete copies of its
certificate or articles of incorporation and by-laws, or equivalent
organizational documents, and such documents have not been amended to date.
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Section 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has
full corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Purchaser
are necessary to authorize this Agreement or to consummate the transactions
so contemplated. This Agreement has been duly and validly executed and
delivered by Purchaser and, assuming the due authorization, execution and
delivery hereof by Seller, constitutes a valid and binding agreement of
Purchaser, enforceable against it in accordance with its terms, except that
such enforceability (a) may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of creditors'
rights generally and (b) is subject to general principles of equity.
Section 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) Except for applicable requirements of the HSR Act, no
filing with, and no permit, authorization, consent or approval of any
governmental body or authority is necessary for the consummation by
Purchaser of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated
hereby and compliance by Purchaser with any of the provisions hereof
will not (i) violate any provision of the certificate or articles of
incorporation or by-laws, or equivalent organizational documents, of
Purchaser, (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default or give rise
to any right of termination, cancellation, material modification or
acceleration under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which Purchaser is a party or by which
Purchaser or any of its properties or assets may be bound, except for
such violations, conflicts and breaches that would not, individually or
in the aggregate, constitute a Material Adverse Effect or (iii)
assuming compliance with the HSR Act, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Purchaser
or any of its properties or assets.
Section 3.4 BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
Section 3.5 FUNDS AVAILABLE. Purchaser will have available to it
as of the Closing immediately available funds necessary to consummate the
transactions contemplated hereby. To the extent such funds are to be provided
by third parties, Purchaser has provided the Company with complete and
correct copies of all documents relating to the provision of such funds.
Section 3.6 ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding or investigation pending, or to the knowledge of Purchaser,
threatened, against Purchaser which
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might adversely affect or restrict Purchaser's ability to consummate the
transactions contemplated by this Agreement.
Section 3.7 INVESTMENT INTENT. Purchaser is purchasing the Shares
hereunder solely for its own account and with no intention of distributing or
reselling the Shares or any part thereof, or interest therein, in any
transaction that would be in violation of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or any other securities laws of the United
States of America or any state thereof.
Section 3.8 STATUS AS ACCREDITED INVESTOR. Purchaser is an
"ACCREDITED INVESTOR" (as that term is defined in Rule 501 of Regulation D
under the Securities Act). Purchaser has such knowledge and experience in
business and financial matters so that Purchaser is capable of evaluating the
merits and risks of an investment in the Shares. Purchaser understands the
full nature and risk of an investment in the Shares. Purchaser further
acknowledges that it has had access to the books and records of the Company
and the Subsidiary, is generally familiar with the business being conducted
by the Company and the Subsidiary and has had an opportunity to ask questions
concerning the Company and the Subsidiary and the Shares; PROVIDED, HOWEVER,
that nothing herein shall affect the representations and warranties of Seller
hereunder.
Section 3.9 NO OUTSIDE RELIANCE. Purchaser has not relied and is
not relying upon any statement or representation not made in this Agreement
or a Schedule hereto or any document required to be provided by Seller
pursuant to this Agreement.
ARTICLE IV
COVENANTS
Section 4.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing, Seller will cause the Company to, and the Company
will cause the Subsidiary to, conduct its operations according to its
ordinary and usual course of business and consistent with past practices, and
Seller will cause the Company to, and the Company will cause the Subsidiary
to, use its commercially reasonable best efforts, consistent with prudent
business judgment, to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with licensors, suppliers, contractors,
distributors, customers and others having business relationships with it.
Without limiting the generality of the foregoing, and except as otherwise
contemplated in Schedule 4.1 or elsewhere in this Agreement, prior to the
Closing, Seller will cause the Company not to, and the Company will cause the
Subsidiary not to, without the prior written consent of Purchaser (not to be
unreasonably withheld):
(a) amend its certificate of incorporation or by-laws;
(b) issue, sell, encumber or deliver or agree or commit to
issue, sell, encumber or deliver any shares of capital stock, or issue
any securities convertible into, exchangeable for or representing a
right to purchase or receive, or enter into any contract or arrangement
with respect to the issuance of, shares of capital stock;
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(c) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock; or redeem or otherwise acquire any of its
securities or any securities of the Subsidiary;
(d) incur or guarantee any additional indebtedness for borrowed
money other than (i) through intercompany borrowings from Seller in
the ordinary course of business or (ii) borrowings under Seller's
existing revolving credit facility and accounts receivable facility in
the ordinary course;
(e) enter into, amend any existing, or adopt any new bonus,
pension, change of control, deferred compensation, health, plant
closing, profit sharing, severance or other employee benefit agreements
that increase the total compensation of any officer, director or
employee of the Company or the Subsidiary, increase the compensation or
fringe benefits of any director, officer or employee of the Company or
the Subsidiary, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing, except for any of the foregoing
with respect to employees of the Company or the Subsidiary which are
(i) implemented in the ordinary course of business consistent with past
practice and will not result in a material increase in benefits or
compensation expense to the Company or the Subsidiary or (ii) to be
paid by Seller in cancellation of any outstanding options to purchase
Seller's capital stock;
(f) except for capital expenditures contemplated by clause (g)
below and except in connection with the manufacture and sale of
products in the ordinary course of business consistent with past
practice, acquire (whether by merger, consolidation or otherwise), sell
(whether by merger, consolidation or otherwise), lease, encumber,
transfer or dispose of in excess of $500,000 of assets;
(g) make or commit to make any capital expenditures other than
(i) consistent with the amended capital spending plan for the
Subsidiary in 1999 attached as Schedule 4.1(g) and (ii) additional
capital expenditures not exceeding $250,000 individually and not
exceeding $2.0 million in the aggregate;
(h) make any material tax elections (except in the ordinary
course of business consistent with past practice) or settle or
compromise any material federal, state or local income tax liability in
excess of any amounts that may have been reserved therefor, or waive or
extend the statute of limitations in respect of any such taxes;
(i) (i) materially modify, amend or terminate any material
contract or agreement to which it is a party or waive, release or
assign any material rights or claims thereunder or (ii) settle any
material suit or claim of liability against the Company;
(j) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the
accounting principles, methods or practices used by it;
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(k) adopt a plan of complete or partial liquidation,
dissolution, consolidation, restructuring, recapitalization,
reorganization or merger;
(l) enter into an agreement or make a commitment (other than
agreements or commitments under existing purchase arrangements) for the
purchase or supply of products or components of products, which
involves consideration or other expenditure, or to which the aggregate
of payments to become due from or to the Company or the Subsidiary are,
in excess of $1.0 million;
(m) 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 the Company, the Subsidiary, the Company's or the Subsidiary's
assets or business or any part thereof, or any equity securities of the
Company or the Subsidiary (an "ACQUISITION PROPOSAL"), and Seller shall
immediately advise Purchaser of the receipt of any Acquisition
Proposal; or
(n) enter into an agreement binding the Company or the
Subsidiary to do any of the foregoing.
Section 4.2 ACCESS TO INFORMATION. From the date of this Agreement
to the Closing, upon reasonable notice and to the extent permitted by
applicable law, Seller will cause the Company to cause, and the Company will
cause the Subsidiary to cause, their respective officers, directors,
employees and auditors and agents to (a) give Purchaser and its accountants,
counsel and other authorized representatives, reasonable access during normal
business hours to the plants, offices, warehouses and other facilities, to
Company and Subsidiary management, and to the books and records of the
Company and the Subsidiary, (b) permit Purchaser and its authorized
representatives to make such reasonable inspections as they may require and
(c) furnish to Purchaser and its authorized representatives such financial
and operating data and other information with respect to the business and
properties of the Company and the Subsidiary as Purchaser may from time to
time reasonably request. Without limiting the foregoing, Seller will cause
the Company to, and the Company will cause the Subsidiary to, provide
Purchaser with interim monthly financial statements of the Company and the
Subsidiary as and when they are available.
Section 4.3 GOVERNMENT APPROVALS. Each of the parties hereto
agrees to use its commercially reasonable best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement, including without limitation
compliance with the HSR Act.
Section 4.4 THIRD PARTY CONSENTS. The Company and the Subsidiary
will use commercially reasonable efforts prior to the Closing to obtain all
consents, approvals and agreements of, and to give all notices and make all
filings with, any third parties necessary to authorize, approve or permit the
consummation of the transactions contemplated by this Agreement.
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Section 4.5 PUBLIC ANNOUNCEMENTS. Prior to the Closing, neither
party to this Agreement shall issue or seek the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party, except
as agreed by the parties or where such release or announcement is required by
law or by the rules of the New York Stock Exchange; provided that, prior to
making any permitted announcement, such party will seek advice of counsel as
to the need for such announcement and will utilize its commercially
reasonable best efforts to give the other party notice thereof and to consult
with the other party regarding the timing and terms thereof.
Section 4.6 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) Purchaser acknowledges and agrees that all rights to
indemnification now existing in favor of the directors, officers,
employees and agents of the Company and the Subsidiary (the
"INDEMNIFIED PARTIES") as provided in their respective certificates of
incorporation or by-laws or by contract or otherwise as in effect on
the date hereof with respect to matters occurring prior to the Closing
shall survive the Closing and shall continue in full force and effect
for a period of not less than six years from the Closing.
(b) Notwithstanding anything herein to the contrary, if any
claim, action, suit, proceeding or investigation (whether arising
before, at or after the Closing) is made or threatened against any
Indemnified Party, on or prior to the sixth anniversary of the Closing,
the provisions of this Section 4.6 shall continue in effect until the
final disposition of such claim, action, suit, proceeding or
investigation.
(c) This covenant is intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties and their
respective heirs and legal representatives. The Indemnification
provided for herein shall not be deemed exclusive of any other rights
to which an Indemnified Party is entitled, whether pursuant to law,
contract or otherwise. The Company or Subsidiary shall pay all
expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing his or her indemnification rights.
Section 4.7 EMPLOYEE CONTRACTS. Purchaser agrees to honor, and
from and after the Closing shall cause the Company and the Subsidiary to
honor, in accordance with their respective terms as in effect on the date
hereof, all of the employment, termination, severance, indemnity and bonus
agreements and arrangements to which the Company or the Subsidiary is a party
and which are set forth on Schedule 4.7. In the event that the Company, the
Subsidiary or Purchaser or any of their respective successors or assigns (a)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (b) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary to
effectuate the purpose of this Section 4.7, proper provision shall be made so
that the successors and assigns of the Company, the Subsidiary or Purchaser
shall succeed to the obligations set forth in this Section 4.7 and none of
the actions described in clauses (a) or (b) shall be taken until such
provision is made.
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Section 4.8 RESIGNATION OF DIRECTORS. Prior to the Closing, Seller
will cause the Company to deliver to Purchaser evidence satisfactory to
Purchaser of the resignation of all directors of the Company and the
Subsidiary, effective upon the Closing.
Section 4.9 NOTIFICATION OF CERTAIN MATTERS. Seller shall give
prompt notice to Purchaser, and Purchaser shall give prompt notice to Seller,
of (a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or
warranty of either party contained in this Agreement to be untrue or
inaccurate and (b) any failure of Seller or Purchaser to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by either party hereunder; provided, however, that the delivery of any notice
pursuant to this Section 4.9 shall not limit or otherwise affect the remedies
available hereunder to the party giving or receiving such notice.
Section 4.10 SETTLEMENT OF INTERCOMPANY ACCOUNTS. At or prior to
the Closing, Seller shall cause to be settled or canceled all intercompany
advances and loans between the Company and the Subsidiary, on the one hand,
and Seller, on the other hand.
Section 4.11 RECEIVABLES SECURITIZATION PROGRAM. At or prior to
the Closing, the Subsidiary shall acquire from Seller's receivables
securitization program, or Seller shall otherwise permit Purchaser to
acquire, all of the receivables in such program that originated from sales of
product by the Subsidiary.
Section 4.12 STRADDLE PERIOD TAX PROVISIONS.
(a) Purchaser shall timely prepare and file with the appropriate
authorities all tax returns required to be filed by the Company or the
Subsidiary for any taxable period that includes (but does not end on)
the Closing Date, and for any taxable period of the Company or the
Subsidiary that ends on or before the Closing Date with respect to
which the due date (including extensions) for the timely filing of a
return has not passed, and will pay all taxes due with respect to such
returns, reports and forms (other than returns or reports in respect
of (i) United States federal income taxes, or (ii) income or similar
taxes of any state in which the Company is included in a combined
report or consolidated return with Seller for such period, which
returns or reports shall be filed by Seller). Purchaser and Seller
agree to cause the Company and the Subsidiary to file all tax returns
for the period including the Closing Date on the basis that (x) the
Closing occurred as of 5:00 p.m. on the Closing Date, and (y) the
relevant taxable period ended as of the close of business on the
Closing Date, unless the relevant taxing authority will not accept a
return, report or form filed on that basis. In the case of any taxable
period including, but not ending on, the Closing Date, the income of
the Company and the Subsidiary will be apportioned to the period up to
and including the Closing Date and the period after the Closing Date by
closing the books of the Company and the Subsidiary as of the end of
the Closing Date.
(b) Seller, the Company, the Subsidiary and Purchaser shall
reasonably cooperate, and shall cause their respective affiliates,
officers, employees, agents, auditors and representatives reasonably to
cooperate, in preparing and filing all returns, reports
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<PAGE>
and forms relating to taxes (including amended returns and claims for
refund), including maintaining and making available to each other all
records necessary in connection with taxes and in resolving all
disputes and audits with respect to all taxable periods relating to
taxes. Purchaser and Seller recognize that Seller and its affiliates
will need access, from time to time, after the Closing Date, to
certain accounting and tax records and information held by the Company
and the Subsidiary to the extent such records and information pertain
to events occurring prior to the Closing Date; therefore, Purchaser
agrees, and agrees to cause the Company and the Subsidiary, to (i) use
their best efforts to properly retain and maintain such records until
such time as Seller agrees that such retention and maintenance is no
longer necessary, and (ii) allow Seller and its agents and
representatives (and agents or representatives of any of its
affiliates), at time and dates mutually acceptable to the parties, to
inspect, review and make copies of such records as Seller may deem
necessary or appropriate from time to time, such activities to be
conducted during normal business hours and at Seller's expense.
(c) All transfer, documentary, sales, use, registration and
other such taxes incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by Purchaser, and Seller
and Purchaser shall cooperate in timely making all filings, returns,
reports and forms as may be required to comply with the provisions of
such tax laws.
(d) Seller hereby indemnifies and holds harmless Purchaser from
and against all taxes, liabilities, costs and expenses incurred by
Purchaser, the Company or the Subsidiary resulting from or arising out
of any liability of the Company or the Subsidiary for taxes of any
person other than the Company or the Subsidiary under Treasury
Regulation Section 1.1502-6 (or any similar provision of any state,
local or foreign regulation).
Section 4.13 PENSION AND SAVINGS PLANS.
(a) Each employee of the Subsidiary who is a current participant
in the Falcon Building Products, Inc. Employee Savings Plan (the
"SAVINGS PLAN") (i) shall have his or her accrued benefit under the
Savings Plan become 100% vested and nonforfeitable as of the Closing
Date and (ii) shall be entitled to receive an allocation of any and
all employer contributions made to the Savings Plan for the plan year
which includes the Closing Date, including the contributions required
to be made pursuant to paragraph (f) of this Section 4.13. Each
employee of the Subsidiary who is a current participant in the Falcon
Building Products, Inc. Cash Balance Pension Plan (the "CASH BALANCE
PLAN") shall have his or her accrued benefit under the Cash Balance
Plan become 100% vested and nonforfeitable.
(b) Seller shall transfer, or cause the trustee of the Cash
Balance Plan to transfer, to the trustee of a qualified defined benefit
pension plan maintained by Purchaser or any entity required by Section
414 of the Code to be treated as a single employer with Purchaser (an
"ERISA AFFILIATE") (either currently existing or hereinafter
established by
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<PAGE>
Purchaser or such ERISA Affiliate) (the "TRANSFEREE PENSION PLAN")
such amounts (in cash or in marketable securities at market values
determined by the plan trustee) under the Cash Balance Plan as are
required by Section 414(1) of the Code for each employee of the
Subsidiary on the Closing Date (the "TRANSFERRED EMPLOYEES"). The
transferred amount shall be calculated as of the Closing Date by
Seller's actuaries, and agreed to by Purchaser's actuaries (such
agreement not to be unreasonably withheld), using service and
compensation for service to the Closing Date, and on the basis of the
actuarial assumptions set forth in Schedule 4.13(b), together with
interest thereon at the rate of six percent (6%), calculated on the
basis of the actual number of days elapsed divided by 365, from the
Closing Date to the date of transfer, and considering (i) as plan
assets actual and receivable contributions through the Closing Date and
(ii) as plan liabilities benefits accrued through the Closing Date.
Unless otherwise agreed to in writing by Purchaser and Seller, the
transfer date shall occur within 60 days after Purchaser obtains and
presents to Seller evidence satisfactory to Seller that the Transferee
Pension Plan is qualified under the applicable provisions of the Code.
Such evidence of qualification shall be supplied by Purchaser within 90
days of the Closing Date.
(c) Seller shall transfer, or cause the trustee of the Savings
Plan to transfer, to the trustee of a qualified defined contribution
pension plan maintained by Purchaser (either currently existing or
hereinafter established by Purchaser or an ERISA Affiliate of
Purchaser) (the "TRANSFEREE SAVINGS PLAN"), in cash or in marketable
securities at market values determined by the plan trustee, the entire
value of each Transferred Employee's accounts under the Savings Plan as
determined under the provisions of the Savings Plan. Unless otherwise
agreed by Seller and Purchaser, the transfer shall occur within 60 days
after Purchaser presents to Seller evidence satisfactory to Seller that
the Transferee Savings Plan is qualified under the applicable
provisions of the Code. Such evidence of qualification shall be
provided by Purchaser within 90 days of the Closing Date.
(d) After the transfers described above, none of Seller, the
Cash Balance Plan or the Savings Plan, or any fiduciary of such plans,
shall have any liability or obligation to pay or otherwise provide to
the Transferred Employees any benefits accrued or provided for under
the Cash Balance Plan or the Savings Plan, and Purchaser, the
Transferee Pension Plan and the Transferee Savings Plan shall assume
full liability for such benefits, and shall indemnify and hold harmless
Seller, the Cash Balance Plan, the Savings Plan and the fiduciaries of
such plans from and against the same.
(e) The Transferee Pension Plan and Transferee Savings Plan (i)
shall provide respectively, for the payment of all benefits accrued
under the Cash Balance Plan and the Savings Plan (within the meaning of
Section 411 and other sections of the Code) prior to the Closing Date
by the Transferred Employees; and (ii) shall recognize, respectively,
the service, prior to the Closing Date, of the Transferred Employees
who participated in the Cash Balance Plan and the Savings Plan
immediately prior to the Closing Date for eligibility, vesting and
benefit accrual purposes under the Transferee Pension Plan and
Transferee Savings Plan to the same extent that such service is
recognized for such
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<PAGE>
purposes under the Cash Balance Plan and the Savings Plan prior to the
Closing Date (subject to the 100% vesting set forth in Section 4.13(a)
above).
(f) At Closing, Seller shall cause the Company or the Subsidiary
to pay over to the Savings Plan all employer and employee
contributions of the Company and the Subsidiary to the Savings Plan not
made as of the Closing Date for all calendar months ending on or prior
to the Closing Date and for the portion of the calendar month in which
the Closing Date occurs. For purposes of this paragraph, the employee
contributions shall be those amounts withheld or required to be
withheld from employees' compensation for the period prior to and
including the Closing Date, and employer contributions shall be the
employer contributions that would be required to be made with respect
to such employee contributions.
(g) At Closing, Seller shall cause the Company or the Subsidiary
to pay over to the Cash Balance Plan the sum of (i) all contributions
of the Company and the Subsidiary to the Cash Balance Plan for the
plan years of the plan ending prior to the Closing Date remaining
uncontributed, and (ii) a pro rata portion of the Company's and/or
Subsidiary's annual contribution for the portion of the plan year in
which the Closing Date occurs, such pro-rata portion to be based
solely on service and compensation for services through the Closing
Date. In each case, the annual contribution shall be the amount
necessary to meet the minimum funding standards of ERISA Section 302
and Section 412 of the Code, determined in accordance with the most
recent actuarial valuation for the Plan.
(h) The Company and the Subsidiary shall continue to make
contributions to the Savings Plan and the Cash Balance Plan in
accordance with their respective historical business practices through
the Closing Date.
(i) As of the Closing Date, Purchaser shall assume and shall
continue, with respect to and for the benefit of all Transferred
Employees, the Falcon Building Products, Inc. Supplemental Retirement
Plan ("SERP") in accordance with Section 9.5 thereof. Purchaser shall
furthermore assume all liability under the SERP relating to the
Transferred Employees, and shall indemnify and hold Seller and the SERP
harmless from and against any and all liability relating thereto.
Section 4.14 INSURANCE. Prior to the Closing, Seller shall cause
the counter parties to the indemnity agreements and claims handling
agreements related to the Insurance Policies (including self-insured,
deductible, retrospective and guaranteed cost insurance plans) to enter into
agreements, on customary terms and conditions (including but not limited to
posting customary letters of credit or other security or collateral), with
the Company and/or the Subsidiary (or Purchaser) which shall either novate or
amend such indemnity agreements and claims handling agreements thereby
transferring to the Company and/or the Subsidiary (or Purchaser) the assumed
worker's compensation, general and automobile plan liabilities that relate to
or arise out of the Company and the Subsidiary's operations. Following the
Closing, (a) Seller shall continue to provide the Company and the Subsidiary
full access to coverage under
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<PAGE>
the Insurance Policies, and (b) Seller shall not take any action (other than
submission of claims) in with respect to the Insurance Policies that would
have an adverse effect on the Company's or the Subsidiary's ability to avail
themselves of the coverage under the Insurance Policies.
Section 4.15 CERTAIN AGREEMENTS. From and after the Closing,
Seller shall not take any actions with respect to the agreements listed in
Items 15, 26, 27, 28 or 29 of Schedule 2.9 that adversely effects the
Subsidiary without the prior written consent of Purchaser.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation
of Purchaser to purchase the Shares and effect the Closing shall be subject
to the satisfaction or waiver at or prior to the Closing of the following:
(a) no statute, rule, regulation, order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any court
or governmental authority which makes illegal the purchase and sale of
the Shares or otherwise prohibits the consummation of the transactions
contemplated hereby;
(b) any waiting period applicable to the purchase and sale of
the Shares under the HSR Act shall have terminated or expired;
(c) there shall have been no material breach by Seller in the
performance of any of its covenants, agreements or obligations herein;
none of the representations and warranties of Seller contained or
referred to in Article II shall fail to be true and correct as of the
date hereof and on the Closing Date as though made on such date, except
for (i) representations and warranties that speak as of a specific date
other than the Closing Date (which need only be true and correct as of
such date), (ii) representations and warranties which are not qualified
by Material Adverse Effect or otherwise by material adversity (which
need be true and correct except for such inaccuracies as in the
aggregate (together with the inaccuracies referred to in the following
clause (iii)) would not have a Material Adverse Effect), (iii)
representations and warranties which are qualified by Material Adverse
Effect or otherwise by material adversity shall also be true and
correct without regard to such qualification except for such
inaccuracies as in the aggregate (together with the inaccuracies
referred to in the preceding clause (ii)) would not have a Material
Adverse Effect and (iv) changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in
writing by Purchaser; and there shall have been delivered to Purchaser
a certificate to such effect, dated the Closing Date and signed by the
President or other senior executive officer of Seller;
(d) Seller shall have performed in all material respects all
agreements herein required to be performed by it on or prior to the
Closing; and
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<PAGE>
(e) all consents under or pursuant to the agreements listed on
Schedule 5.1(e) shall have been obtained.
Section 5.2 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of
Seller to sell the Shares and effect the Closing shall be subject to the
satisfaction or waiver at or prior to the Closing of the following:
(a) no statute, rule, regulation, order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any court
or governmental authority which makes illegal the purchase and sale of
the Shares or otherwise prohibits the consummation of the transactions
contemplated hereby;
(b) any waiting period applicable to the purchase and sale of
the Shares under the HSR Act shall have terminated or expired;
(c) there shall have been no material breach by Purchaser in
the performance of any of its covenants, agreements or obligations
herein; none of the representations and warranties of Purchaser
contained or referred to in Article III shall fail to be true and
correct as of the date hereof and on the Closing Date as though made on
such date, except for (i) representations and warranties that speak as
of a specific date other than the Closing Date (which need only be true
and correct as of such date), (ii) representations and warranties which
are not qualified by Material Adverse Effect or otherwise by material
adversity (which need be true and correct except for such inaccuracies
as in the aggregate (together with the inaccuracies referred to in the
following clause (iii)) would not have a Material Adverse Effect),
(iii) representations and warranties which are qualified by Material
Adverse Effect or otherwise by material adversity shall also be true
and correct without regard to such qualification except for such
inaccuracies as in the aggregate (together with the inaccuracies
referred to in the preceding clause (ii)) would not have a Material
Adverse Effect and (iv) changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in
writing by Seller; and there shall have been delivered to Seller a
certificate to such effect, dated the Closing Date and signed by the
President or other senior executive officer of Purchaser;
(d) Purchaser shall have performed in all material respects
all agreements herein required to be performed by it on or prior to the
Closing; and
(e) all consents under or pursuant to the agreements listed on
Schedule 5.1(f) shall have been obtained.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
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<PAGE>
(a) by mutual written consent of Purchaser and Seller;
(b) by Purchaser or Seller if the Closing shall not have
occurred on or before September 30, 1999; provided, however, that the
right to terminate the Agreement under this Section 6.1(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date; or
(c) by Purchaser or Seller if any court of competent
jurisdiction in the United States or other governmental body shall have
issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the purchase and sale
of the Shares and such order, decree, ruling or other action shall have
become final and nonappealable.
Section 6.2 EFFECT OF TERMINATION. Nothing contained in Section
6.1 shall relieve any party from liability for any breach of this Agreement.
In the event of the termination of this Agreement, the confidentiality
agreement previously entered into between Seller and Purchaser (the
"CONFIDENTIALITY AGREEMENT") shall survive and be in full force and effect.
Section 6.3 AMENDMENT. This Agreement may be amended by action
taken by Seller and Purchaser at any time. No such amendment shall be
effective unless it is in writing signed on behalf of each of the parties.
Section 6.4 EXTENSION; WAIVER. At any time prior to the Closing,
either party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties of the other party contained herein or in
any document, certificate or writing delivered by the other parties pursuant
hereto or (c) waive compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VII
MISCELLANEOUS
Section 7.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
AGREEMENTS. The representations and warranties made herein shall terminate
upon the Closing; PROVIDED, HOWEVER, that the representations and warranties
provided in Section 2.2 shall survive until the sixth anniversary of the
Closing Date; PROVIDED, FURTHER, however, that in the case of the
representations and warranties provided in Section 2.10, to the extent the
breach thereof results in the Company or the Subsidiary being liable for
taxes of any person other than the Company or the Subsidiary pursuant to
Treasury Regulation Section 1.1502-6, such representations and warranties
shall survive until 60 days following the expiration of the applicable
statute of limitations. All covenants and agreements set forth in this
Agreement shall survive in accordance with their terms.
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<PAGE>
Section 7.2 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a)
together with the Confidentiality Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof, (b) may not be
assigned by a party, by operation of law or otherwise, without the prior
written consent of the other party and (c) shall be binding upon the parties
hereto and their respective successors and permitted assigns.
Section 7.3 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to
have been duly given (a) upon receipt if given by delivery by hand, (b) upon
transmission if given by facsimile (receipt confirmed), (c) one business day
after being sent by prepaid overnight carrier with guaranteed delivery (with
record of receipt) or (d) five business days after being deposited in the
mail by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Purchaser:
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
Saint Paul, Minnesota 55113-3105
Facsimile: (651) 639-5203
Telephone: (651) 639-5228
Attention: Louis L. Ainsworth, Esq.
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Facsimile: (414) 297-4900
Telephone: (414) 271-2400
Attention: Benjamin F. Garmer, III, Esq.
if to Seller:
Falcon Building Products, Inc.
233 S. Wacker Drive, Suite 3500
Chicago, Illinois 60606
Facsimile: (312) 575-1432
Telephone: (312) 906-9700
Attention: Gus J. Athas, Esq.
with a copy to:
26
<PAGE>
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Facsimile: (212) 351-4035
Telephone: (212) 351-4000
Attention: E. Michael Greaney, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 7.5 DESCRIPTIVE HEADINGS. The table of contents and
descriptive headings herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning or interpretation
of this Agreement.
Section 7.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall he deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 7.7 FEES AND EXPENSES. Each party hereto shall bear its
own expenses in connection with this Agreement and the transactions
contemplated hereby.
Section 7.8 MISCELLANEOUS.
(a) "MATERIAL ADVERSE EFFECT" means, with respect to the Company
and the Subsidiary, any material adverse effect on the financial
condition, business or results of operations of the Company and the
Subsidiary, taken as a whole, excluding in all cases any such effect
resulting from one or more of the following: (i) any events or
conditions generally affecting the industry in which the Company and
the Subsidiary operate or from changes in general business or economic
conditions; (ii) the announcement of the transactions contemplated by
this Agreement or Purchaser's plans with respect to the business
conducted by the Subsidiary; (iii) compliance by Seller, the Company or
the Subsidiary with the terms of this Agreement; and (iv) the death or
disability of any executive officer of the Company or the Subsidiary.
27
<PAGE>
(b) "MATERIAL ADVERSE EFFECT" means, with respect to Purchaser,
any effect that is materially adverse to the ability of Purchaser to
consummate the purchase of the Shares.
(c) In each provision of this Agreement in which a
representation or warranty is qualified to the "KNOWLEDGE" of a party
or by reference to whether a party has received notice of any matter,
unless otherwise stated in such provision, such phrase means that such
party does not have actual knowledge of any state of facts which is
different from the facts described in the representation or warranty or
actual knowledge of receipt of the notice described in the
representation and warranty. With respect to Seller, the Company and
the Subsidiary, such knowledge shall refer solely to the "knowledge" of
any of the individuals identified on Schedule 7.8(c).
Section 7.9 SPECIFIC PERFORMANCE. The parties acknowledge and
agree that any breach of the terms of this Agreement would give rise to
irreparable harm for which money damages would not be an adequate remedy and
accordingly the parties agree that, in addition to any other remedies, each
shall be entitled to enforce the terms of this Agreement by a decree of
specific performance without the necessity of proving the inadequacy of money
damages as a remedy.
28
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed as of the day and year first above written.
FALCON BUILDING PRODUCTS, INC.
By: /s/ GUS J. ATHAS
-------------------------------
Name: Gus J. Athas
Title: Executive Vice President
PENTAIR, INC.
By: /s/ LOUIS L. AINSWORTH
-------------------------------
Name: Louis L. Ainsworth
Title: Senior Vice President
and General Counsel
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of August 13, 1999 (this "Amendment")
amends the Amended and Restated Credit Agreement dated as of August 1, 1997
(the "Credit Agreement") among PENTAIR, INC., EUROPENTAIR GMBH, PENTAIR
CANADA, INC., BANK OF AMERICA, N.A. (formerly Bank of America National Trust
and Savings Association) as U.S. Dollar Administrative Agent, U.S. BANK
NATIONAL ASSOCIATION, as a Bank and as Overnight Administrative Agent, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as a Bank and as a G-7 Currency
Administrative Agent, and NBD BANK, THE BANK OF TOKYO-MITSUBISHI, LTD, ABN
AMRO BANK N.V. and DRESDNER BANK AG, as Banks, and various affiliates of the
Banks which are parties to the Canadian Facility. Terms defined in the Credit
Agreement are, unless otherwise defined herein or the context otherwise
requires, used herein as defined therein.
WHEREAS, the Borrowers, the Banks and the Agents have entered into
the Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence
of) the First Amendment Effective Date (as defined below), the Credit
Agreement shall be amended as set forth below:
1.1 ADDITION OF DEFINITIONS. The following definitions are added to
Section 1.1 in appropriate alphabetical sequence:
"DAILY PRICING MARGIN" - see the attached Pricing Grid.
"EBITDA" means, for any period, the sum of the consolidated
net income of Pentair for such period excluding the effect of (i) the
special $38,000,000 restructuring charge taken in the first fiscal
quarter of 1999 and (ii) any extraordinary or non-recurring gains and
any extraordinary or non-recurring non-cash losses in such period
PLUS, to the extent deducted in determining such consolidated net
income, Interest Expense, income tax expense, depreciation and
amortization for such period.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of
(i) EBITDA plus rent expense for such period to (ii) Interest Expense
plus rent expense for such period.
<PAGE>
"FACILITY FEE RATE" - see the attached Pricing Grid.
"LEVERAGE RATIO" means, as of any date, the ratio of (a) the
sum (without duplication) of (i) all Debt of Pentair and its
Consolidated Subsidiaries, plus (ii) all Synthetic Lease Obligations of
Pentair and its Consolidated Subsidiaries, plus (iii) the outstanding
investments in all receivables sold pursuant to Sales of Receivables,
all determined on a consolidated basis, to (b) EBITDA for the period of
four consecutive fiscal quarters most recently ended on or before such
date for which financial statements have been delivered pursuant to
Section 12.1; PROVIDED that for purposes of calculating EBITDA pursuant
to this CLAUSE (B), the consolidated net income of any Person or
business unit acquired by the Company or any Subsidiary during such
period (plus, to the extent deducted in determining such consolidated
net income, interest expense, income tax expense, depreciation and
amortization of such Person or business unit) shall be included on a
PRO FORMA basis for such period (assuming the consummation of each such
acquisition and the incurrence or assumption of any Debt in connection
therewith occurred on the first day of such period) in accordance with
Article 11 of Regulation S-X of the Securities and Exchange Commission.
"SYNTHETIC LEASE OBLIGATIONS" means obligations under
operating leases (as determined pursuant to Statement of Financial
Accounting Standards No. 13) of properties which are reported for
United States income tax purposes as owned by Pentair or a Consolidated
Subsidiary, capitalized as if such operating leases were capital leases
in accordance with generally accepted accounting principles.
1.2 AMENDMENT TO DEFINITION OF CD MARGIN. The definition of CD Margin
is amended in its entirety to read as follows:
"CD MARGIN" - see the attached Pricing Grid.
1.3 AMENDMENT TO DEFINITION OF DAILY PRICING RATE. The
definition of Daily Pricing Rate is amended in its entirety to
read as follows:
"DAILY PRICING RATE" means for any day a rate per annum
(rounded upward, if necessary, to the nearest 1/16 of 1%) determined
pursuant to the following formula, which rate shall continue in effect
until the next succeeding Business Day:
Daily LIBO Rate
- ----- Pricing = 100 - Eurocurrency PLUS Daily
Rate Reserve Percentage
Pricing Margin
<PAGE>
1.4 Amendment to Definition of Eurocurrency Margin. The
definition of Eurocurrency Margin is amended in its entirety to read as
follows:
"EUROCURRENCY MARGIN" - see that attached Pricing Grid.
1.5 DELETION OF DEFINITIONS. The definitions of "Adjusted Debt to
Total Capital Ratio" and "Debt to Total Capital Ratio" are deleted from
Section 1.1.
1.6 AMENDMENT TO FACILITY FEE RATE. Clause (a) of Section 2.6
is amended in its entirety to read as follows:
(a) During the term of this Agreement, the Borrowers shall pay
to the U.S. Dollar Administrative Agent for the account of each Bank a
Facility Fee on such Bank's Commitment in U.S. Dollars at a rate per
annum equal to the Facility Fee Rate.
1.7 ADJUSTMENTS TO PRICING. Section 2.14 is amended in its entirety to
read as follows:
SECTION 2.14 ADJUSTMENTS TO MARGINS AND FACILITY FEES.
Beginning on the date of the effectiveness of the First Amendment to
this Agreement, the CD Margin shall be 0.675%, the Daily Pricing Margin
shall be 0.575%, the Eurocurrency Margin shall be 0.55% and the
Facility Fee Rate shall be 0.20%. Thereafter, each of the foregoing
shall be adjusted, to the extent applicable, in accordance with the
attached Pricing Grid, 50 days (or, in the case of the last fiscal
quarter of any fiscal year, 95 days) after the end of each fiscal
quarter of Pentair based on the Leverage Ratio as of the last day of
such fiscal quarter; PROVIDED that if Pentair fails to deliver the
financial statements and compliance certificate required by Section
12.1(a) or (b) and Section 12.1(c) by the 50th (or, if applicable, the
95th) day after any fiscal quarter, the Leverage Ratio shall be deemed
to be greater than 3.5 to 1 until such statements and certificate are
delivered; PROVIDED, FURTHER, that if Pentair has received a rating on
its senior, unsecured long-term debt from both Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group, THEN the CD
Margin, the Daily Pricing Margin, the Eurocurrency Margin and the
Facility Fee Rate, (collectively the "Pricing") shall be determined on
a daily basis in accordance with the attached Pricing Grid by reference
to such ratings (and if there is a split in such ratings, the Pricing
shall be determined based on the lower of such ratings (unless Level IV
on the attached Pricing Grid applies)).
1.8 LEVERAGE RATIO. Section 12.2 is amended in its entirety to
read as follows:
<PAGE>
SECTION 12.2 MAXIMUM LEVERAGE RATIO. Pentair shall not at any
time permit the Leverage Ratio to exceed the applicable ratio set forth
below during any period set forth below:
<TABLE>
<CAPTION>
<S> <C>
FISCAL QUARTER ENDING: LEVERAGE RATIO
Prior to 6/29/00 3.90 to 1.0
6/30/00 through 12/30/00 3.25 to 1.0
12/31/00 and thereaftera 3.00 to 1.0.
</TABLE>
1.9 INTEREST COVERAGE RATIO. Section 12.4 is amended in
its entirety to read as follows:
SECTION 12.4 MINIMUM INTEREST COVERAGE RATIO. Pentair shall
not permit the Interest Coverage Ratio (i) for any Computation Period
ending prior to March 31, 2000 to be less than 2.50 to 1 and (ii) for
any Computation Period ending on or after March 31, 2000 to be less
than 3.00 to 1. For purposes of the foregoing, a "Computation Period"
is any period of four consecutive fiscal quarters of Pentair ending on
the last day of a fiscal quarter.
1.10 PRICING GRID. The Pricing Grid attached hereto is
added to the Credit Agreement as an attachment thereto.
SECTION 2 REPRESENTATIONS AND WARRANTIES. Each Borrower represents and
warrants to the Banks that (a) each of the representations and warranties set
forth in the Credit Agreement is true and correct as of the date of the
execution and delivery of this Amendment by the Borrowers, with the same
effect as if made on such date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they were true
and correct as of such earlier date), (b) the execution and delivery by each
Borrower of this Amendment and the performance by each Borrower of its
obligations under the Credit Agreement, as amended hereby (as so amended, the
"Amended Credit Agreement"), (i) are within the powers of the Borrowers, (ii)
have been duly authorized by all necessary action on the part of the
Borrowers, (iii) have received all necessary governmental approval and (iv)
do not and will not contravene or conflict with (A) any provision of law or
the certificate of incorporation or by-laws or other organizational documents
of any Borrower or (B) any agreement, judgment, injunction, order, decree or
other instrument binding upon any Borrower or any Subsidiary of Pentair and
(c) the Amended Credit Agreement is the legal, valid and binding obligation
of the Borrowers enforceable against the Borrowers in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the
availability of equitable remedies..
SECTION 3 EFFECTIVENESS. This Amendment shall become effective on
the date (the "First Amendment Effective Date") when the U.S. Dollar
Administrative Agent shall have
<PAGE>
received each of the following documents:
(a) counterparts of this Amendment executed by each of
the Borrowers, the U.S. Dollar Administrative Agent, the G-7
Currency Administrative Agent, the Overnight Administrative
Agent and the Required Banks;
(b) a certificate of the secretary or an assistant secretary
of each of the Borrowers as to:
(i) resolutions of the board of directors of each of
the Borrowers authorizing the execution and delivery of this
Amendment and the performance by each of the Borrowers of its
obligations under the Amended Credit Agreement; and
(ii) the incumbency and signatures of those of its
officers authorized to execute and deliver this
Amendment;
(c) the legal opinion of Henson & Efron, counsel for the
Borrowers, substantially in the form of EXHIBIT A hereto; and
(d) such other documents as the Banks may reasonably request.
SECTION 4 MISCELLANEOUS.
4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the First Amendment Effective Date, all
references in the Credit Agreement and the Notes to "Credit Agreement",
"Agreement" or similar terms shall refer to the Amended Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
4.3 EXPENSES. The Borrowers agree to pay the reasonable costs and
expenses of the Agents (including attorney's fees and expenses) in connection
with the preparation, execution and delivery of this Amendment.
4.4 GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of Minnesota applicable to
contracts made and to be performed entirely within such State.
4.5 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon the
Borrowers,
<PAGE>
the Banks and the Agents and their respective successors and assigns, and
shall inure to the benefit of the Borrowers, the Banks and the Agents and the
respective successors and assigns of the Banks and the Agents.
Delivered at Minneapolis, Minnesota as of the day and year first
above written.
PENTAIR, INC., for itself, as guarantor
and as agent for the Borrowers
By: /s/ Richard W. Ingman
---------------------------
Title: CFO
------------------------
PENTAIR CANADA, INC.
By: /s/ Roy T. Rueb
---------------------------
Title: Secretary
------------------------
EUROPENTAIR GmbH
By: /s/ Roy T. Rueb
---------------------------
Title: Drokurist
------------------------
BANK OF AMERICA, N.A.,
as U.S. Dollar Administrative Agent
By: /s/ Gary Flieger
---------------------------
Title: Vice President
------------------------
U.S. BANK NATIONAL ASSOCIATION,
as Overnight Administrative Agent
By: /s/ Mark R. Olmon
---------------------------
Title: Senior Vice President
------------------------
MORGAN GUARANTY TRUST
<PAGE>
COMPANY
OF NEW YORK, as G-7 Currency
Administrative
Agent
By: /s/ Robert Bottamedi
---------------------------
Title: Vice President
------------------------
BANK OF AMERICA, N.A.
By: /s/ Valerie C. Mills
---------------------------
Title: Managing Director
------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olmon
---------------------------
Title: Senior Vice President
------------------------
MORGAN GUARANTY TRUST
COMPANY
OF NEW YORK
By: /s/ Robert Bottamedi
---------------------------
Title: Vice President
------------------------
NBD BANK
By: /s/ Mike A. Basak
---------------------------
Title: Sr. Vice President
------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By: /s/ Jeffrey Arnold
---------------------------
<PAGE>
Title: Vice President and Manager
------------------------
ABN AMRO BANK N.V., CHICAGO BRANCH
By: n/a
---------------------------
Title:
------------------------
By: n/a
---------------------------
Title:
------------------------
DRESDNER BANK AG CHICAGO
AND GRAND CAYMAN BRANCHES
By: n/a
---------------------------
Title:
------------------------
By: n/a
---------------------------
Title:
------------------------
<PAGE>
Execution Copy
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of August 13, 1999
Among
PENTAIR, INC.
THE BANKS
as defined herein
and
U.S. BANK NATIONAL ASSOCIATION
as a Bank and as Agent
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of August 13, 1999, is by and
between PENTAIR, INC., a Minnesota corporation (the "Borrower"), the banks or
financial institutions listed on the signature pages hereof or which
hereafter become parties hereto by means of assignment and assumption as
hereinafter described (individually referred to as a "Bank" or collectively
as the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, as agent for the Banks (in such capacity, the "Agent").
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the following respective
meanings (and such meanings shall be equally applicable to both the singular
and plural form of the terms defined, as the context may require):
"ADVANCE": The portion of the outstanding Loans bearing interest at an
identical rate for an identical Interest Period, provided that all Reference
Rate Advances shall be deemed a single Advance. An Advance may be a "Daily
Pricing Advance", "Eurodollar Advance", or "Reference Rate Advance" (each, a
"type" of Advance).
"AGENT": U.S. Bank National Association, as agent for the Banks
hereunder and each successor, as provided in SECTION 10.8, who shall act as
Agent.
"AGREEMENT": This Credit Agreement, as it may be amended, modified,
supplemented, restated or replaced from time to time.
"ALTERNATIVE APPLICABLE MARGIN": The margin added to the Eurodollar
Rate (Reserve Adjusted) or equivalent base rate to obtain the rate of
interest on borrowings under the New Syndicated Agreement, or any commitment
accepted by the Borrower to enter into the New Syndicated Agreement, if
higher than the Applicable Margin as determined below.
"APPLICABLE MARGIN" and "APPLICABLE FACILITY FEE RATE": The following
percentages when the following Levels apply:
<TABLE>
<CAPTION>
Percentage for Percentage for Applicable
Applicable Level: Applicable Margin: Facility Fee Rate:
----------------- ------------------ -------------------------
<S> <C> <C>
Level I 0.375% 0.125%
Level II 0.475% 0.150%
Level III 0.575% 0.175%
Level IV 0.6875% 0.1875%
Level V 0.80% 0.20%
Level VI 1.025% 0.225%
<PAGE>
Level VII 1.225% 0.275%
</TABLE>
The applicable level shall be determined as follows:
LEVEL I shall apply if the Borrower's Long Term Debt Rating is A- or
better (S&P) and A3 or better (Moody's).
LEVEL II shall apply if the Borrower's Long Term Debt Rating is BBB+ or
better (S&P) and Baa1 or better (Moody's) but no numerically lower
Level applies.
LEVEL III shall apply if the Borrower's Long Term Debt Rating is BBB or
better (S&P) and Baa2 or better (Moody's) but no numerically lower
Level applies.
LEVEL IV shall apply if the Borrower's Long Term Debt Rating is BBB or
better (S&P) and Baa3 or better (Moody's) OR if the Borrower's Long
Term Debt Rating is BBB- or better (S&P) and Baa2 or better (Moody's)
but no numerically lower Level applies.
LEVEL V shall apply if the Borrower's Long Term Debt Rating is BBB- or
better (S&P) and Baa3 or better (Moody's) but no numerically lower
Level applies.
LEVEL VI shall apply if the Borrower's Long Term Debt Rating is BB+ or
better (S&P) and Ba1 or better (Moody's) but no numerically lower Level
applies.
LEVEL VII shall apply if no other level shall apply.
As used herein:
"LONG TERM DEBT RATING" means the rating assigned by S&P and Moody's to
the long term, unsecured, senior indebtedness of the Borrower.
"MOODY'S" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group.
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which national banks are permitted to be open
in Minneapolis, Minnesota and, with respect to Eurodollar Advances, a day on
which dealings in Dollars may be carried on by the Agent in the interbank
eurodollar market.
"COMMITMENT": The maximum unpaid principal amount of the Loans of all
Banks which may from time to time be outstanding hereunder, being initially
$100,000,000, as the same may be reduced from time to time pursuant to
SECTION 4.3 , or, if so indicated, the maximum unpaid principal amount of
Loans of any Bank (which amounts are set forth on the signature pages hereof
or in the relevant Assignment and Assumption Agreement for such Bank) and, as
the context may require, the agreement of each Bank to make Loans to the
Borrower subject to the terms and conditions of this Agreement up to its
Commitment.
2
<PAGE>
"DAILY PRICING ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
"DEFAULT": Any event which, with the giving of notice to the Borrower
or lapse of time, or both, would constitute an Event of Default.
"EURODOLLAR ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
"EURODOLLAR INTERBANK RATE": The offered rate for deposits in United
States Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%),
for delivery of such deposits on the first day of an Interest Period of a
Eurodollar Advance, for the number of days comprised therein, or for Daily
Pricing Advances an Interest Period of one month, which appears on Page 3750
of the Dow Jones Markets (Telerate) screen as of 11:00 a.m., London time, on
the day that is two Banking Days preceding the first day of the Interest
Period of such Eurodollar Advance (or in the case of Daily Pricing Advances,
on each Business Day, without giving effect to the two-day forward
convention), or the rate for such deposits determined by the Bank at such
time based on such other published service of general application as shall be
selected by the Bank for such purpose; PROVIDED, that in lieu of determining
the rate in the foregoing manner, the Bank may determine the rate based on
rates offered to the Bank for deposits in United States Dollars (rounded
upwards, if necessary, to the nearest 1/16 of 1%) in the interbank eurodollar
market at such time for delivery on the first day of the Interest Period for
the number of days comprised therein.
"EURODOLLAR RATE (RESERVE ADJUSTED)": A rate per annum (rounded upward,
if necessary, to the nearest 1/16th of 1%) calculated for the Interest Period
of a Eurodollar Advance (or in the case of Daily Pricing Advances, determined
on each Business Day, which rate shall apply until the next-following
Business Day) in accordance with the following formula:
Eurodollar Interbank Rate
ERRA = -------------------------
1.00 - ERR
In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the
Agent for the applicable Interest Period. The Agent's determination of all
such rates for any Interest Period shall be conclusive in the absence of
manifest error.
"EURODOLLAR RESERVE RATE": A percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), as
specified under Regulation D of the Federal Reserve Board, or any other
applicable regulation that prescribes reserve requirements applicable to
Eurocurrency liabilities (as presently defined in Regulation D) or applicable
to extensions of credit by the Agent the rate of interest on which is
determined with regard to rates applicable to Eurocurrency liabilities.
Without limiting the generality of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any reserves required to be maintained by the Agent
against (i) any category of liabilities that includes deposits by reference to
3
<PAGE>
which the Eurodollar Interbank Rate is to be determined, or (ii) any category
of extensions of credit or other assets that includes Eurodollar Advances.
"EVENT OF DEFAULT": Any event described in ARTICLE X.
"EXISTING CREDIT AGREEMENT": That certain Credit Agreement, dated as of
November 15, 1996, as amended and restated as of August 13, 1999, and as
further amended, between the Borrower and U.S. Bank National Association,
formerly known as First Bank National Association.
"FEDERAL RESERVE BOARD": The Board of Governors of the Federal Reserve
System or an successor thereto.
"INTEREST PERIOD": Either (a) for any Eurodollar Advance, the period
commencing on the borrowing date of such Eurodollar Advance or the date a
Reference Rate Advance is converted into such Eurodollar Advance, or the last
day of the preceding Interest Period for such Eurodollar Advance, as the case
may be, and ending on the numerically corresponding day one, two or three
months thereafter, as selected by the Borrower pursuant to SECTION 2.3 or
SECTION 2.4; provided, that:
(i) any Interest Period which would otherwise end on a day which is not
a Business Day shall end on the next succeeding Business Day unless such
next succeeding Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Termination Date; or
(b) for each Daily Pricing Advance, a period lasting until the
next-following Business Day (provided, that the Eurodollar Interbank Rate
shall be determined based on an interest period of one month, as provided in
the definition thereof).
"INTEREST STEP-UPS": The following percentages, added as provided in the
definition of Applicable Margin, if the following events apply:
<TABLE>
<CAPTION>
Amount of Interest
Event: Step-Up:
------ ------------------
<S> <C>
(a) If on October 1, 1999, the Commitment
shall be $50,000,000 or less, giving effect
to all reductions under SECTION 4.3: 0.25%
(b) If on October 1, 1999, the Commitment
is more than $50,000,000, giving effect
4
<PAGE>
to all reductions under SECTION 4.3: 0.50%
(c) If the Termination Date has not
occurred on or before December 1, 1999: 1.00%
</TABLE>
The Interest Step-Up under (a) and (b) shall be determined, and if (c) shall
apply, the Interest Step-Up under (c) shall be added to that determined under
(a) or (b) on and after December 1, 1999 (for example, if (a) applied, on and
after December 1, 1999, the total Interest Step-Up added as provided in the
definition of Applicable Margin shall be 1.25%).
"LOAN DOCUMENTS": This Agreement, the Notes, the fee letter described
in SECTION 3.5, and each other instrument, document, guaranty, security
agreement, mortgage, or other agreement executed and delivered by the
Borrower or any guarantor or party granting security interests in connection
with this Agreement, the Loans or any collateral for the Loans.
"MULTI-FACILITY CREDIT AGREEMENT": That certain Amended and Restated
Credit Agreement, dated as of August 1, 1997 (amending and restating the
Multi-Facility Credit Agreement dated as of November 15, 1996), among the
Borrower, certain Subsidiaries of the Borrower, the Agents, and the Banks
listed therein, as the same has been and shall hereafter be amended from time
to time after such date.
"NEW PLACEMENT AGREEMENT": Any new agreement or agreements entered by
the Borrower after the date hereof under which the Borrower will issue debt
securities with a maturity exceeding one year, common or preferred equity,
equity equivalent securities, convertible debt or other debt securities or
equities.
"NEW SYNDICATED AGREEMENT": Any new credit agreement entered by the
Borrower after the date hereof except for (a) the Other Bridge Loan
Agreements, (b) any agreements pertaining to synthetic lease obligations of
the Borrower and its Subsidiaries, and (c) any agreements pertaining to sale
of receivables by the Borrower and its Subsidiaries.
"OTHER BRIDGE LOAN AGREEMENTS": Other separate credit agreements
between the Borrower and Morgan Guaranty Trust Company and Bank of America,
to be dated on or about the date of this Agreement, which are anticipated to
be replaced by and refunded from the proceeds of the New Syndicated Agreement
or New Placement Agreement.
"PAYMENT DATE": The Termination Date, plus (a) the last day of each
Interest Period for each Eurodollar Advance; and (b) the last day of each
month of each year for each Daily Pricing Advances and Reference Rate Advance
and for any fees including, without limitation, the Facility Fees.
"PERCENTAGE": As to any Bank the proportion, expressed as a percentage,
that such Bank's Commitment bears to the total Commitments of all Banks.
"PERSON": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or
5
<PAGE>
political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by the Agent as its "reference rate." The Agent may lend to its
customers at rates that are at, above or below the Reference Rate. For
purposes of determining any interest rate which is based on the Reference
Rate, such interest rate shall change on the effective date of any change in
the Reference Rate.
"REFERENCE RATE ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
"REQUIRED BANKS": Those Banks whose total Percentage exceeds 50%, or if
no Commitments remain in effect, whose share of principal of the Loans
exceeds 50% of the aggregate outstanding principal of all Loans.
"SUBSIDIARY": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the
combined voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of directors of
such Person, if it is a corporation, (b) the capital interest or profit
interest of such Person, if it is a partnership, joint venture or similar
entity, or (c) the beneficial interest of such Person, if it is a trust,
association or other unincorporated organization.
"TERMINATION DATE": The earliest of (a) March 30, 2000, (b) the date on
which the Commitments are terminated pursuant to SECTION 9.4 hereof or (c)
the date on which the Commitments are reduced to zero pursuant to SECTION 4.3
or 4.4 hereof.
Section 1.2 COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of a period of time from a specified date to a later specified
date, unless otherwise stated the word "from" means "from and including" and
the word "to" or "until" each means "to but excluding."
Section 1.3 OTHER DEFINITIONAL TERMS. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of
this Agreement. References to Sections, Exhibits, schedules and like
references are to this Agreement unless otherwise expressly provided.
ARTICLE II TERMS OF LENDING
Section 2.1 THE COMMITMENTS. Subject to the terms and conditions
hereof and in reliance upon the warranties of the Borrower herein, each Bank
agrees, severally and not jointly, to make loans (each, a "Loan" and,
collectively, the "Loans") to the Borrower from time to time from the date
hereof until the Termination Date, during which period the Borrower may repay
and reborrow in accordance with the provisions hereof, provided, that the
aggregate unpaid principal amount of the Loans of any Bank at any one time
6
<PAGE>
outstanding shall not exceed its Commitment. The Loans shall be made by the
Banks on a pro rata basis, calculated for each Bank based on its Percentage.
Section 2.2 ADVANCE OPTIONS. The Loan shall be constituted of Daily
Pricing Advances, Eurodollar Advances and Reference Rate Advances, as shall
be selected by the Borrower, except as otherwise provided herein. Any
combination of types of Advances may be outstanding at the same time, except
that the total number of outstanding Daily Pricing Advances and Eurodollar
Advances shall not exceed 6 at any one time. Each Eurodollar Advance shall be
in a minimum amount of $500,000 or in an integral multiple of $100,000 above
such amount. Each Daily Pricing Advance and Reference Rate Advance shall be
in an amount that is an integral multiple of $100,000. The Loans may not be
made as, or converted into or continued as, Daily Pricing Advances after
September 30, 1999.
Section 2.3 BORROWING PROCEDURES.
(a) REQUEST BY BORROWER. Any request by the Borrower for a Loan shall be
in writing, or by telephone promptly confirmed in writing, and must be
given so as to be received by the Agent not later than:
(i) 10:00 a.m., Minneapolis time, on the date of the requested
Loan, if the Loan shall be comprised of Daily Pricing Advances or
Reference Rate Advances; or
(ii) 12:00 noon, Minneapolis time, three Business days prior to the
date of the requested Loan, if the Loan shall be, or shall include, a
Eurodollar Advance.
Each request for a Loan shall specify (1) the borrowing date (which shall
be a Business Day), (2) the amount of such Loan and the type or types of
Advances comprising such Loan, and (3) if such Loan shall include
Eurodollar Advances, the initial Interest Periods for such Advances.
(b) FUNDING OF AGENT. The Agent shall promptly notify each other Bank of
the receipt of such request, the matters specified therein, and of such
Bank's Percentage of the requested Loans. On the date of the requested
Loans, each Bank shall provide its share of the requested Loans to the
Agent in immediately available funds not later than 11:00 a.m.,
Minneapolis time. Unless the Agent determines that any applicable
condition specified in ARTICLE VI has not been satisfied, the Agent will
make the requested Loans available to the Borrower at the Agent's
principal office in Minneapolis, Minnesota in immediately available funds
not later than 5:00 p.m. (Minneapolis time) on the lending date so
requested. If the Agent has made a Loan to the Borrower on behalf of a
Bank but has not received the amount of such Loan from such Bank by the
time herein required, such Bank shall pay interest to the Agent on the
amount so advanced at the overnight Federal Funds rate from the date of
such Loan to the date funds are received by the Agent from such Bank, such
interest to be payable with such remittance from such Bank of the
principal amount of such Loan (provided, however, that the Agent shall not
make any Loan on behalf of a Bank if the Agent has received prior notice
from such Bank that it will not make
7
<PAGE>
such Loan). If the Agent does not receive payment from such Bank by the
next Business Day after the date of any Loan, the Agent shall be entitled
to recover such Loan, with interest thereon at the rate then applicable to
the such Loan, on demand, from the Borrower, without prejudice to the
Agent's and the Borrower's rights against such Bank. If such Bank pays the
Agent the amount herein required with interest at the overnight rate
before the Agent has recovered from the Borrower, such Bank shall be
entitled to the interest payable by the Borrower with respect to the Loan
in question accruing from the date the Agent made such Loan.
2.4 CONTINUATION OR CONVERSION OF LOANS. The Borrower may elect to (i)
continue any outstanding Eurodollar Advance from one Interest Period into a
subsequent Interest Period to begin on the last day of the earlier Interest
Period, or (ii) convert any outstanding Advance into another type of Advance
(on the last day of an Interest Period only, in the instance of a Eurodollar
Advance), by giving the Agent notice in writing, or by telephone promptly
confirmed in writing, given so as to be received by the Agent not later than:
(a) 10:00 a.m., Minneapolis time, on the date of the requested
continuation or conversion, if the continuing or converted Advance shall
be a Daily Pricing Advance or Reference Rate Advance; or
(b) 12:00 noon, Minneapolis time, three Business days prior to the date
of the requested continuation or conversion, if the continuing or
converted Advance shall be a Eurodollar Advance.
Each notice of continuation or conversion of an Advance shall specify (i) the
effective date of the continuation or conversion date (which shall be a
Business Day), (ii) the amount and the type or types of Advances following
such continuation or conversion (subject to the limitation on amount set
forth in SECTION 2.2), and (iii) for continuation as, or conversion into,
Eurodollar Advances, the Interest Periods for such Advances. Absent timely
notice of continuation or conversion, each Eurodollar Advance shall
automatically convert into a Reference Rate Advance on the last day of an
applicable Interest Period, unless paid in full on such last day. No Advance
shall be continued as, or converted into, a Eurodollar Advance if the
shortest Interest Period for such Advance may not transpire prior to the
Termination Date or if a Default or Event of Default shall exist.
Section 2.5 THE NOTES. The Loans of each Bank shall be evidenced by a
promissory note of the Borrower (the "Notes"), substantially in the form of
EXHIBIT A hereto, in the amount of such Bank's Commitment originally in
effect and dated as of the date of this Agreement. The Banks shall enter in
their respective records the amount of each Loan and Advance, the rate of
interest borne by each Advance and the payments made on the Loans, and such
records shall be deemed conclusive evidence of the subject matter thereof,
absent manifest error.
Section 2.6 FUNDING LOSSES. The Borrower will indemnify each Bank upon
demand against any loss or expense which such Bank may sustain or incur
(including, without limitation, any loss or expense sustained or incurred in
obtaining, liquidating or employing deposits or other funds acquired to
effect, fund, or maintain any Advance) as a consequence of (i) any failure of
the Borrower to make any payment when due of any
8
<PAGE>
amount due hereunder or under the Note, (ii) any failure of the Borrower to
borrow, continue or convert an Advance on a date specified therefor in a
notice thereof, or (iii) any payment (including, without limitation, any
payment pursuant to SECTION 4.2, 4.3 or 10.2), prepayment or conversion of
any Eurodollar Advance on a date other than the last day of the Interest
Period for such Advance. Determinations by each Bank for purposes of this
SECTION 2.6 of the amount required to indemnify such Bank shall be conclusive
in the absence of manifest error.
ARTICLE III INTEREST AND FEES
Section 3.1 INTEREST.
(a) EURODOLLAR ADVANCES. The unpaid principal amount of each Eurodollar
Advance shall bear interest prior to maturity at a rate per annum equal
to the Eurodollar Rate (Reserve Adjusted) in effect for each Interest
Period for such Eurodollar Advance plus the higher of (i) the Applicable
Margin PLUS any applicable Interest Step-Ups, or (ii) the Alternative
Applicable Margin.
(b) DAILY PRICING ADVANCES. The unpaid principal amount of each Daily
Pricing Advance shall bear interest prior to maturity at a rate per annum
equal to the Eurodollar Rate (Reserve Adjusted) in effect for each
Business Day plus the higher of (i) the Applicable Margin PLUS any
applicable Interest Step-Ups, or (ii) the Alternative Applicable Margin.
(c) REFERENCE RATE ADVANCES. The unpaid principal amount of each
Reference Rate Advance shall bear interest prior to maturity at a rate per
annum equal to the Reference Rate.
(d) INTEREST AFTER MATURITY. Any amount of the Loans not paid when due,
whether at the date scheduled therefor or earlier upon acceleration, shall
bear interest until paid in full at a rate per annum equal to the greater
of (i) 1.00% in excess of the rate applicable to the unpaid principal
amount immediately before it became due, or (ii) 1.00% in excess of the
Reference Rate in effect from time to time.
Section 3.2 FACILITY FEE. The Borrower shall pay fees (the "Facility
Fees") to the Agent for the account of the Banks in an amount determined by
applying a rate of the Applicable Facility Fee Rate per annum to the average
daily amount of the Commitments of the respective Banks (whether used or
unused) for the period from the date hereof to the Termination Date.
Section 3.3 COMPUTATION. Interest and Facility Fees shall be computed
on the basis of actual days elapsed and a year of 360 days.
Section 3.4 PAYMENT DATES. Accrued interest under SECTION 3.1(a), (b)
and (c) and Facility Fees shall be payable on the applicable Payment Dates.
Accrued interest under SECTION 3.1(d) shall be payable on demand.
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Section 3.5 AGENT'S FEE LETTER. The Borrower shall pay to the Agent
the fees described in a letter dated as of August 13, 1999 by the Agent,
accepted by the Borrower.
ARTICLE IV PAYMENTS, PREPAYMENTS, REDUCTION OR TERMINATION
OF THE CREDIT AND SETOFF
Section 4.1 REPAYMENT. Principal of the Loans, together with all
accrued and unpaid interest thereon, shall be due and payable on the
Termination Date.
Section 4.2 OPTIONAL PREPAYMENTS. The Borrower may prepay the Loans,
in whole or in part, at any time subject to the provisions of SECTION 2.6,
without any other premium or penalty. Any such prepayment must be accompanied
by accrued and unpaid interest on the amount prepaid. Each partial prepayment
shall be in an amount of $500,000 or an integral multiple thereof.
Section 4.3 OPTIONAL REDUCTION OR TERMINATION OF COMMITMENTS. The
Borrower may, at any time, upon no less than 3 Business Days prior written or
telephonic notice received by the Agent, reduce the Commitments of all Banks,
such reduction to be in a minimum amount of $1,000,000 or an integral
multiple thereof and to be applied ratably to the Commitments of the
respective Banks. Upon any reduction in the Commitments pursuant to this
Section, the Borrower shall pay to the Agent for the account of the Banks the
amount, if any, by which the aggregate unpaid principal amount of outstanding
Loans exceeds the total Commitments of all Banks as so reduced. Amounts so
paid cannot be reborrowed. The Borrower may, at any time, upon not less than
3 Business Days prior written notice to the Agent, terminate the Commitments
in their entirety. Upon termination of the Commitments pursuant to this
Section, the Borrower shall pay to the Agent for the account of the Banks the
full amount of all outstanding Loans, all accrued and unpaid interest
thereon, all unpaid Facility Fees accrued to the date of such termination and
all other unpaid obligations of the Borrower to the Banks hereunder. All
payment described in this Section is subject to the provisions of SECTION 2.6.
Section 4.4 MANDATORY REDUCTION OF COMMITMENTS. If the Termination Date
has not occurred sooner, the Commitments shall be reduced by (a) $50,000,000
upon the closing of the New Syndicated Agreement, and (b) $50,000,000 upon the
closing of any New Placement Agreement (provided that any reduction of the
Commitments under SECTION 4.3 shall be applied ratably to reduce the dollar
amounts of such mandatory reductions). Upon any reduction in the Commitments
pursuant to this Section, the Borrower shall pay to the Agent for the account of
the Banks the amount, if any, by which the aggregate unpaid principal amount of
outstanding Loans exceeds the total Commitments of all Banks as so reduced.
Section 4.5 PAYMENTS. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under the
Loan Documents shall be made without set-off or counterclaim in immediately
available funds not later than 2:00 p.m., Minneapolis time, on the dates due
at the main office of the Agent in Minneapolis, Minnesota. Funds received on
any day after such time shall be deemed to have been received on the next
Business Day. The Agent shall promptly distribute in like funds to
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each Bank its Percentage share of each such payment of principal, interest
and Facility Fees. Subject to the definition of the term "Interest Period",
whenever any payment to be made hereunder or on the Notes shall be stated to
be due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day and such extension of time shall be included
in the computation of any interest or fees.
Section 4.6 PRORATION OF PAYMENTS. If any Bank or other holder of a
Loan shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of offset, pursuant to the guaranty hereunder, or
otherwise) on account of principal of, interest on, or fees with respect to
any Loan, or payment of any Letter of Credit Obligations, in any case in
excess of the share of payments and other recoveries of other Banks or
holders, such Bank or other holder shall purchase from the other Banks or
holders, in a manner to be specified by the Agent, such participations in the
Loans held by such other Banks or holders as shall be necessary to cause such
purchasing Bank or other holder to share the excess payment or other recovery
ratably with each of such other Banks or holders; PROVIDED, HOWEVER, that if
all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Bank or holder, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
ARTICLE V ADDITIONAL PROVISIONS RELATING TO LOANS
Section 5.1 INCREASED COSTS. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof, or compliance by the Banks with any
request or directive (whether or not having the force of law) from any court,
central bank, governmental authority, agency or instrumentality, or
comparable agency:
(a) any tax, duty or other charge with respect to any Loan, the Notes
or the Commitments is imposed, modified or deemed applicable, or the
basis of taxation of payments to any Bank of interest or principal of
the Loans or of the Facility Fees (other than taxes imposed on the
overall net income of such Bank by the jurisdiction in which such Bank
has its principal office) is changed;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, any Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected to be
maintained by any Bank or any Person controlling such Bank is imposed,
modified or deemed applicable; or
(d) any other condition affecting this Agreement or the Commitments is
imposed on any Bank or the relevant funding markets;
and such Bank determines that, by reason thereof, the cost to such Bank of
making or maintaining the Loans, issuing or participating in the Letters of
Credit or extending its Commitment is increased, or the amount of any sum
receivable by such Bank hereunder or under the Notes in respect of any Loan
is reduced;
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THEN, the Borrower shall pay to such Bank upon demand such additional amount or
amounts as will compensate such Bank (or the controlling Person in the instance
of (c) above) for such additional costs or reduction (provided that the Banks
have not been compensated for such additional cost or reduction in the
calculation of the Eurodollar Reserve Rate). Determinations by each Banks for
purposes of this SECTION 5.1 of the additional amounts required to compensate
such Bank shall be conclusive in the absence of manifest error. In determining
such amounts, the Banks may use any reasonable averaging, attribution and
allocation methods.
Section 5.2 DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE OR
INADEQUATE; IMPRACTICABILITY. If the Agent determines (which determination
shall be conclusive and binding on the parties hereto) that:
(a) deposits of the necessary amount for the relevant Interest Period
for any Eurodollar Advance are not available in the relevant markets or
that, by reason of circumstances affecting such market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Interbank
Rate for such Interest Period;
(b) the Eurodollar Rate (Reserve Adjusted) will not adequately and
fairly reflect the cost to the Banks of making or funding the Daily
Pricing Advances or the Eurodollar Advance for a relevant Interest
Period; or
(c) the making or funding of the Daily Pricing Advances or the
Eurodollar Advances has become impracticable as a result of any event
occurring after the date of this Agreement which, in the opinion of the
Agent, materially and adversely affects such Advances or any Bank's
Commitment or the relevant market;
the Agent shall promptly give notice of such determination to the Borrower,
and (i) any notice of a new Daily Pricing Advances or Eurodollar Advance
previously given by the Borrower and not yet borrowed or converted shall be
deemed to be a notice to make a Reference Rate Advance, and (ii) the Borrower
shall be obligated to either prepay in full any outstanding Daily Pricing
Advances or Eurodollar Advances, without premium or penalty on the last day
of the current Interest Period with respect thereto or convert any such Daily
Pricing Advances or Eurodollar Advance to a Reference Rate Advance on such
last day.
Section 5.3 CHANGES IN LAW RENDERING EURODOLLAR ADVANCES UNLAWFUL. If
at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration
thereof by any court, central bank, governmental authority, agency or
instrumentality, or comparable agency charged with the interpretation or
administration thereof, or for any other reason arising subsequent to the
date of this Agreement, it shall become unlawful or impossible for any Bank
to make or fund any Daily Pricing Advances or Eurodollar Advance, the
obligation of such Bank to provide such Advance shall, upon the happening of
such event, forthwith be suspended for the duration of such illegality or
impossibility. If any such event shall make it unlawful or impossible for the
Bank to continue any Daily Pricing Advances or Eurodollar Advance previously
made by it hereunder, such Bank shall, upon the happening of such event,
notify the Agent and the Borrower thereof in writing, and the Borrower shall,
at the time notified
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by such Bank, either convert each such unlawful Advance to a Reference Rate
Advance or repay such Advance in full, together with accrued interest
thereon, subject to the provisions of SECTION 2.6.
Section 5.4 DISCRETION OF THE BANKS AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of the
Loans in any manner it elects; it being understood, however, that for
purposes of this Agreement, all determinations hereunder shall be made as if
the Banks had actually funded and maintained each Daily Pricing Advances and
Eurodollar Advance during the Interest Period for such Advance through the
purchase of deposits having a term corresponding to such Interest Period and
bearing an interest rate equal to the Eurodollar Interbank Rate for such
Interest Period (whether or not any Bank shall have granted any
participations in such Advances).
ARTICLE VI CONDITIONS PRECEDENT
Section 6.1 CONDITIONS OF INITIAL LOAN. The obligation of the Banks to
make the initial Loan hereunder shall be subject to the satisfaction of the
conditions precedent, in addition to the applicable conditions precedent set
forth in SECTION 6.2 below, that the Agent shall have received all of the
following, in form and substance satisfactory to the Agent, each duly
executed and certified or dated the date of the initial Loan or such other
date as is satisfactory to the Agent:
(a) The Notes executed by a duly authorized officer (or officers) of
the Borrower.
(b) A certificate or certificates of the Secretary or an Assistant
Secretary of the Borrower, attesting to and attaching (i) a copy of the
corporate resolution of the Borrower authorizing the execution, delivery
and performance of the Loan Documents, (ii) an incumbency certificate
showing the names and titles, and bearing the signatures of, the
officers of the Borrower authorized to execute the Loan Documents, (iii)
a copy of the Articles or Certificate of Incorporation of the Borrower
with all amendments thereto, and (iv) a copy of the By-Laws of the
Borrower with all amendments thereto.
(c) A Certificate of Good Standing for the Borrower in the jurisdiction
of its incorporation, certified by the appropriate governmental
officials.
(d) An opinion of counsel to the Borrower, addressed to the Bank, in
substantially the form of EXHIBIT B.
Section 6.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Banks to make any Loan hereunder (including the initial Loan) shall be subject
to the satisfaction of the following conditions precedent (and any request for a
Loan shall be deemed a representation and warranty by the Borrower that the
following have been satisfied):
(a) Before and after giving effect to such Loan, the representation and
warranties contained in ARTICLE VII shall be true and correct, as though
made on the date of such Loan.
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(b) Before and after giving effect to such Loan, no Default or Event of
Default shall have occurred and be continuing.
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 7.1 MULTI-FACILITY CREDIT AGREEMENT. To induce the Agent and
the Banks to enter into this Agreement, to grant the Commitments and to make
Loans hereunder, the hereby makes the representations and warranties contained
in ARTICLE XI of the Multi-Facility Credit Agreement, which provisions, together
with the related definitions, as in effect on the date hereof are hereby
incorporated herein by reference (MUTATIS MUTANDIS) for the benefit of the Agent
and the Banks hereunder and shall continue for the purposes of this Article VII
regardless of the termination of the Multi-Facility Credit Agreement or the
Agent's participation therein; PROVIDED that (a) the date "December 31, 1995"
contained in Section 11.4 of the Multi-Facility Credit Agreement shall be deemed
to mean "December 31, 1998"; (b) references in ARTICLE XI of the Multi-Facility
Credit Agreement to the (i) "Agreement" and "Loan Documents," (ii) "Banks,"
(iii) "Loans" and (iv) "Administrative Agent" shall be deemed to mean this
Agreement, the Loan Documents as defined hereunder, the Banks, the Agent and the
Loans, each hereunder, respectively; and (c) all amendments to the
Multi-Facility Credit Agreement before or after the date hereof shall be given
effect of purposes of this Article VII.
Section 7.2 NEW SYNDICATED AGREEMENT. Upon the closing of the New
Syndicated Agreement, if the Commitment or Loans remain outstanding hereunder,
the Agent, upon direction of the Required Banks given at their discretion, may
elect to have the representations and warranties set forth in the New Syndicated
Agreement incorporated into this Agreement in place of those of the
Multi-Facility Credit Agreement incorporated as provided in SECTION 7.1 above,
and the Agent shall give notice to the Borrower of such election, together with
any conforming drafting provisions reasonably necessary for such incorporation.
Section 7.3 ADDITIONAL REPRESENTATION. The Borrower hereby makes the
following additional representation, which shall be deemed an representation
under such Article XI for purpose of the references thereto in Article X hereof:
The Borrower is in the process of reviewing its operations and
those of its Subsidiaries and has requested from third parties with
which the Borrower of any of its Subsidiaries has a material
relationship a certification of compliance, in order to evaluate the
extent to which the business or operations of the Borrower and its
Subsidiaries will be affected by the Year 2000 problem. As a result of
such review, the Borrower has no reason to believe and does not believe
that the Year 2000 problem will have a material adverse effect on the
business, consolidated financial position, stockholders' equity or
results of operations of the Borrower and its Subsidiaries, taken as a
whole.
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ARTICLE VIII COVENANTS
Section 8.1 MULTI-FACILITY CREDIT AGREEMENT. So long as this Agreement
shall remain in effect and until the Commitments have been terminated and all
amounts owing hereunder shall have been paid in full, the Borrower shall
comply with and be bound by the covenants contained in ARTICLE XII of the
Multi-Facility Credit Agreement and will provide all of the information and
notice required by such Article, which provisions, together with the related
definitions, as in effect on the date hereof are hereby incorporated herein
by reference (MUTATIS MUTANDIS) for the benefit of the Agent and the Banks
hereunder and shall continue for the purposes of this Article VIII regardless
of the termination of the Multi-Facility Credit Agreement or the Agent's
participation therein; PROVIDED, that (i) references to the "Agent," "Banks"
or the "Required Banks" shall be deemed to mean the Agent, Banks and Required
Banks, hereunder; and (ii) references to "Default" or "Event of Default"
shall be deemed to mean a Default or Event of Default hereunder; and (ii) all
amendments to the Multi-Facility Credit Agreement before or after the date
hereof shall be given effect of purposes of this Article VIII.
Section 8.2 NEW SYNDICATED AGREEMENT. Upon the closing of the New
Syndicated Agreement, if the Commitment or Loans remain outstanding
hereunder, the Agent, upon direction of the Required Banks given at their
discretion, may elect to have the covenants set forth in the New Syndicated
Agreement incorporated into this Agreement in place of those of the
Multi-Facility Credit Agreement incorporated as provided in SECTION 8.1
above, and the Agent shall give notice to the Borrower of such election,
together with any conforming drafting provisions reasonably necessary for
such incorporation.
Section 8.3 INFORMATION. The Borrower has also agreed to provide to
the Agent all information required by the Agent to determine the Applicable
Margin and Alternative Applicable Margin, certified by the appropriate
officer of the Borrower if so requested by the Bank.
ARTICLE IX EVENTS OF DEFAULT
Section 9.1 MULTI-FACILITY CREDIT AGREEMENT. If any of the events
described in ARTICLE XIII of the Multi-Facility Credit Agreement (each an
"EVENT OF DEFAULT") (which provisions, together with the related definitions,
as in effect on the date hereof are hereby incorporated herein by reference
(MUTATIS MUTANDIS) for the benefit of the Banks and the Agent hereunder and
shall continue for the purposes of this Article IX regardless of the
termination of the Multi-Facility Credit Agreement or the Agent's
participation therein, or any amendment of, or any consent to any deviation
from or other modification of, the Multi-Facility Credit Agreement; PROVIDED
that (a) references to (i) any "document delivered pursuant to this
Agreement," (ii) "Loan" or (iii) "Fee" shall be deemed to mean this
Agreement, the Loan Documents as defined hereunder, the Loans hereunder and
the Facility Fee hereunder, respectively; (b) references to Sections in
ARTICLE XIII shall be deemed to be references to such clauses as incorporated
herein by reference; and (c) all amendments to the Multi-Facility Credit
Agreement before or after the date hereof shall be given effect of purposes
of this Article IX.
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Section 9.2 NEW SYNDICATED AGREEMENT. Upon the closing of the New
Syndicated Agreement, if the Commitment or Loans remain outstanding
hereunder, the Agent, upon direction of the Required Banks given at their
discretion, may elect to have the events of default set forth in the New
Syndicated Agreement incorporated into this Agreement in place of those of
the Multi-Facility Credit Agreement incorporated as provided in SECTION 9.1
above, and the Agent shall give notice to the Borrower of such election,
together with any conforming drafting provisions reasonably necessary for
such incorporation.
Section 9.3 EXISTING CREDIT AGREEMENT. Any Event of Default under the
Existing Credit Agreement shall constitute an Event of Default hereunder.
Section 9.4 REMEDIES. If (a) any Event of Default under which
termination of the relevant commitments and acceleration of loans occurs
automatically without notice (for example, an Event of Default under SECTIONS
13.1(2) of the Multi-Facility Credit Agreement) shall occur, the Commitments
shall automatically terminate and the outstanding unpaid principal balance of
the Notes, the accrued interest thereon and all other obligations of the
Borrower to the Banks and the Agent under the Loan Documents shall
automatically become immediately due and payable; or (b) any other Event of
Default shall occur and be continuing, then the Agent may take any or all of
the following actions (and shall take any or all of the following actions on
direction of the Required Banks): (i) declare the Commitments terminated,
whereupon the Commitments shall terminate, (ii) declare that the outstanding
unpaid principal balance of the Notes, the accrued and unpaid interest
thereon and all other obligations of the Borrower to the Banks and the Agent
under the Loan Documents to be forthwith due and payable, whereupon the
Notes, all accrued and unpaid interest thereon and all such obligations shall
immediately become due and payable, in each case without demand or notice of
any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding, (iii) exercise all
rights and remedies under any other instrument, document or agreement between
the Borrower and the Agent or the Banks, and (iv) enforce all rights and
remedies under any applicable law.
In addition to the remedies set forth in the foregoing paragraph, upon
the occurrence of any Event of Default or at any time thereafter while such
Event of Default continues, each Bank or any other holder of the Note may
offset any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or monies of the Borrower then or
thereafter with such Bank or such other holder, or any obligations of such
Bank or such other holder of the Note, against the Indebtedness then owed by
the Borrower to such Bank.
ARTICLE X THE AGENT
Section 10.1 APPOINTMENT AND GRANT OF AUTHORITY. Each Bank hereby
appoints the Agent, and the Agent hereby agrees to act, as agent under this
Agreement. The Agent shall have and may exercise such powers under this
Agreement as are specifically delegated to the Agent by the terms hereof and
thereof, together with such other powers as are reasonably
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incidental thereto. Each Bank hereby authorizes, consents to, and directs the
Borrower to deal with the Agent as the true and lawful agent of such Bank to
the extent set forth herein.
Section 10.2 NON RELIANCE ON AGENT. Each Bank agrees that it has,
independently and without reliance on the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of the Borrower and decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking
action under this Agreement. The Agent shall not be required to keep informed
as to the performance or observance by the Borrower of this Agreement and the
Loan Documents or to inspect the properties or books of the Borrower. Except
for notices, reports and other documents and information expressly required
to be furnished to the Banks by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Borrower (or any of its related companies) which may come into the Agent's
possession.
Section 10.3 RESPONSIBILITY OF THE AGENT AND OTHER MATTERS.
(a) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and those duties and liabilities
shall be subject to the limitations and qualifications set forth in this
Section. The duties of the Agent shall be mechanical and administrative
in nature.
(b) Neither the Agent nor any of its directors, officers or employees
shall be liable for any action taken or omitted (whether or not such
action taken or omitted is within or without the Agent's
responsibilities and duties expressly set forth in this Agreement) under
or in connection with this Agreement, or any other instrument or
document in connection herewith, except for gross negligence or willful
misconduct. Without limiting the foregoing, neither the Agent nor any of
its directors, officers or employees shall be responsible for, or have
any duty to examine:
(i) the genuineness, execution, validity, effectiveness,
enforceability, value or sufficiency of (a) this Agreement, or the
Notes, or (b) any document or instrument furnished pursuant to or
in connection with this Agreement or the Notes;
(ii) the collectibility of any amounts owed by the Borrower;
(iii) any recitals or statements or representations or warranties
in connection with this Agreement or the Notes;
(iv) any failure of any party to this Agreement to receive any
communication sent; or
(v) the assets, liabilities, financial condition, results of
operations, business or creditworthiness of the Borrower.
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(c) The Agent shall be entitled to act, and shall be fully protected in
acting upon, any communication in whatever form believed by the Agent in
good faith to be genuine and correct and to have been signed or sent or
made by a proper person or persons or entity. The Agent may consult
counsel and shall be entitled to act, and shall be fully protected
in-any action taken in good faith, in accordance with advice given by
counsel. The Agent may employ agents and attorneys-in-fact and shall not
be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by the Agent with reasonable care. The Agent
shall not be bound to ascertain or inquire as to the performance or
observance of any of the terms, provisions or conditions of this
Agreement or the Notes on the Borrower's part.
Section 10.4 ACTION ON INSTRUCTIONS. The Agent shall be entitled to
act or refrain from acting, and in all cases shall be fully protected in
acting or refraining from acting under this Agreement or the Notes or any
other instrument or document in connection herewith or therewith in
accordance with instructions in writing from (i) the Required Banks except
for instructions which under the express provisions hereof must be received
by the Agent from all the Banks, and (ii) in the case of such instructions,
from all the Banks.
Section 10.5 INDEMNIFICATION. To the extent the Borrower does not
reimburse and save the Agent harmless according to the terms hereof for and
from all costs, expenses and disbursements in connection herewith or with the
other Loan Documents, such costs, expenses and disbursements to the extent
reasonable shall be borne by the Banks ratably in accordance with their
Percentages and the Banks hereby agree on such basis (a) to reimburse the
Agent for all such reasonable costs, expenses and disbursements on request
and (b) to indemnify and save harmless the Agent against and from any and all
losses, obligations, penalties, actions, judgments and suits and other
reasonable costs, expenses and disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Agent, other
than as a consequence of actual gross negligence or willful misconduct on the
part of the Agent, arising out of or in connection with this Agreement or the
Notes or any instrument or document in connection herewith or therewith, or
any request of the Banks, including without limitation the reasonable costs,
expenses and disbursements in connection with defending itself against any
claim or liability, or answering any subpoena, related to the exercise or
performance of any of its powers or duties under this Agreement or the other
Loan Documents or the taking of any action under or in connection with this
Agreement or the Notes.
Section 10.6 U.S. BANK NATIONAL ASSOCIATION AND AFFILIATES. With
respect to U.S. Bank National Association's Commitment and any Loans by U.S.
Bank National Association under this Agreement and any Note and any interest
of U.S. Bank National Association in any Note, U.S. Bank National Association
shall have the same rights, powers and duties under this Agreement and such
Note as any other Bank and may exercise the same as though it were not the
Agent. U.S. Bank National Association and its affiliates may accept deposits
from, lend money to, and generally engage, and continue to engage, in any
kind of business with the Borrower as if U.S. Bank National Association were
not the Agent.
Section 10.7 NOTICE TO HOLDER OF NOTES. The Agent may deem and treat
the payees of the Notes as the owners thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof has been filed
with the Agent. Any request, authority or
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consent of any holder of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note.
Section 10.8 SUCCESSOR AGENT. The Agent may resign at any time by
giving at least 30 days written notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint
a successor Agent. If no successor Agent shall have been appointed by the
Required Banks and shall have accepted such appointment within 30 days after
the retiring Agent's giving notice of resignation, then the retiring Agent
may, but shall not be required to, on behalf of the Banks, appoint a
successor Agent.
ARTICLE XI MISCELLANEOUS
Section 11.1 NO WAIVER AND AMENDMENT. No failure on the part of the
Banks or the holder of the Notes to exercise and no delay in exercising any
power or right hereunder or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. The remedies herein and in any other instrument,
document or agreement delivered or to be delivered to the Banks hereunder or
in connection herewith are cumulative and not exclusive of any remedies
provided by law. No notice to or demand on the Borrower not required
hereunder or under the Notes shall in any event entitle the Borrower to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of the Banks or the holder of the Notes to
any other or further action in any circumstances without notice or demand.
Section 11.2 AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and
signed by the Borrower and the Agent upon direction of the required Banks and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; PROVIDED, HOWEVER, that no
amendment, waiver or consent shall, unless agreed to by the Agent and all of
the Banks:
(a) increase the amounts of or extend the terms of the Commitments or
subject the Banks to any additional obligations;
(b) reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder;
(c) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder;
(d) change the definition of Required Banks or amend this SECTION 11.2
PROVIDED, FURTHER that amendments, waivers or consents affecting the rights
of the Agent shall also require the consent of the Agent.
Section 11.3 ASSIGNMENTS AND PARTICIPATIONS.
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<PAGE>
(a) ASSIGNMENTS. Each Bank shall have the right, subject to the
further provisions of this SECTIONS 11.3, to sell or assign all or any
part of its Commitments, Loans, Notes, and other rights and obligations
under this Agreement and related documents (such transfer, and
"Assignment") to any commercial lender, other financial institution or
other entity (an "Assignee"). Upon such Assignment becoming effective as
provided in SECTION 11.3(b), the assigning Bank shall be relieved from
the portion of its Commitment, obligations to indemnify the Agent and
other obligations hereunder to the extent assumed and undertaken by the
Assignee, and to such extent the Assignee shall have the rights and
obligations of a "Bank" hereunder. Notwithstanding the foregoing, unless
otherwise consented to by the Borrower and the Agent, each Assignment
shall be in the initial principal amount of not less than $5,000,000 in
the aggregate for all Loans and Commitments assigned, or an integral
multiple of $1,000,000 if above such amount. Each Assignment shall be
documented by an agreement between the assigning Bank and the Assignee
(an "Assignment and Assumption Agreement") in form and substance
satisfactory to the Agent.
(b) EFFECTIVENESS OF ASSIGNMENTS. An Assignment shall become effective
hereunder when all of the following shall have occurred: (i) the Agent
and the Borrower shall have been given notice of the Assignment and
shall have given prior written consent to such Assignment, unless the
Assignee is already a Bank under this Agreement, provided, that consent
by the Borrower shall not be unreasonably withheld and that the
Borrower's consent shall not be required if an Event of Default shall
have occurred and continued hereunder, (ii) either the assigning Bank or
the Assignee shall have paid a processing fee of $3,500 to the Agent for
its own account, (iii) the Assignee shall have submitted the assignment
document in form satisfactory to the Agent, in which the Assignee shall
have agreed in writing to have irrevocably assumed and undertaken the
transferred portion of the assigning Bank's obligations hereunder
(including without limitation the obligations to indemnify the Agent
hereunder), to the Agent with a copy for the Borrower, and shall have
provided to the Agent information the Agent shall have reasonably
requested to make payments to the Assignee, and (iv) the assigning Bank
and the Agent shall have agreed upon a date upon which the Assignment
shall become effective. Upon the Assignment becoming effective, (x) if
requested by the assigning Bank, the Agent and the Borrower shall make
appropriate arrangements so that new Notes are issued to the assigning
Bank and the Assignee; and (y) the Agent shall forward all payments of
interest, principal, fees and other amounts that would have been made to
the assigning Bank, in proportion to the percentage of the assigning
Bank's rights transferred, to the Assignee.
(c) PARTICIPATIONS. Each Bank shall have the right, subject to the
further provisions of this SECTION 11.3, to grant or sell a
participation in all or any part of its Loans, Notes and Commitments (a
"Participation") to any commercial lender, other financial institution
or other entity (a "Participant") without the consent of the Borrower,
the Agent of any other party hereto. The Borrower agrees that if amounts
outstanding under this agreement and the Notes are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to
have the right of setoff in respect of its
20
<PAGE>
Participation in amounts owing under this Agreement and any Note to the
same extent as if the amount of its Participation were owing directly to
it as a Bank under this agreement or any note; provided, that such right
of setoff shall be subject to the obligation of such Participant to
share with the Banks, and the Banks agree to share with such
Participant, as provided in SECTION 4.5 hereof. The Borrower also agrees
that each Participant shall be entitled to the benefits of ARTICLE V
with respect to its Participation, provided, that no Participant shall
be entitled to receive any greater amount pursuant to such Sections than
the transferor Bank would have been entitled to receive in respect of
the amount of the Participation transferred by such transferor Bank to
such Participant had no such transfer occurred.
(d) LIMITATION OF RIGHTS OF ANY ASSIGNEE OR PARTICIPANT.
Notwithstanding anything in the foregoing to the contrary, except in the
instance of an Assignment that has become effective as provided in
SECTION 11.3(b), (i) no Assignee or Participant shall have any direct
rights hereunder, (ii) the Borrower, the Agent and the Banks other than
the assigning or selling Bank shall deal solely with the assigning or
selling Bank and shall not be obligated to extend any rights or make any
payment to, or seek any consent of, the Assignee or Participant, (iii)
no Assignment or Participation shall relieve the assigning or selling
Bank from its Commitment to make Loans hereunder or any of its other
obligations hereunder and such Bank shall remain solely responsible for
the performance hereof, the (iv) no Assignee or Participant, other than
an affiliate of the assigning or selling Bank, shall be entitled to
require such Bank to take or omit to take any action hereunder, except
that such Bank may agree with such Assignee or Participant that such
Bank will not, without such Assignee's or Participant's consent, take
any action which would, in the case of any principal, interest or fee in
which the Assignee or Participant has an ownership or beneficial
interest: (w) extend the final maturity of any Loans or extend the
Termination Date, (x) reduce the interest rate on the Loans or the rate
of Facility Fees, (y) forgive any principal of, or interest on, the
Loans or any fees, or (z) release all or substantially all of the
Collateral for the Loans.
(e) TAX MATTERS. No Bank shall be permitted to enter into any
Assignment or Participation with any Assignee or Participant who is not
a United States Person unless such Assignee or Participant represents
and warrants to such Bank that, as at the date of such Assignment or
Participation, it is entitled to receive interest payments without
withholding or deduction of any taxes and such Assignee or Participant
executes and delivers to such Bank on or before the date of execution
and delivery of documentation of such Participation or Assignment, a
United States Internal Revenue Service Form 1001 or 4224, or any
successor to either of such forms, as appropriate, properly completed an
claiming complete exemption from withholding and deduction of all
Federal Income Taxes. A "United States Person" means any citizen,
national or resident of the United States, any corporation or other
entity created or organized in or under the laws of the United States or
any political subdivision hereof or any estate or trust, in each case
that is not subject to withholding of United States Federal income taxes
or other taxes on payment of interest, principal of fees hereunder.
21
<PAGE>
(f) INFORMATION. Each Bank may furnish any information concerning the
Borrower in the possession of such Bank from time to time to Assignees
and Participants and potential Assignees and Participants.
(g) FEDERAL RESERVE BANK. Nothing herein stated shall limit the right
of any Bank to assign any interest herein and in any Note to a Federal
Reserve Bank.
Section 11.4 COSTS, EXPENSES AND TAXES. The Borrower agrees, whether
or not any Loan is made hereunder, to pay on demand (without duplication) all
costs and expenses of the following persons (including the reasonable fees
and expenses of counsel and paralegals for such persons who may be employees
of such persons), incurred in connection with the following matters: (i) the
Agent in connection with the preparation, execution and delivery of the Loan
Documents and the preparation, negotiation and execution of any and all
amendments to each thereof and (ii) the Agent and the Banks in connection
with the enforcement of the Loan Documents. The Borrower agrees to pay, and
save the Banks harmless from all liability for, any stamp or other taxes
which may be payable with respect to the execution or delivery of the Loan
Documents. The Borrower agrees to indemnify and hold the Banks harmless from
any loss or expense which may arise or be created by the acceptance of
telephonic or other instructions for making Loans or disbursing the proceeds
thereof. The obligations of the Borrower under this SECTION 11.4 shall
survive any termination of this Agreement.
Section 11.5 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party
in connection with this Agreement shall be in writing and shall be sent by
manual delivery, telegram, telex, facsimile transmission, overnight courier
or United States mail (postage prepaid) addressed to such party at the
address specified on the signature page hereof, or at such other address as
such party shall have specified to the other party hereto in writing. All
periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by telegram,
telex or facsimile transmission, from the first Business Day after the date
of sending if sent by overnight courier, or from four days after the date of
mailing if mailed; PROVIDED, HOWEVER, that any notice to the Agent under
ARTICLE II hereof shall be deemed to have been given only when received by
the Agent.
Section 11.6 SUCCESSORS. This Agreement shall be binding upon the
Borrower, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Borrower, the Banks and the
Agent and the successors and assigns of the Banks. The Borrower shall not
assign its rights or duties hereunder without the written consent of the
Banks.
Section 11.7 SEVERABILITY. Any provision of the Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 11.8 SUBSIDIARY REFERENCES. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Borrower
has one or more Subsidiaries.
22
<PAGE>
Section 11.9 CAPTIONS. The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 11.10 ENTIRE AGREEMENT. The Loan Documents embody the entire
agreement and understanding between the Borrower, the Banks and the Agent
with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 11.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument, and either of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 11.12 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.
Section 11.13 CONSENT TO JURISDICTION. AT THE OPTION OF THE BANKS,
THIS AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES
ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE
BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT
OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, THE BANKS AT ITS OPTION SHALL BE ENTITLED TO HAVE
THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED,
OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH
CASE DISMISSED WITHOUT PREJUDICE.
Section 11.14 WAIVER OF JURY TRIAL. THE BORROWER, THE BANKS AND THE
AGENT EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above.
PENTAIR, INC.
By: /s/ Richard W. Ingman
------------------------------------
Title: CFO
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial Officer
Telecopy: (651) 639-5209
Telephone: (651) 636-7920
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olmon
------------------------------------
Title: Senior Vice President
601 2nd Ave. S.
Minneapolis, MN 55402-4302
Attention: Mark R. Olmon
Telephone: (612) 973-1085
Fax: (612) 973-0825
24
<PAGE>
Execution Copy
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of November 15, 1996
as amended and restated as of August 13, 1999
between
PENTAIR, INC.,
and
U.S. BANK NATIONAL ASSOCIATION,
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 15, 1996, as amended and
restated as of August 13, 1999, is by and between PENTAIR, INC., a Minnesota
corporation (the "Borrower") and U.S. BANK NATIONAL ASSOCIATION, a national
banking association, formerly known as First Bank National Association (the
"Bank").
Preliminary Statement
The Borrower and the Bank have entered into a Credit Agreement, dated as
of November 15, 1996, and desire to amend the Credit Agreement. For the
convenience of the parties, the Borrower and the Bank have agreed to restate
the Credit Agreement in its entirety in the form of this Agreement.
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the following respective
meanings (and such meanings shall be equally applicable to both the singular
and plural form of the terms defined, as the context may require):
"ADVANCE": The portion of the outstanding Loans bearing interest at an
identical rate for an identical Interest Period, provided that all Reference
Rate Advances shall be deemed a single Advance. An Advance may be a "Daily
Pricing Advance", "Eurodollar Advance", or "Reference Rate Advance" (each, a
"type" of Advance).
"AGREEMENT": This Credit Agreement, as it may be amended, modified,
supplemented, restated or replaced from time to time.
"APPLICABLE MARGIN" and "APPLICABLE FACILITY FEE RATE": The following
percentages when the following Levels apply:
<TABLE>
<CAPTION>
Percentage for Percentage for Applicable
Applicable Level: Applicable Margin: Facility Fee Rate:
----------------- ------------------ -------------------------
<S> <C> <C>
Level I 0.375% 0.125%
Level II 0.475% 0.150%
Level III 0.575% 0.175%
Level IV 0.6875% 0.1875%
Level V 0.80% 0.20%
Level VI 1.025% 0.225%
Level VII 1.225% 0.275%
</TABLE>
<PAGE>
The applicable level shall be determined as follows:
LEVEL I shall apply if the Borrower's Long Term Debt Rating is A- or better
(S&P) and A3 or better (Moody's).
LEVEL II shall apply if the Borrower's Long Term Debt Rating is BBB+ or
better (S&P) and Baa1 or better (Moody's) but no numerically lower Level
applies.
LEVEL III shall apply if the Borrower's Long Term Debt Rating is BBB or
better (S&P) and Baa2 or better (Moody's) but no numerically lower Level
applies.
LEVEL IV shall apply if the Borrower's Long Term Debt Rating is BBB or
better (S&P) and Baa3 or better (Moody's) OR if the Borrower's Long Term
Debt Rating is BBB- or better (S&P) and Baa2 or better (Moody's) but no
numerically lower Level applies.
LEVEL V shall apply if the Borrower's Long Term Debt Rating is BBB- or
better (S&P) and Baa3 or better (Moody's) but no numerically lower Level
applies.
LEVEL VI shall apply if the Borrower's Long Term Debt Rating is BB+ or
better (S&P) and Ba1 or better (Moody's) but no numerically lower Level
applies.
LEVEL VII shall apply if no other level shall apply.
As used herein:
"LONG TERM DEBT RATING" means the rating assigned by S&P and Moody's to the
long term, unsecured, senior indebtedness of the Borrower.
"MOODY'S" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group.
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which national banks are permitted to be open
in Minneapolis, Minnesota and, with respect to Eurodollar Advances, a day on
which dealings in Dollars may be carried on by the Bank in the interbank
eurodollar market.
"COMMITMENT": The maximum unpaid principal amount of the Loans of the
Bank which may from time to time be outstanding hereunder, being initially
$25,000,000, as the same may be reduced from time to time pursuant to SECTION
4.3, or, if so indicated, the maximum unpaid principal amount of Loans of the
Bank and, as the context may require, the agreement of the Bank to make Loans
to the Borrower subject to the terms and conditions of this Agreement up to
its Commitment.
"DAILY PRICING ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
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<PAGE>
"DEFAULT": Any event which, with the giving of notice to the Borrower
or lapse of time, or both, would constitute an Event of Default.
"EURODOLLAR ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
"EURODOLLAR INTERBANK RATE": The offered rate for deposits in United
States Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%),
for delivery of such deposits on the first day of an Interest Period of a
Eurodollar Advance, for the number of days comprised therein, or for Daily
Pricing Advances an Interest Period of one month, which appears on Page 3750
of the Dow Jones Markets (Telerate) screen as of 11:00 a.m., London time, on
the day that is two Banking Days preceding the first day of the Interest
Period of such Eurodollar Advance (or in the case of Daily Pricing Advances,
on each Business Day, without giving effect to the two-day forward
convention), or the rate for such deposits determined by the Bank at such
time based on such other published service of general application as shall be
selected by the Bank for such purpose; PROVIDED, that in lieu of determining
the rate in the foregoing manner, the Bank may determine the rate based on
rates offered to the Bank for deposits in United States Dollars (rounded
upwards, if necessary, to the nearest 1/16 of 1%) in the interbank eurodollar
market at such time for delivery on the first day of the Interest Period for
the number of days comprised therein.
"EURODOLLAR RATE (RESERVE ADJUSTED)": A rate per annum (rounded upward,
if necessary, to the nearest 1/16th of 1%) calculated for the Interest Period
of a Eurodollar Advance (or in the case of Daily Pricing Advances, determined
on each Business Day, which rate shall apply until the next-following
Business Day) in accordance with the following formula:
ERRA = Eurodollar Interbank Rate
-------------------------
1.00 - ERR
In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Bank
for the applicable Interest Period. The Bank's determination of all such
rates for any Interest Period shall be conclusive in the absence of manifest
error.
"EURODOLLAR RESERVE RATE": A percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), as
specified under Regulation D of the Federal Reserve Board, or any other
applicable regulation that prescribes reserve requirements applicable to
Eurocurrency liabilities (as presently defined in Regulation D) or applicable
to extensions of credit by the Bank the rate of interest on which is
determined with regard to rates applicable to Eurocurrency liabilities.
Without limiting the generality of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any reserves required to be maintained by the Bank
against (i) any category of liabilities that includes deposits by reference
to which the Eurodollar Interbank Rate is to be determined, or (ii) any
category of extensions of credit or other assets that includes Eurodollar
Advances.
"EVENT OF DEFAULT": Any event described in ARTICLE X.
3
<PAGE>
"FEDERAL RESERVE BOARD": The Board of Governors of the Federal Reserve
System or an successor thereto.
"INTEREST PERIOD" Either (a) for any Eurodollar Advance, the period
commencing on the borrowing date of such Eurodollar Advance or the date a
Reference Rate Advance is converted into such Eurodollar Advance, or the last
day of the preceding Interest Period for such Eurodollar Advance, as the case
may be, and ending on the numerically corresponding day one, two or three
months thereafter, as selected by the Borrower pursuant to SECTION 2.3 or
SECTION 2.4; PROVIDED, that:
(i) any Interest Period which would otherwise end on a day which is not
a Business Day shall end on the next succeeding Business Day unless such
next succeeding Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Termination Date; or
(b) for each Daily Pricing Advance, a period lasting until the
next-following Business Day (provided, that the Eurodollar Interbank Rate
shall be determined based on an interest period of one month, as provided in
the definition thereof).
"INTEREST STEP-UPS": The following percentages, added as provided in
the definition of Applicable Margin, if the following events apply:
<TABLE>
<CAPTION>
EVENT: Amount of Interest
Step-Up:
------------------
<S> <C>
(a) If on October 1, 1999, the Commitment
shall be $50,000,000 or less, giving effect
to all reductions under SECTION 4.3: 0.25%
(b) If on October 1, 1999, the Commitment
is more than $50,000,000, giving effect
to all reductions under SECTION 4.3: 0.50%
(c) If the Termination Date has not
occurred on or before December 1, 1999: 1.00%
</TABLE>
The Interest Step-Up under (a) and (b) shall be determined, and if (c)
shall apply, the Interest Step-Up under (c) shall be added to that determined
under (a) or (b) on and after December
4
<PAGE>
1, 1999 (for example, if (a) applied, on and after December 1, 1999, the
total Interest Step-Up added as provided in the definition of Applicable
Margin shall be 1.25%).
"LOAN DOCUMENTS": This Agreement, the Note and each other instrument,
document, guaranty, security agreement, mortgage, or other agreement executed
and delivered by the Borrower or any guarantor or party granting security
interests in connection with this Agreement, the Loans or any collateral for
the Loans.
"MULTI-FACILITY CREDIT AGREEMENT": That certain Amended and Restated
Credit Agreement, dated as of August 1, 1997 (amending and restating the
Multi-Facility Credit Agreement dated as of November 15, 1996), among the
Borrower, certain Subsidiaries of the Borrower, the Agents, and the Banks
listed therein, as the same has been and shall hereafter be amended from time
to time after such date.
"NEW CREDIT AGREEMENT": That certain Revolving Credit Agreement, dated
as of August 13, 1999, as thereafter amended, between the Borrower and U.S.
Bank National Association, as Agent and as sole Bank.
"NEW PLACEMENT AGREEMENT": Any new agreement or agreements entered by
the Borrower after the date hereof under which the Borrower will issue debt
securities with a maturity exceeding one year, common or preferred equity,
equity equivalent securities, convertible debt or other debt securities or
equities.
"NEW SYNDICATED AGREEMENT": Any new credit agreement entered by the
Borrower after the date hereof except for (a) the Other Bridge Loan Agreements,
(b) any agreements pertaining to synthetic lease obligations of the Borrower and
its Subsidiaries, and (c) any agreements pertaining to sale of receivables by
the Borrower and its Subsidiaries.
"OTHER BRIDGE LOAN AGREEMENTS": Other separate credit agreements
between the Borrower and (a) Morgan Guaranty Trust Company to be entered in
August, 1999, (b) Bank of America to be entered in August, 1999, and (c) the
New Credit Agreement, which are anticipated to be replaced by and refunded
from the proceeds of the New Syndicated Agreement or New Placement Agreement.
"PAYMENT DATE": The Termination Date, plus (a) the last day of each
Interest Period for each Eurodollar Advance; and (b) the last day of each
month of each year for each Daily Pricing Advances and Reference Rate Advance
and for any fees including, without limitation, the Facility Fees.
"PERSON": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.
"REFERENCE RATE": The rate of interest from time to time publicly
announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference Rate. For
purposes of determining any interest rate which is based
5
<PAGE>
on the Reference Rate, such interest rate shall change on the effective date
of any change in the Reference Rate.
"REFERENCE RATE ADVANCE": An Advance designated as such in a notice of
borrowing under SECTION 2.3 or a notice of continuation or conversion under
SECTION 2.4.
"SUBSIDIARY": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the
combined voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of directors of
such Person, if it is a corporation, (b) the capital interest or profit
interest of such Person, if it is a partnership, joint venture or similar
entity, or (c) the beneficial interest of such Person, if it is a trust,
association or other unincorporated organization.
"TERMINATION DATE": The earliest of (a) March 30, 2000, (b) the date on
which the Commitments are terminated pursuant to SECTION 9.3 hereof or (c)
the date on which the Commitments are reduced to zero pursuant to SECTION 4.3
or 4.4 hereof.
Section 1.2 COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of a period of time from a specified date to a later specified
date, unless otherwise stated the word "from" means "from and including" and
the word "to" or "until" each means "to but excluding."
Section 1.3 OTHER DEFINITIONAL TERMS. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of
this Agreement. References to Sections, Exhibits, schedules and like
references are to this Agreement unless otherwise expressly provided.
ARTICLE II TERMS OF LENDING
Section 2.1 THE COMMITMENTS. Subject to the terms and conditions
hereof and in reliance upon the warranties of the Borrower herein, the Bank
agrees to make loans (each, a "Loan" and, collectively, the "Loans") to the
Borrower from time to time from the date hereof until the Termination Date,
during which period the Borrower may repay and reborrow in accordance with
the provisions hereof, provided, that the aggregate unpaid principal amount
of the Loans of the Bank at any one time outstanding shall not exceed its
Commitment.
Section 2.2 ADVANCE OPTIONS. The Loan shall be constituted of Daily
Pricing Advances, Eurodollar Advances and Reference Rate Advances, as shall
be selected by the Borrower, except as otherwise provided herein. Any
combination of types of Advances may be outstanding at the same time, except
that the total number of outstanding Daily Pricing Advances and Eurodollar
Advances shall not exceed 6 at any one time. Each Eurodollar Advance shall be
in a minimum amount of $500,000 or in an integral multiple of $100,000 above
such amount. Each Daily Pricing Advance and Reference Rate Advance shall be
in an amount that is an integral multiple of $100,000. The Loans may not be
made as, or converted into or continued as, Daily Pricing Advances after
September 30, 1999.
6
<PAGE>
Section 2.3 BORROWING PROCEDURES. Any request by the Borrower for a
Loan shall be in writing, or by telephone promptly confirmed in writing, and
must be given so as to be received by the Bank not later than:
(a) 10:00 a.m., Minneapolis time, on the date of the requested Loan, if
the Loan shall be comprised of Daily Pricing Advances or Reference Rate
Advances; or
(b) 12:00 noon, Minneapolis time, three Business days prior to the date
of the requested Loan, if the Loan shall be, or shall include, a
Eurodollar Advance.
Each request for a Loan shall specify (1) the borrowing date (which shall be
a Business Day), (2) the amount of such Loan and the type or types of
Advances comprising such Loan, and (3) if such Loan shall include Eurodollar
Advances, the initial Interest Periods for such Advances.
2.4 CONTINUATION OR CONVERSION OF LOANS. The Borrower may elect to (i)
continue any outstanding Eurodollar Advance from one Interest Period into a
subsequent Interest Period to begin on the last day of the earlier Interest
Period, or (ii) convert any outstanding Advance into another type of Advance
(on the last day of an Interest Period only, in the instance of a Eurodollar
Advance), by giving the Agent notice in writing, or by telephone promptly
confirmed in writing, given so as to be received by the Bank not later than:
(a) 10:00 a.m., Minneapolis time, on the date of the requested
continuation or conversion, if the continuing or converted Advance shall
be a Daily Pricing Advance or Reference Rate Advance; or
(b) 12:00 noon, Minneapolis time, three Business days prior to the date
of the requested continuation or conversion, if the continuing or
converted Advance shall be a Eurodollar Advance.
Each notice of continuation or conversion of an Advance shall specify (i) the
effective date of the continuation or conversion date (which shall be a
Business Day), (ii) the amount and the type or types of Advances following
such continuation or conversion (subject to the limitation on amount set
forth in SECTION 2.2), and (iii) for continuation as, or conversion into,
Eurodollar Advances, the Interest Periods for such Advances. Absent timely
notice of continuation or conversion, each Eurodollar Advance shall
automatically convert into a Reference Rate Advance on the last day of an
applicable Interest Period, unless paid in full on such last day. No Advance
shall be continued as, or converted into, a Eurodollar Advance if the
shortest Interest Period for such Advance may not transpire prior to the
Termination Date or if a Default or Event of Default shall exist.
Section 2.5 THE NOTE. The Loans shall be evidenced by a promissory
note of the Borrower (the "Note"), substantially in the form of EXHIBIT A
hereto, in the amount of the Commitment originally in effect and dated as of
the date of this Agreement. The Bank shall enter in its records the amount of
each Loan and Advance, the rate of interest borne by each Advance and the
payments made on the Loans, and such records shall be deemed conclusive
evidence of the subject matter thereof, absent manifest error.
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Section 2.6 FUNDING LOSSES. The Borrower will indemnify the Bank upon
demand against any loss or expense which the Bank may sustain or incur
(including, without limitation, any loss or expense sustained or incurred in
obtaining, liquidating or employing deposits or other funds acquired to
effect, fund, or maintain any Advance) as a consequence of (i) any failure of
the Borrower to make any payment when due of any amount due hereunder or
under the Note, (ii) any failure of the Borrower to borrow, continue or
convert an Advance on a date specified therefor in a notice thereof, or (iii)
any payment (including, without limitation, any payment pursuant to SECTION
4.2, 4.3 or 10.2), prepayment or conversion of any Eurodollar Advance on a
date other than the last day of the Interest Period for such Advance.
Determinations by the Bank for purposes of this SECTION 2.6 of the amount
required to indemnify the Bank shall be conclusive in the absence of manifest
error.
ARTICLE III INTEREST AND FEES
Section 3.1 INTEREST.
(a) EURODOLLAR ADVANCES. The unpaid principal amount of each
Eurodollar Advance shall bear interest prior to maturity at a rate per
annum equal to the Eurodollar Rate (Reserve Adjusted) in effect for each
Interest Period for such Eurodollar Advance PLUS the Applicable Margin
PLUS any applicable Interest Step-Ups.
(b) DAILY PRICING ADVANCES. The unpaid principal amount of each Daily
Pricing Advance shall bear interest prior to maturity at a rate per
annum equal to the Eurodollar Rate (Reserve Adjusted) in effect for each
Business Day PLUS the Applicable Margin PLUS any applicable Interest
Step-Ups.
(c) REFERENCE RATE ADVANCES. The unpaid principal amount of each
Reference Rate Advance shall bear interest prior to maturity at a rate
per annum equal to the Reference Rate.
(d) INTEREST AFTER MATURITY. Any amount of the Loans not paid when
due, whether at the date scheduled therefor or earlier upon
acceleration, shall bear interest until paid in full at a rate per annum
equal to the greater of (i) 1.00% in excess of the rate applicable to
the unpaid principal amount immediately before it became due, or (ii)
1.00% in excess of the Reference Rate in effect from time to time.
Section 3.2 FACILITY FEE. The Borrower shall pay fees (the "Facility
Fees") to the Bank in an amount determined by applying a rate of the
Applicable Facility Fee Rate per annum to the average daily amount of the
Commitment of the Bank (whether used or unused) for the period from the date
hereof to the Termination Date.
Section 3.3 COMPUTATION. Interest and Facility Fees shall be computed
on the basis of actual days elapsed and a year of 360 days.
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Section 3.4 PAYMENT DATES. Accrued interest under SECTION 3.1(a), (b)
and (c) and Facility Fees shall be payable on the applicable Payment Dates.
Accrued interest under SECTION 3.1(d) shall be payable on demand.
ARTICLE IV PAYMENTS, PREPAYMENTS, REDUCTION OR TERMINATION
OF THE CREDIT AND SETOFF
Section 4.1 REPAYMENT. Principal of the Loans, together with all
accrued and unpaid interest thereon, shall be due and payable on the
Termination Date.
Section 4.2 OPTIONAL PREPAYMENTS. The Borrower may prepay the Loans,
in whole or in part, at any time subject to the provisions of SECTION 2.6,
without any other premium or penalty. Any such prepayment must be accompanied
by accrued and unpaid interest on the amount prepaid. Each partial prepayment
shall be in an amount of $500,000 or an integral multiple thereof.
Section 4.3 OPTIONAL REDUCTION OR TERMINATION OF COMMITMENTS. The
Borrower may, at any time, upon no less than 3 Business Days prior written or
telephonic notice received by the Bank, reduce the Commitment of the Bank,
such reduction to be in a minimum amount of $1,000,000 or an integral
multiple thereof. Upon any reduction in the Commitments pursuant to this
Section, the Borrower shall pay to the Bank the amount, if any, by which the
aggregate unpaid principal amount of outstanding Loans exceeds the Commitment
of the Bank as so reduced. Amounts so paid cannot be reborrowed. The Borrower
may, at any time, upon not less than 3 Business Days prior written notice to
the Bank, terminate the Commitment. Upon termination of the Commitment
pursuant to this Section, the Borrower shall pay to the Bank the full amount
of all outstanding Loans, all accrued and unpaid interest thereon, all unpaid
Facility Fees accrued to the date of such termination and all other unpaid
obligations of the Borrower to the Bank hereunder. All payment described in
this Section is subject to the provisions of SECTION 2.6.
Section 4.4 MANDATORY REDUCTION OF COMMITMENTS. If the Termination
Date has not occurred sooner, the Commitments shall be reduced to $0 upon the
closing of the New Syndicated Agreement. Upon any reduction in the
Commitments pursuant to this Section, the Borrower shall pay to the Bank the
amount, if any, by which the aggregate unpaid principal amount of outstanding
Loans exceeds the Commitment as so reduced.
Section 4.5 PAYMENTS. Payments and prepayments of principal of, and
interest on, the Note and all fees, expenses and other obligations under the
Loan Documents shall be made without set-off or counterclaim in immediately
available funds not later than 2:00 p.m., Minneapolis time, on the dates due
at the main office of the Bank in Minneapolis, Minnesota. Funds received on
any day after such time shall be deemed to have been received on the next
Business Day. Subject to the definition of the term "Interest Period",
whenever any payment to be made hereunder or on the Note shall be stated to
be due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day and such extension of time shall be included
in the computation of any interest or fees.
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ARTICLE V ADDITIONAL PROVISIONS RELATING TO LOANS
Section 5.1 INCREASED COSTS. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) from any court,
central bank, governmental authority, agency or instrumentality, or
comparable agency:
(a) any tax, duty or other charge with respect to any Loan, the Note or
the Commitments is imposed, modified or deemed applicable, or the basis
of taxation of payments to the Bank of interest or principal of the
Loans or of the Facility Fees (other than taxes imposed on the overall
net income of the Bank by the jurisdiction in which the Bank has its
principal office) is changed;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, the Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected to be
maintained by the Bank or any Person controlling the Bank is imposed,
modified or deemed applicable; or
(d) any other condition affecting this Agreement or the Commitments is
imposed on the Bank or the relevant funding markets;
and the Bank determines that, by reason thereof, the cost to the Bank of making
or maintaining the Loans, issuing or participating in the Letters of Credit or
extending its Commitment is increased, or the amount of any sum receivable by
the Bank hereunder or under the Note in respect of any Loan is reduced;
THEN, the Borrower shall pay to the Bank upon demand such additional amount or
amounts as will compensate the Bank (or the controlling Person in the instance
of (c) above) for such additional costs or reduction (provided that the Bank has
not been compensated for such additional cost or reduction in the calculation of
the Eurodollar Reserve Rate). Determinations by the Bank for purposes of this
SECTION 5.1 of the additional amounts required to compensate the Bank shall be
conclusive in the absence of manifest error. In determining such amounts, the
Bank may use any reasonable averaging, attribution and allocation methods.
Section 5.2 DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE OR
INADEQUATE; IMPRACTICABILITY. If the Bank determines (which determination shall
be conclusive and binding on the parties hereto) that:
(a) deposits of the necessary amount for the relevant Interest Period
for any Eurodollar Advance are not available in the relevant markets or
that, by reason of circumstances affecting such market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Interbank
Rate for such Interest Period;
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(b) the Eurodollar Rate (Reserve Adjusted) will not adequately and
fairly reflect the cost to the Bank of making or funding the Daily
Pricing Advances or the Eurodollar Advance for a relevant Interest
Period; or
(c) the making or funding of the Daily Pricing Advances or the
Eurodollar Advances has become impracticable as a result of any event
occurring after the date of this Agreement which, in the opinion of the
Bank, materially and adversely affects such Advances or the Bank's
Commitment or the relevant market;
the Bank shall promptly give notice of such determination to the Borrower, and
(i) any notice of a new Daily Pricing Advances or Eurodollar Advance previously
given by the Borrower and not yet borrowed or converted shall be deemed to be a
notice to make a Reference Rate Advance, and (ii) the Borrower shall be
obligated to either prepay in full any outstanding Daily Pricing Advances or
Eurodollar Advances, without premium or penalty on the last day of the current
Interest Period with respect thereto or convert any such Daily Pricing Advances
or Eurodollar Advance to a Reference Rate Advance on such last day.
Section 5.3 CHANGES IN LAW RENDERING EURODOLLAR ADVANCES UNLAWFUL. If
at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration
thereof by any court, central bank, governmental authority, agency or
instrumentality, or comparable agency charged with the interpretation or
administration thereof, or for any other reason arising subsequent to the
date of this Agreement, it shall become unlawful or impossible for the Bank
to make or fund any Daily Pricing Advances or Eurodollar Advance, the
obligation of the Bank to provide such Advance shall, upon the happening of
such event, forthwith be suspended for the duration of such illegality or
impossibility. If any such event shall make it unlawful or impossible for the
Bank to continue any Daily Pricing Advances or Eurodollar Advance previously
made by it hereunder, the Bank shall, upon the happening of such event,
notify the Borrower thereof in writing, and the Borrower shall, at the time
notified by the Bank, either convert each such unlawful Advance to a
Reference Rate Advance or repay such Advance in full, together with accrued
interest thereon, subject to the provisions of SECTION 2.6.
Section 5.4 DISCRETION OF THE BANK AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, the Bank
shall be entitled to fund and maintain its funding of all or any part of the
Loans in any manner it elects; it being understood, however, that for
purposes of this Agreement, all determinations hereunder shall be made as if
the Bank had actually funded and maintained each Daily Pricing Advances and
Eurodollar Advance during the Interest Period for such Advance through the
purchase of deposits having a term corresponding to such Interest Period and
bearing an interest rate equal to the Eurodollar Interbank Rate for such
Interest Period (whether or not the Bank shall have granted any
participations in such Advances).
ARTICLE VI CONDITIONS PRECEDENT
Section 6.1 CONDITIONS OF INITIAL LOAN. The obligation of the Bank to
make the initial Loan hereunder shall be subject to the satisfaction of the
conditions precedent, in addition to the applicable conditions precedent set
forth in SECTION 6.2 below, that the Bank shall have
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received all of the following, in form and substance satisfactory to the
Bank, each duly executed and certified or dated the date of the initial Loan
or such other date as is satisfactory to the Bank:
(a) The Note executed by a duly authorized officer (or officers) of the
Borrower.
(b) A certificate or certificates of the Secretary or an Assistant
Secretary of the Borrower, attesting to and attaching (i) a copy of the
corporate resolution of the Borrower authorizing the execution,
delivery and performance of the Loan Documents, (ii) an incumbency
certificate showing the names and titles, and bearing the signatures
of, the officers of the Borrower authorized to execute the Loan
Documents, (iii) a copy of the Articles or Certificate of Incorporation
of the Borrower with all amendments thereto, and (iv) a copy of the
By-Laws of the Borrower with all amendments thereto.
(c) A Certificate of Good Standing for the Borrower in the jurisdiction
of its incorporation, certified by the appropriate governmental officials.
(d) An opinion of counsel to the Borrower, addressed to the Bank, in
substantially the form of EXHIBIT B.
Section 6.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Bank to make any Loan hereunder (including the initial Loan) shall be subject
to the satisfaction of the following conditions precedent (and any request
for a Loan shall be deemed a representation and warranty by the Borrower that
the following have been satisfied):
(a) Before and after giving effect to such Loan, the representation and
warranties contained in ARTICLE VII shall be true and correct, as though
made on the date of such Loan.
(b) Before and after giving effect to such Loan, no Default or Event of
Default shall have occurred and be continuing.
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 7.1. MULTI-FACILITY CREDIT AGREEMENT. To induce the Bank to
enter into this Agreement, to grant the Commitments and to make Loans
hereunder, the hereby makes the representations and warranties contained in
ARTICLE XI of the Multi-Facility Credit Agreement, which provisions, together
with the related definitions, as in effect on the date hereof are hereby
incorporated herein by reference (MUTATIS MUTANDIS) for the benefit of the
Bank hereunder and shall continue for the purposes of this Article VII
regardless of the termination of the Multi-Facility Credit Agreement or the
Bank's participation therein; PROVIDED that (a) the date "December 31, 1995"
contained in Section 11.4 of the Multi-Facility Credit Agreement shall be
deemed to mean "December 31, 1998"; (b) references in ARTICLE XI of the
Multi-Facility Credit Agreement to the (i) "Agreement" and "Loan Documents,"
(ii) "Banks," (iii) "Loans" and (iv) "Administrative Agent" shall be deemed
to mean this Agreement, the Loan Documents as defined hereunder, the Bank and
the Loans,
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each hereunder, respectively; and (c) all amendments to the Multi-Facility
Credit Agreement before or after the date hereof shall be given effect of
purposes of this Article VII.
Section 7.2 ADDITIONAL REPRESENTATION. The Borrower hereby makes the
following additional representation, which shall be deemed an representation
under such Article XI for purpose of the references thereto in Article X
hereof:
The Borrower is in the process of reviewing its operations and
those of its Subsidiaries and has requested from third parties with
which the Borrower of any of its Subsidiaries has a material
relationship a certification of compliance, in order to evaluate the
extent to which the business or operations of the Borrower and its
Subsidiaries will be affected by the Year 2000 problem. As a result of
such review, the Borrower has no reason to believe and does not believe
that the Year 2000 problem will have a material adverse effect on the
business, consolidated financial position, stockholders' equity or
results of operations of the Borrower and its Subsidiaries, taken as a
whole.
ARTICLE VIII COVENANTS
Section 8.1 MULTI-FACILITY CREDIT AGREEMENT. So long as this Agreement
shall remain in effect and until the Commitments have been terminated and all
amounts owing hereunder shall have been paid in full, the Borrower shall comply
with and be bound by the covenants contained in ARTICLE XII of the
Multi-Facility Credit Agreement and will provide all of the information and
notice required by such Article, which provisions, together with the related
definitions, as in effect on the date hereof are hereby incorporated herein by
reference (MUTATIS MUTANDIS) for the benefit of the Bank hereunder and shall
continue for the purposes of this Article VIII regardless of the termination of
the Multi-Facility Credit Agreement or the Bank's participation therein;
PROVIDED, that (i) references to the "Agent," "Banks" or the "Required Banks"
shall be deemed to mean the Bank hereunder; and (ii) references to "Default" or
"Event of Default" shall be deemed to mean a Default or Event of Default
hereunder; and (ii) all amendments to the Multi-Facility Credit Agreement before
or after the date hereof shall be given effect of purposes of this Article VIII.
Section 8.2 INFORMATION. The Borrower has also agreed to provide to
the Bank all information required by the Bank to determine the Applicable
Margin, certified by the appropriate officer of the Borrower if so requested
by the Bank.
ARTICLE IX EVENTS OF DEFAULT
Section 9.1 MULTI-FACILITY CREDIT AGREEMENT. If any of the events
described in ARTICLE XIII of the Multi-Facility Credit Agreement (each an
"EVENT OF DEFAULT") (which provisions, together with the related definitions,
as in effect on the date hereof are hereby incorporated herein by reference
(MUTATIS MUTANDIS) for the benefit of the Banks hereunder and shall continue
for the purposes of this Article IX regardless of the termination of the
Multi-Facility Credit Agreement or the Bank's participation therein, or any
amendment of, or any consent to any deviation from or other modification of,
the Multi-Facility Credit Agreement; PROVIDED that (a) references to (i) any
"document delivered pursuant to this
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Agreement," (ii) "Loan" or (iii) "Fee" shall be deemed to mean this
Agreement, the Loan Documents as defined hereunder, the Loans hereunder and
the Facility Fee hereunder, respectively; (b) references to Sections in
ARTICLE XIII shall be deemed to be references to such clauses as incorporated
herein by reference; and (c) all amendments to the Multi-Facility Credit
Agreement before or after the date hereof shall be given effect of purposes
of this Article IX.
Section 9.2 NEW CREDIT AGREEMENT. Any Event of Default under the New
Credit Agreement shall constitute an Event of Default hereunder.
Section 9.3 REMEDIES. If (a) any Event of Default under which
termination of the relevant commitments and acceleration of loans occurs
automatically without notice (for example, an Event of Default under SECTIONS
13.1(2) of the Multi-Facility Credit Agreement) shall occur, the Commitments
shall automatically terminate and the outstanding unpaid principal balance of
the Note, the accrued interest thereon and all other obligations of the
Borrower to the Bank under the Loan Documents shall automatically become
immediately due and payable; or (b) any other Event of Default shall occur
and be continuing, then the Bank may take any or all of the following
actions: (i) declare the Commitments terminated, whereupon the Commitments
shall terminate, (ii) declare that the outstanding unpaid principal balance
of the Note, the accrued and unpaid interest thereon and all other
obligations of the Borrower to the Bank under the Loan Documents to be
forthwith due and payable, whereupon the Note, all accrued and unpaid
interest thereon and all such obligations shall immediately become due and
payable, in each case without demand or notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Note to the
contrary notwithstanding, (iii) exercise all rights and remedies under any
other instrument, document or agreement between the Borrower and the Bank,
and (iv) enforce all rights and remedies under any applicable law.
In addition to the remedies set forth in the foregoing paragraph, upon
the occurrence of any Event of Default or at any time thereafter while such
Event of Default continues, the Bank or any other holder of the Note may
offset any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or monies of the Borrower then or
thereafter with the Bank or such other holder, or any obligations of the Bank
or such other holder of the Note, against the Indebtedness then owed by the
Borrower to the Bank.
ARTICLE X MISCELLANEOUS
Section 10.1 WAIVER AND AMENDMENT. No failure on the part of the Bank
or the holder of the Note to exercise and no delay in exercising any power or
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in any other instrument, document or
agreement delivered or to be delivered to the Bank hereunder or in connection
herewith are cumulative and not exclusive of any remedies provided by law. No
notice to or demand on the Borrower not required hereunder or under the Note
shall in any event entitle the Borrower to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right
of the Bank or the holder of the Note to
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any other or further action in any circumstances without notice or demand. No
amendment, modification or waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall be effective unless
the same shall be in writing and signed by the Bank, and then such amendment,
modifications, waiver or consent shall be effective only in the specific
instances and for the specific purpose for which given.
Section 10.2 EXPENSES AND INDEMNITIES. Whether or not any Loan is made
hereunder, the Borrower agrees to reimburse the Bank upon demand for all
reasonable expenses paid or incurred by the Bank (including filing and
recording costs and fees and expenses of legal counsel, who may be employees
of the Bank) in connection with the preparation, review, execution, delivery,
amendment, modification, interpretation, collection and enforcement of the
Loan Documents (including without limitation those incurred in connection
with any appeal of a lower court order or judgment). The Borrower agrees to
pay, and save the Bank harmless from all liability for, any stamp or other
taxes which may be payable with respect to the execution or delivery of the
Loan Documents. The Borrower agrees to indemnify and hold the Bank harmless
from any loss or expense which may arise or be created by the acceptance of
telephonic or other instructions for making Loans or disbursing the proceeds
thereof. The obligations of the Borrower under this SECTION 10.2 shall
survive any termination of this Agreement.
Section 10.3 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party
in connection with this Agreement shall be in writing and shall be sent by
manual delivery, telegram, telex, facsimile transmission, overnight courier
or United States mail (postage prepaid) addressed to such party at the
address specified on the signature page hereof, or at such other address as
such party shall have specified to the other party hereto in writing. All
periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by telegram,
telex or facsimile transmission, from the first Business Day after the date
of sending if sent by overnight courier, or from four days after the date of
mailing if mailed; PROVIDED, HOWEVER, that any notice to the Bank under
ARTICLE II hereof shall be deemed to have been given only when received by
the Bank.
Section 10.4 SUCCESSORS. This Agreement shall be binding upon the
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and
assigns of the Bank. The Borrower shall not assign its rights or duties
hereunder without the written consent of the Bank.
Section 10.5 PARTICIPATIONS AND INFORMATION. The Bank may sell
participation interests in any or all of the Loans and in all or any portion
of the Commitment to any Person. The Bank may furnish any information
concerning the Borrower in the possession of the Bank from time to time to
participants and prospective participants and may furnish information in
response to credit inquiries consistent with general banking practice.
Section 10.6 SEVERABILITY. Any provision of the Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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Section 10.7 SUBSIDIARY REFERENCES. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Borrower
has one or more Subsidiaries.
Section 10.8 CAPTIONS. The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 10.9 ENTIRE AGREEMENT. This Agreement and the Note embody the
entire agreement and understanding between the Borrower and the Bank with
respect to the subject matter hereof and thereof. This Agreement supersedes
all prior agreements and understandings relating to the subject matter hereof.
Section 10.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument, and either of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 10.11 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.
Section 10.12 CONSENT TO JURISDICTION. AT THE OPTION OF THE BANK, THIS
AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE BORROWER
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE
BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT
OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE
THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED,
OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH
CASE DISMISSED WITHOUT PREJUDICE.
Section 10.13 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above.
PENTAIR, INC.
By: /s/ Richard W. Ingman
------------------------------------
Title: CFO
---------------------------------
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial Officer
Telecopy: (651) 639-5209
Telephone: (651) 636-7920
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olmon
------------------------------------
Title: Senior Vice President
---------------------------------
601 2nd Ave. S.
Minneapolis, MN 55402-4302
Attention: Mark R. Olmon
Telephone: (612) 973-1085
Fax: (612) 973-0825
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EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements
of Pentair, Inc. on Form S-3 No. 333-80159 and on Forms S-8 No. 33-36256,
33-38534, 33-42268, 33-45012, 333-12561, and 333-62475 of our report on the
consolidated financial statements of Essef Corporation dated November 12,
1998 (August 16, 1999 as to Note 2 and Note 14), appearing in this Form 8-K.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 24, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-80159) and on Forms S-8 (No. 33-36256,
33-38534, 33-42268, 33-45012, 333-12561, 333-62475) of Pentair, Inc. of our
report dated May 12, 1999, except for Note 12 as to which the date is August
13, 1999, relating to the consolidated financial statements of Falcon
Manufacturing, Inc. and Subsidiary, which appears in the Current Report on
Form 8-K of Pentair, Inc. dated August 10, 1999.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 24, 1999
<PAGE>
ESSEF CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, 1998
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Essef Corporation and Subsidiaries
Chardon, Ohio
We have audited the accompanying consolidated balance sheet of Essef
Corporation and Subsidiaries (the "Company") as of September 30, 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
discontinued the pool installation segment of its operations when it
distributed the common shares of the segment to the Company shareholders on
August 10, 1999. The pool installation segment financial position and
operating results prior to the distribution are included in the net long-term
assets, net current liabilities, and income from discontinued operations in
the accompanying restated consolidated financial statements.
Deloitte & Touche LLP
Cleveland, Ohio
November 13, 1998
(August 16, 1999 as to Note 2 and Note 14)
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,213
Accounts receivable, less allowance for doubtful
accounts of $2,146 33,999
Inventories 45,221
Prepayments and other 1,937
--------
Total current assets 83,370
PROPERTY, PLANT AND EQUIPMENT, At cost:
Land 1,835
Buildings 29,377
Machinery and equipment 95,755
--------
Subtotal 126,967
Less accumulated depreciation 56,198
--------
Net property, plant and equipment 70,769
OTHER ASSETS:
Goodwill, net 46,569
Deferred income taxes 2,916
Other 9,897
Net long-term assets of discontinued operations 36,180
--------
Total other assets 95,562
--------
TOTAL ASSETS $249,701
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 3,853
Current maturities of long-term debt 318
Accounts payable 15,957
Accrued compensation 10,216
Accrued expenses 11,704
Accrued income taxes 3,685
Net current liabilities of discontinued operations 4,292
--------
Total current liabilities 50,025
LONG-TERM DEBT 112,144
OTHER LONG-TERM LIABILITIES 3,854
SHAREHOLDERS' EQUITY:
Preferred shares, no par value, authorized 1,000,000 shares,
none issued -
Common shares, no par value, authorized 40,000,000 shares,
issued 12,321,933 shares in 1998 50,570
Treasury shares at cost, 503,927 shares in 1998 (7,962)
Retained earnings 40,888
Foreign currency translation adjustment 182
--------
Total shareholders' equity 83,678
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $249,701
--------
--------
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------
<TABLE>
<S> <C>
NET SALES $296,441
COST OF SALES 216,599
--------
GROSS PROFIT 79,842
OPERATING EXPENSES:
Engineering and development 6,056
Selling 24,107
Administrative 23,342
--------
Total operating expenses 53,505
--------
INCOME FROM OPERATIONS 26,337
INTEREST EXPENSE - Net (Note 2) 6,699
OTHER EXPENSE, NET 250
--------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION 19,388
FOR INCOME TAXES
PROVISION FOR INCOME TAXES 6,502
--------
INCOME FROM CONTINUING OPERATIONS 12,886
INCOME FROM DISCONTINUED OPERATIONS,
NET OF APPLICABLE INCOME TAXES OF $2,299 3,692
--------
NET INCOME $ 16,578
--------
--------
PER SHARE INFORMATION:
Income from continuing operations:
Basic $ 1.10
Diluted 0.96
Income from discontinued operations:
Basic $ 0.31
Diluted 0.27
Net income:
Basic $ 1.41
Diluted 1.23
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FOREIGN
CURRENCY
COMMON RETAINED TRANSLATION TREASURY
SHARES EARNINGS ADJUSTMENT SHARES TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 $32,234 $ 41,099 $ 75 $(7,962) $65,446
NET INCOME 16,578 16,578
ISSUANCE OF SHARES FOR ACQUISITIONS
(97,184 shares) 1,654 1,654
EXERCISE OF STOCK OPTIONS (75,755 shares) 456 456
10 PERCENT STOCK DIVIDEND 16,789 (16,789) -
EXECUTIVE STOCK OPTION ACCRUAL (838) (838)
TAX BENEFITS FROM EXERCISE OF
STOCK OPTIONS 275 275
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 107 107
------- -------- ---- ------- -------
BALANCE, SEPTEMBER 30, 1998 $50,570 $ 40,888 $182 $(7,962) $83,678
------- -------- ---- ------- -------
------- -------- ---- ------- -------
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,578
Adjustments to reconcile net income to net cash from operating activities:
Net income from discontinued operations (3,692)
Depreciation and amortization 10,116
Deferred taxes 2,929
Other (958)
Net cash provided by discontinued operations 2,174
Changes in operating assets and liabilities:
Accounts receivable 5,873
Inventories (5,228)
Prepayments and other 147
Accounts payable (970)
Accrued expenses (933)
Accrued income taxes (5,175)
--------
Net cash provided by operating activities 20,861
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (13,316)
Investing activities of discontinued operations (6,493)
Business acquisitions by continuing operations (33,200)
Proceeds from sale of business 4,308
Other, net (869)
--------
Net cash used in investing activities (49,570)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 31,274
Decrease in short-term borrowings (1,467)
Proceeds from exercise of stock options 456
--------
Net cash provided by financing activities 30,263
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,554
CASH AND CASH EQUIVALENTS:
Beginning of year 659
--------
End of year $ 2,213
--------
--------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,026
Income taxes paid, net 8,299
NONCASH FINANCING AND INVESTING ACTIVITIES -
Stock issued in acquisitions made by continuing operations 455
Stock issued in acquisitions made by discontinued operations 1,199
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Essef Corporation and subsidiaries (the "Company") operates
in three segments and specializes in products that are used to move,
store, treat and enjoy water. The Company's products are used in the
residential, commercial, industrial and municipal markets. The Swimming
Pool and Spa Equipment Segment is a leading supplier of equipment
including filters, pumps, heaters, controls, valves, lights and tile.
The Water Treatment and Systems Equipment Segment provides
fiberglass-reinforced pressure vessels and subsystems for water and
other liquids. The Swimming Pool Sales and Installation Segment is the
largest residential in-ground pool sales and installation business in
the United States. In August 1999, the Company entered into a merger
agreement with Pentair, Inc. ("Pentair") through which the common stock
of Essef Corporation was acquired by Pentair, and the common stock of
the pool installation segment was distributed to the shareholders of the
Company just prior to the merger with Pentair (see Note 2).
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company. All significant intercompany items
have been eliminated.
REVENUE RECOGNITION - Revenues from the sale of products are recognized
upon shipment. Revenues from contracts related to the installation of
swimming pools are recognized on the percentage-of-completion accounting
method. Projected losses on individual contracts are provided for in
their entirety in the year the estimated loss becomes determinable.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
short-term investments with initial maturities of three months or less
to be cash equivalents.
DEPRECIATION AND AMORTIZATION - Depreciation is computed using the
straight-line method for financial reporting purposes while accelerated
methods are used for tax reporting purposes. Assets, valued at cost, are
generally being depreciated over their useful lives as follows:
buildings, 30 years; and machinery and equipment, 3 to 15 years.
FINANCIAL INSTRUMENTS - The Company has financial instruments that
consist primarily of cash and cash equivalents, receivables, payables
and debt instruments. The Company has determined that the estimated fair
value of its financial instruments approximates carrying value.
GOODWILL - Goodwill arising from business acquisitions is amortized
using the straight-line method over forty years. Accumulated
amortization at September 30, 1998 was $1,895,000. The Company
continually evaluates goodwill based on the present value of estimated
future cash flows to assess impairment.
INCOME TAXES - The provision for income taxes includes federal, foreign,
state and local taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases of
assets.
- 6 -
<PAGE>
EARNINGS PER SHARE - Basic earnings per share are computed by dividing
income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share are based on the combined
weighted average number of common shares and common share equivalents
outstanding, which include the assumed exercise or conversion of
options. In computing diluted earnings per share, the Company has
utilized the treasury stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is shown
below: (Dollars and shares in thousands except per share).
<TABLE>
<S> <C>
Numerators:
Income available from continuing operations $12,886
Income from discontinued operations 3,692
-------
Net income $16,578
-------
-------
Denominator:
Weighted average common shares outstanding 11,721
Dilutive effect of stock options and awards 1,783
-------
Denominator for net income per share, diluted 13,504
-------
-------
Per share information:
Income from continuing operations:
Basic $ 1.10
-------
-------
Diluted $ 0.96
-------
-------
Income from discontinued operations:
Basic $ 0.31
-------
-------
Diluted $ 0.27
-------
-------
Net income:
Basic $ 1.41
-------
-------
Diluted $ 1.23
-------
-------
</TABLE>
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Company's
foreign subsidiaries are translated at current exchange rates and the
results of operations are translated at the average exchange rates
during the periods. Asset and liability adjustments resulting from these
translations are recorded as a separate component of shareholders'
equity and results of operations translation adjustments are recorded in
income.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could
differ from those estimates.
- 7 -
<PAGE>
2. SUBSEQUENT EVENTS
On August 10, 1999, Pentair completed its acquisition of the common
stock of the Company in accordance with the terms of the Merger
Agreement (the "Agreement") between the Company and Pentair. The
Agreement provided that each common shareholder of the Company would
receive $18.97 in cash and 0.25 shares of Anthony & Sylvan Pools
Corporation ("A&S") common stock, the pool installation segment, for
each common share held. In connection with the taxable distribution of
the A&S common shares, A&S became a stand-alone public entity, and as a
result, the consolidated financial statements of the Company and the
related notes to consolidated financial statements have been restated to
reflect the results of operations and net assets of A&S as a
discontinued operations.
The Agreement also provides that all of the outstanding Company
revolving credit facility would be paid off. In conjunction with the
split-off of A&S, the intercompany loan between the Company and A&S was
contributed to A&S capital. The distribution of the A&S common shares
did not result in a book gain or loss to the Company.
The components of the net assets of the discontinued operations included
in the balance sheet are as follows (in thousands):
<TABLE>
<S> <C>
Current assets (primarily accounts receivable and inventory) $ 15,544
Accounts payable and accrued expenses (19,836)
--------
Net current liabilities $ (4,292)
--------
--------
Property, plant and equipment, net $ 8,307
Goodwill, net 27,875
Other non-current assets 1,676
Long-term debt (478)
Other long-term liabilities (1,200)
--------
Net long-term assets $ 36,180
--------
--------
</TABLE>
The condensed statement of operations relating to the discontinued
operations are as follows (in thousands):
<TABLE>
<S> <C>
Net sales $139,586
Cost and expenses 133,595
--------
Income before income taxes 5,991
Provision for income taxes 2,299
--------
Net income $ 3,692
--------
--------
</TABLE>
The consolidated net sales from continuing operations includes
$8,530,000 in intersegment sales between the Swimming Pool and Spa
Equipment Segment and A&S. Interest expense of the continuing operations
is net of intercompany interest income of $1,529,000 charged to the
discontinuing operations costs and expenses for the year ended September
30, 1998.
- 8 -
<PAGE>
On February 4, 1999, the Board of Directors authorized a 10 percent
stock dividend to be distributed on or about March 10, 1999 to
shareholders of record on February 19, 1999. The consolidated financial
statements have not been restated to reflect the number of shares
outstanding following the dividend as the dividend was declared
subsequent to September 30, 1998.
In August 1999, the Company's Swimming Pool and Spa Equipment Segment
acquired certain assets of Kreepy Krauly, a manufacturer of automatic
swimming pool cleaners, for $16,750,000, subject to certain post-closing
net asset adjustments.
3. BUSINESS ACQUISITIONS
On July 22, 1998, the Company acquired the net operating assets and real
estate of Rainbow Lifegard, Inc., Rainbow Molding, Inc., and Kencar,
Inc., collectively known as "Rainbow" for $24,577,000, including
transaction costs. The acquisition has been accounted for as a purchase,
and, thus, the purchase price has been allocated to the assets and
liabilities based on their preliminary estimated fair value as of the
date of acquisition. Such estimates may be revised at a later date. The
results of operations have been included in the Company's results since
the date of acquisition. Rainbow designs and manufactures accessory
products for pools, spas and aquariums and has been integrated into the
Swimming Pool and Spa Equipment Segment.
The cost in excess of the fair value of the net assets acquired for this
acquisition and those discussed below are being amortized on a
straight-line basis over forty years.
The following table is a summary of the Rainbow transaction (in
thousands):
<TABLE>
<S> <C>
Fair value of identifiable assets acquired $21,247
Costs in excess of net assets acquired 6,281
Less liabilities assumed (2,951)
-------
Net cash paid for acquisition $24,577
-------
-------
</TABLE>
The following unaudited pro forma combined results of operations give
effect to the Rainbow acquisition as though it were completed at the
beginning of 1998. The pro forma information has been presented for
comparative purposes only and does not purport to be indicative of what
would have occurred had the acquisition been made at the beginning of
1998 or of results that may occur in the future.
<TABLE>
<CAPTION>
INCOME
(In thousands except per share data) FROM DILUTED
(Unaudited) CONTINUING EARNINGS
NET SALES OPERATIONS PER SHARE
<S> <C> <C> <C>
1998 Continuing Operations Pro forma for Rainbow $319,723 $13,794 $1.02
</TABLE>
Also in 1998, within the Swimming Pool and Spa Equipment Segment, the
Company acquired two swimming pool tile distribution businesses, Cozad &
O'Hara, Inc. and Thompson Ceramic Tile, for a total of $8,504,000 in a
combination of cash and Essef Corporation Common Stock. These
acquisitions expanded the Company's tile distribution capabilities to
the Western United States and Florida.
- 9 -
<PAGE>
Additionally, in 1998, the Company's pool installation segment acquired
the net operating assets of Tango Pools, an installer of swimming pools
in Las Vegas, Nevada; and Pools by Andrews, Inc., an installer of pools
in Florida for a total of $5,601,000 in a combination of cash and Essef
Corporation Common Stock. These transactions, which were accounted for
as purchases, do not have a significant impact on the Company's pro
forma earnings.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for 25 percent of
inventories in 1998. The balance of the Company's inventories is valued
using the first-in, first-out (FIFO) method. A summary of inventories at
September 30, 1998 follows (in thousands):
<TABLE>
<S> <C>
FIFO Cost:
Raw materials $20,592
Work-in-process 1,926
Finished goods 23,827
-------
46,345
Excess of FIFO over LIFO cost (1,124)
-------
Net inventories $45,221
-------
-------
</TABLE>
5. SHORT-TERM BORROWINGS
The Company's European subsidiaries have working capital lines of credit
of approximately $15,000,000. At September 30, 1998, $1,595,000 was
outstanding under these lines of credit. At September 30, 1998, interest
was at rates ranging from 3.95 percent to 8.50 percent. In addition, a
note payable on demand of $2,258,000, relating to an acquisition, was
outstanding at September 30, 1998. The interest rate on the note is 6
percent.
6. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1998 (in
thousands):
<TABLE>
<S> <C>
Revolving credit facility $110,940
Other loans 1,522
--------
112,462
Less current maturities (318)
--------
Total $112,144
--------
--------
</TABLE>
In May 1998, the Company amended its existing unsecured multi-currency
revolving loan facility (the "Credit Facility"), increasing it
$50,000,000, bringing the total facility to $185,000,000. The Credit
Facility matures April 30, 2003 and may be extended in one-year
increments with the approval of the bank group. The Credit Facility
includes commitment reductions at specified dates and for events
throughout the term of the loan; however, the commitment does not reduce
below $135,000,000. Interest rates are based on increments over the
LIBOR or foreign currency equivalent rate. A 25 basis points facility
fee is payable on the total amount of the commitment. As of September
30, 1998, interest rates ranged from 6.00 percent to 6.50 percent. The
Company is in compliance with all of its covenants under its credit
facilities.
- 10 -
<PAGE>
In May 1997, the Company entered into an interest rate swap agreement for
a two-year term with a commercial bank that effectively converted
$30,000,000 of its floating rate debt to a fixed rate of 6.33 percent. The
effective interest rate on this fixed portion of debt was 7.33 percent at
September 30, 1998. The Company does not use derivatives for trading
purposes.
Aggregate maturities of long-term debt are the following: 1999, $318,000;
2000, $154,000; 2001, $150,000; 2002, $150,000; 2003, $111,090,000; and
$600,000 thereafter.
7. INCOME TAXES
The provision for income taxes is calculated based upon the following
components of income from continuing operations before taxes (in
thousands):
<TABLE>
<S> <C>
Domestic $17,623
Foreign 1,765
-------
Total $19,388
-------
-------
</TABLE>
The significant components of the provision for income taxes are as
follows (in thousands):
<TABLE>
<S> <C>
Current:
Federal $2,980
Foreign 210
State 254
------
Total current 3,444
------
Deferred:
Federal 2,409
Foreign 605
State 44
------
Total deferred 3,058
------
Total $6,502
------
------
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities from continuing operations are as follows at September 30,
1998 (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Nondeductible accruals $ 5,703
Other 1,205
Deferred tax liabilities:
Book basis of fixed assets in excess of tax basis (3,728)
Tax amortization of goodwill in excess of book (259)
Other (5)
-------
Net deferred tax asset $ 2,916
-------
-------
</TABLE>
- 11 -
<PAGE>
The consolidated tax provision for continuing operations differs from the
tax provision computed at the statutory United States tax rate of 35
percent for 1998 for the following reasons (in thousands):
<TABLE>
<S> <C>
Tax provision at statutory federal rate $6,786
State income taxes 194
Foreign tax differential 198
Other items, net (676)
------
Total $6,502
------
------
</TABLE>
8. LEASES
The Company leases certain of its facilities and equipment. Total rental
expenses for continuing operations were $4,128,000 in 1998. Minimum annual
rental commitments for the next five years under non-cancelable operating
leases are the following: 1999, $3,625,000; 2000, $3,010,000; 2001,
$2,226,000; 2002, $1,446,000; 2003, $1,144,000; and $987,000 thereafter.
9. RETIREMENT PLANS
The Company maintains defined contribution plans covering substantially
all of its domestic employees. Participants are permitted to make pretax
contributions to the plans as a percentage of compensation. The Company
matches participant contributions, up to specified limits. In certain
plans the Company also contributes a specified percentage of annual
compensation of participants. Total Company contributions for continuing
operations were approximately $1,772,000 in 1998.
10. BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments (excluding discontinued
operations): Swimming Pool and Spa Equipment and Water Treatment and
Systems Equipment. The Swimming Pool and Spa Equipment Segment supplies
pumps, filters, heaters, controls, valves, lights, accessories, and tile
for swimming pools and spas. The Water Treatment and Systems Equipment
Segment manufactures products for moving, storing and treating water in
residential, commercial, industrial, and municipal water supply systems.
Geographically, the manufacturing operations of the two previously
described segments are located principally in the United States, Europe,
and India.
The following table contains a summary of information of each industry
segment (in thousands):
<TABLE>
<CAPTION>
INCOME
FROM DEPRECIATION
NET CONTINUING TOTAL CAPITAL AND
SALES OPERATIONS ASSETS EXPENDITURES AMORTIZATION
<S> <C> <C> <C> <C> <C>
Swimming pool and $193,950 $21,850 $128,612 $ 5,897 $ 5,283
spa equipment
Water treatment and 103,576 7,966 69,920 7,271 4,771
systems equipment
Net long-term assets of
discontinued operations 36,180
Corporate - (3,479) 14,989 148 62
Intersegment (1,085) - - - -
-------- ------- -------- ------- -------
Consolidated $296,441 $26,337 $249,701 $13,316 $10,116
-------- ------- -------- ------- -------
-------- ------- -------- ------- -------
</TABLE>
Export sales from the Company's United States operations were
approximately $15,168,000 for the year ended September 30, 1998.
- 12 -
<PAGE>
The following table contains a summary of information by geographic area
(in thousands):
<TABLE>
<CAPTION>
INCOME
FROM DEPRECIATION
NET CONTINUING TOTAL CAPITAL AND
SALES OPERATIONS ASSETS EXPENDITURES AMORTIZATION
<S> <C> <C> <C> <C> <C>
United States $255,011 $23,694 $217,451 $ 9,999 $ 8,991
Foreign 41,430 2,683 32,250 3,317 1,125
-------- ------- -------- ------- -------
Consolidated $296,441 $26,337 $249,701 $13,316 $10,116
-------- ------- -------- ------- -------
-------- ------- -------- ------- -------
</TABLE>
11. CAPITAL STOCK AND STOCK OPTION PLAN
On January 29, 1998, the Board of Directors authorized a 10 percent stock
dividend to be distributed on March 3, 1998 to shareholders of record on
February 12, 1998. The consolidated financial statements have been
retroactively restated to reflect the number of shares outstanding
following the aforementioned dividend.
STOCK OPTION PLAN - The Company has a stock option plan for employees
granting ten year options for the purchase of up to 1,210,000 common
shares of the Company. Options vest over periods ranging from three to
five years from the date of grant. The outstanding options expire at
various dates through the year 2007. Activity in the stock option plan is
as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
OPTIONS SHARE
<S> <C> <C>
Outstanding September 30, 1997 719,692 $1.39 -- $14.16
Granted - -
Expired (57,571) $6.74 -- $ 6.82
Exercised (75,755) $1.39 -- $ 7.23
-------
Outstanding September 30, 1998 586,366 $1.39 -- $14.16
-------
-------
Exercisable September 30, 1998 470,936
-------
-------
</TABLE>
At September 30, 1998, the weighted average exercise price and weighted
average remaining contractual life for outstanding options described above
were $6.47 per share and 4.3 years, respectively.
PERFORMANCE BASED STOCK OPTIONS - In addition to the options shown above,
in 1990, the Company granted options to the Chief Executive Officer to
purchase on a stock split and dividend adjusted basis 2,351,756 common
shares at $.83 per share. These options expire ten years from the date of
grant and are fully vested. None of these options has been exercised.
- 13 -
<PAGE>
Additionally, in 1995 and 1996, the Company granted certain officers
options to purchase 60,500 and 181,500 common shares, respectively, which
expire 10 years from the date of grant. The vesting of these options was
based on attainment of specified results and periods of service. In 1998,
the performance criteria on these options were achieved. Given this
achievement, $1,148,000 of the remaining compensation expense related to
these options will be amortized in future periods based on the remaining
vesting schedule for the options related to these officers. Also, in 1998,
the Company cancelled 363,000 options that had previously been granted to
another officer of the Company, following the resignation of that officer.
The results of operations in 1998 include a net reduction of $838,000 of
compensation expense related to the options of this officer.
The following table summarizes information about the Company's performance
based stock options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER
PRICE GRANTED LIFE PRICE EXERCISABLE
<S> <C> <C> <C> <C>
$0.83 2,351,756 2.0 $0.83 2,351,756
6.75 60,500 6.4 6.75 -
7.23 181,500 8.0 7.23 -
--------- --- ----- ---------
2,593,756 2.5 $1.42 2,351,756
--------- --- ----- ---------
--------- --- ----- ---------
</TABLE>
12. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Net sales to one customer in the Pool and Spa Equipment Segment with which
the Company has a long-standing relationship amounted to $49,588,000 in
1998. At September 30, 1998, accounts receivable from this customer
represents less than 5 percent of total accounts receivable.
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral to support
customer receivables. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
13. BUSINESS DISPOSITION
On July 8, 1998, the Company completed the sale of substantially all of
the assets of its subsidiary, Enpac Corporation, to a corporation
controlled by the co-trustee of trusts that beneficially owns
approximately 6 percent of the Company's Common Stock for $3,500,000. The
results of operations have been included in the Company's results in the
Water Treatment and Systems Equipment Segment up to the date of sale and
no material gain or loss was recognized on the sale transaction.
- 14 -
<PAGE>
14. LITIGATION
Twenty-eight lawsuits have been brought against the Company before the
United States District Court for the Southern District of New York,
including a class action on behalf of passengers, various individual
passenger actions, and claims by Celebrity Cruises, Inc. ("Celebrity"),
concerning alleged exposure by passengers to Legionnaire's bacteria aboard
the cruise ship M/V Horizon, a ship operated by Celebrity. The claims
against the Company generally are based on allegations that the Company
designed, manufactured, and marketed sand filters that were installed in a
spa on the Horizon and allegations that the spa contained bacteria that
infected certain passengers on cruises from December 1993 through July
1994. Claims have also been asserted against Celebrity; Fantasia Cruising,
Inc. (the ship's owner); the German Company that designed the spa; and
several companies that designed, manufactured and marketed other component
parts of the spa. Plaintiffs in the individual passenger actions, and
Celebrity, have recently amended their claims to include claims for
punitive damages. Although the aggregate claims in the class action and
other actions against the Company and the other defendants exceed $200
million, management believes the Company has meritorious defenses. While
the outcome of this matter cannot be predicted with certainty, based on
information presently available, the Company does not believe that this
matter will have a material adverse effect on the Company's financial
position, results of operations or cash flows. The Company intends to
vigorously defend these matters. Subject to reservations of rights served
on the Company by involved insurance carriers, and the outcome of the
declaratory judgement action brought by Fidelity & Casualty Insurance
against the Company and other potentially involved insurance carriers, the
Company anticipates that costs incurred in these matters, including
defense costs as well as payments made to plaintiffs, if any, will be paid
by the involved insurance carriers.
The Company and other defendants recently entered into an agreement,
subject to court approval, to settle the class action portion of the
aforementioned litigation. Claims in the class action exceed $100 million,
and per the agreement the Company's portion of the settlement will not
exceed $535,000. The Company's portion of this settlement will not
result in any additional charges to the statement of operations. In
November 1998, the court issued an order that preliminarily approved the
settlement, subject to final court approval. The Company's portion of
this settlement, which is not material, will be paid by one of the
Company's insurance carriers. In addition, Celebrity and the Company
have reached a settlement with six of the individual claimants. Each
settlement was in an amount less than $50,000.
Additionally, certain other claims, suits and complaints arising in the
ordinary course of business have also been filed or are pending against
the Company. In the opinion of management, the results of all such matters
will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The Company also believes that it has insurance coverage available,
subject to self-insured retentions, for a substantial portion of the cost
of the aforementioned claims, if any.
15. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "Board")
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that an
enterprise classify items of other comprehensive income by their nature in
a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and common stock in
the shareholders' equity section of the balance sheet. The Company is
required to adopt SFAS No. 130 in fiscal 1999. Such adoption is not
expected to have a material effect on the Company.
In June 1997, the Board issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments such as a measure of segment
income or loss, certain specific revenue and expense items, and segment
assets. The Company is required to adopt SFAS No. 131 in fiscal 1999. Such
adoption is not expected to have a material effect on the Company.
- 15 -
<PAGE>
In June 1998, the Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities and requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company is required to adopt SFAS No.
133 in fiscal 2001. The Company is currently evaluating the requirements
of SFAS No. 133 but, based on its limited use of derivative financial
instruments, does not expect it to have a material effect on the Company.
* * * * * *
- 16 -
<PAGE>
ESSEF CORPORATION
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JUNE 30, 1999
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---------- ------------
(unaudited) (audited as
restated)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............... $ 4,480 $ 2,213
Accounts receivable, net ................ 62,249 33,999
Inventories, net ........................ 47,573 45,221
Prepayments and other ................... 3,174 1,937
--------- ---------
Total current assets ............... 117,476 83,370
Property, plant and equipment, net ............ 67,464 70,769
Goodwill, net ................................. 48,630 46,569
Deferred income taxes ......................... 2,799 2,916
Other ......................................... 7,113 9,897
Net long-term assets of discontinued operations 35,906 36,180
--------- ---------
Total Assets .................................. $ 279,388 $ 249,701
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings ................. $ 5,679 $ 3,853
Current maturities of long-term debt .. 301 318
Accounts payable....................... 20,340 15,957
Accrued expenses ...................... 25,325 21,920
Accrued income taxes .................. 10,443 3,685
Net current liabilities of discontinued
operations ............................ 3,837 4,292
--------- ---------
Total current liabilities .......... 65,925 50,025
Long-term debt ................................ 113,289 112,144
Other long-term liabilities ................... 4,868 3,854
Shareholders' Equity
Preferred shares without par value,
authorized 1,000,000 shares,
none issued ........................ ----- ------
Common shares without par value,
authorized 40,000,000 shares, issued
13,698,253 and 13,503,734 shares,
respectively ....................... 52,454 50,570
Treasury shares at cost, 618,127 and
503,927 shares, respectively ....... (9,898) (7,962)
Retained earnings ..................... 53,583 40,888
Accumulated other comprehensive income (833) 182
--------- ---------
Total shareholders' equity ............. 95,306 83,678
--------- ---------
Total liabilities and shareholders' equity .... $ 279,388 $ 249,701
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1999 1998
-------- --------
(as restated)
<S> <C> <C>
Net sales.................... $261,384 $220,611
Cost of sales................ 188,862 161,691
-------- --------
Gross profit............... 72,522 58,920
Operating expenses........... 44,598 38,570
-------- --------
Income from operations..... 27,924 20,350
Interest and other expense - net... 6,148 5,976
-------- --------
Income from continuing operations
before income taxes. 21,776 14,374
Provision for income taxes... 8,355 4,909
-------- --------
Income from continuing operations 13,421 9,465
(Loss)income from discontinued operations, net
of applicable income taxes of ($407) and $1,152 (726) 1,792
-------- --------
Net income................. $ 12,695 $ 11,257
-------- --------
-------- --------
Per share information:
Income from continuing operations:
Basic $1.03 $0.73
-------- --------
-------- --------
Diluted $0.90 $0.64
-------- --------
-------- --------
(Loss)income from discontinued operations:
Basic ($0.06) $0.14
-------- --------
-------- --------
Diluted ($0.05) $0.12
-------- --------
-------- --------
Net income:
Basic $.97 $.87
-------- --------
-------- --------
Diluted $.85 $.76
-------- --------
-------- --------
Average shares outstanding:
Basic 13,069 12,872
-------- --------
-------- --------
Diluted 15,003 14,807
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------
1999 1998
------ ------
(as restated)
<S> <C> <C>
Cash Flows from Operating Activities
Net income ......................................... $ 12,695 $ 11,257
Adjustments to reconcile loss (income) to net
cash provided by/(used in) operating activities
Income from discontinued operations ...... 726 (1,792)
Depreciation and amortization ............ 9,199 7,352
Net cash provided by discontinued operations 1,600 2,166
Other .................................... 1,089 1,363
Changes in operating assets and liabilities
Accounts receivable............................ (29,834) (21,586)
Inventories ................................... (2,720) (6,447)
Prepayments and other assets .................. (1,291) 1,473
Accounts payable .............................. 4,971 7,526
Accrued expenses .............................. 3,568 (2,529)
Accrued and deferred income taxes ............. 7,698 (192)
-------- --------
Net cash provided by/(used in)
operating activities .................... 7,701 (1,409)
-------- --------
Cash Flows from Investing Activities
Additions to property, plant and
equipment ..................................... (3,648) (11,279)
Investing activities of discontinued operations .... (1,600) (2,088)
Business acquisitions .............................. (3,079) (10,321)
Proceeds from sale of property ..................... 1,127
Other, net ......................................... (683) (3,719)
-------- --------
Net cash used in investing activities .... (7,883) (27,407)
-------- --------
Cash Flows from Financing Activities
Proceeds from long term debt ....................... 1,145 27,196
Increase(decrease) in short-term borrowings ........ 1,809 850
Treasury stock acquired ............................ (1,936)
Proceeds from exercise of stock options ............ 1,431 177
Net cash provided by financing activities ..... 2,449 28,223
-------- --------
Net increase (decrease) in cash and
cash equivalents .............................. 2,267 (593)
Cash and Cash Equivalents
Beginning of period .................................... 2,213 659
-------- --------
End of period .......................................... $ 4,480 $ 66
-------- --------
-------- --------
Supplemental Cash Flow Information
Interest paid ................................. $ 6,747 $ 5,965
-------- --------
-------- --------
Income taxes paid ............................. $ 165 $ 4,971
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting of only normal and recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of Essef Corporation and
subsidiaries (the "Company") as of June 30, 1999, and the results of
operations for the nine month periods ended June 30, 1999 and 1998, and
cash flows for the nine-month periods ended June 30, 1999 and 1998.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1998 Annual Report to Shareholders,
sections of which are incorporated into the Company's Form 10-K filed for
the fiscal year ended September 30, 1998. The results of operations for the
nine month period ended June 30, 1999 may not necessarily be indicative of
the operating results for the full year.
(2) SUBSEQUENT EVENT
On August 10, 1999, Pentair completed its acquisition of the common stock
of the Company in accordance with the terms of the Merger Agreement (the
"Agreement") between the Company and Pentair. The Agreement provided that
each common shareholder of the Company would receive $18.97 in cash and
0.25 shares of Anthony & Sylvan Pools Corporation ("A&S") common stock, the
pool installation segment, for each common share held. In connection with
the taxable distribution of the A&S common shares, A&S became a stand-alone
public entity, and as a result, the consolidated financial statements of
the Company and the related notes to the consolidated financial statements
have been restated to reflect the results of operations and net assets of
A&S as a discontinued operation.
The Agreement also provides that all of the outstanding Company revolving
credit facility would be paid off. In conjunction with the split-off of
A&S, the intercompany loan between the Company and A&S was contributed to
A&S capital. The distribution of the A&S common shares did not result in a
book gain or loss to the Company.
The components of the net assets of the discontinued operations included in
the balance sheet are as follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- -----------
(unaudited) (audited as
restated)
<S> <C> <C>
Current assets (primarily accounts
receivable and inventory) $ 20,766 $ 15,544
Accounts payable and accrued expenses (24,603) (19,836)
-------- --------
Net current liabilities $ (3,837) $ (4,292)
-------- --------
-------- --------
Property, plant and equipment, net $ 8,953 $ 8,307
Goodwill, net 27,739 27,875
Other non-current assets 559 1,676
Long-term debt (145) (478)
Other long-term liabilities (1,200) (1,200)
------- --------
Net long-term assets $ 35,906 $ 36,180
-------- --------
-------- --------
</TABLE>
The condensed statement of operations relating to the discontinued
operations are as follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended
June 30,
-----------------
1999 1998
------ ------
(unaudited) (unaudited as
restated)
<S> <C> <C>
Net sales $120,848 $95,079
Cost and expenses 121,981 92,135
------- ------
(Loss)income before income taxes (1,133) 2,944
Provision for income taxes 407 (1,152)
------- ------
Net (loss)income $ (726) $1,792
------- ------
------- ------
</TABLE>
The consolidated net sales from continuing operations includes $8,827,000
and $8,530,000 for the nine months ended June 30, 1999 and 1998,
respectively, in intersegment sales between the Swimming Pool and Spa
Equipment Segment and A&S. Interest expense of the continuing operations is
net of intercompany interest income of $948,000 and of $1,529,000 for the
nine months ended June 30, 1999 and 1998 respectively, charged to the
discontinuing operations costs and expenses.
In August 1999, the Company's Swimming Pool and Spa Equipment Segment
acquired certain assets of Kreepy Krauly, a manufacturer of automatic
swimming pool cleaners, for $16,750,000, subject to certain post-closing
net asset adjustments.
(3) RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts in order to
be consistent with the presentation for the current year.
<PAGE>
(4) EARNINGS PER SHARE
Earnings per share is computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based on the combined weighted average number of shares outstanding which
include the assumed exercise or conversion of options. In computing diluted
earnings per share, the Company has utilized the treasury stock method.
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------
1999 1998
--------- ---------
(unaudited) (unaudited as
restated)
<S> <C> <C>
Numerator
Income from continuing operations 13,421 9,465
(Loss)income from discontinued
operations (726) 1,792
--------- --------
Net income $ 12,695 $ 11,257
--------- --------
--------- --------
Denominator
Weighted average common
shares outstanding 13,069 12,872
Dilutive effect of
stock options 1,934 1,935
--------- --------
Denominator for net
income per diluted share 15,003 14,807
--------- --------
--------- --------
Per share information:
Income from continuing operations:
Basic $1.03 $0.73
--------- --------
--------- --------
Diluted $0.90 $0.64
--------- --------
--------- --------
(Loss)income from discontinued
operations:
Basic ($0.06) $0.14
--------- --------
--------- --------
Diluted ($0.05) $0.12
--------- --------
--------- --------
Net income:
Basic $0.97 $0.87
--------- --------
--------- --------
Diluted $0.85 $0.76
--------- --------
--------- --------
</TABLE>
<PAGE>
(5) INVENTORIES
Inventories are valued as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- ---------
(unaudited) (audited as
restated)
<S> <C> <C>
FIFO COST
Raw materials...................... $23,439 $20,592
Work-in-process.................... 1,849 1,926
Finished goods..................... 23,533 23,827
------- -------
48,821 46,345
Excess of FIFO over LIFO cost.... (1,248) (1,124)
------- -------
Net Inventories............... $47,573 $45,221
------- -------
------- -------
</TABLE>
(6) SHORT-TERM BORROWINGS
The Company's European subsidiaries have working capital lines of credit of
approximately $12,000,000. At June 30, 1999 and September 30, 1998,
$3,268,000 and $1,595,000, respectively was outstanding. At June 30, 1999,
interest was at rates ranging from 3.95% to 9.0%. In addition, a note
payable of $2,411,000 and $2,258,000 relating to an acquisition was
outstanding at June 30, 1999 and September 30, 1998, respectively. At June
30 1999, the interest rate on the note was 6%.
(7) LONG-TERM DEBT
The Company through its bank group has an unsecured $185,000,000
multi-currency revolving loan facility ("Credit Facility"). The Credit
Facility matures April 30, 2003 and may be extended in one year increments
with the approval of the bank group. The Credit Facility includes
commitment reductions at specified dates and for events throughout the term
of the loan; however, the commitment does not reduce below $135,000,000.
Interest rates are based on increments over the LIBOR or foreign currency
equivalent rate. A 17.5 basis point facility fee is payable on the total
amount of the commitment. As of June 30, 1999, interest rates ranged from
5.425% to 6.2%. The Company is in compliance with all of its covenants
under its credit facilities.
In October 1998, the Company entered into an interest rate swap arrangement
with one of the members of its bank group. The swap arrangement is for a
$50,000,000 notional amount for a two-year term with a bank option for a
third year and fixes the Company's interest rate at 4.45% plus the
applicable bank margin based on the Company's leverage ratio. The effective
interest rate on this portion of debt was 5.195% at June 30, 1999. The
Company does not use derivatives for trading purposes.
<PAGE>
Long-term debt consists of the following:
(In thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
----------- ------------
(unaudited) (audited as
restated)
<S> <C> <C>
Revolving credit facilities $ 112,031 $ 110,940
Other 1,559 1,522
--------- ---------
113,590 112,462
Less current maturities (301) (318)
--------- ---------
Long-term debt $ 113,289 $ 112,144
--------- ---------
--------- ---------
</TABLE>
(8) COMMON STOCK
Under a stock repurchase program authorized by the Company's Board of
Directors, the Company purchased 114,200 shares of treasury stock in the
nine month period ended June 30, 1999, for $1,936,000.
(9) COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standard's No. 130 ("SFAS 130") "Reporting Comprehensive
Income". SFAS 130 establishes new standards for reporting comprehensive
income and its components. Comprehensive income is a measurement of all
changes in shareholders' equity that result from transactions and other
economic events other than transactions with shareholders.
Consolidated statements of comprehensive income are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------
1999 1998
------ ------
(unaudited) (unaudited
as restated)
<S> <C> <C>
Net Income $ 12,695 $ 11,257
Other Comprehensive
(loss)/Income:
Foreign Currency
translation adjustment (1,015) (83)
-------- --------
Comprehensive Income $ 11,680 $ 11,174
-------- --------
-------- --------
</TABLE>
(10) STOCK DIVIDEND
On February 4, 1999, the Board of Directors authorized a 10% dividend which
was distributed on March 10, 1999 to shareholders
<PAGE>
of record on February 19, 1999. The consolidated financial statements have
been retroactively restated to reflect the number of shares outstanding
following the dividend.
(11) LITIGATION
There has been no material change to the status of the litigation referred
to in the Company's 1998 Annual Report to Shareholders, sections of which
are incorporated in the Company's Form 10-K filed for the fiscal year ended
September 30, 1998.
<PAGE>
FALCON MANUFACTURING, INC.
AND SUBSIDIARY
REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Falcon Manufacturing, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholder's equity and cash flows present
fairly, in all material respects, the financial position of Falcon
Manufacturing, Inc. and Subsidiary (the "Company") at December 31, 1998 and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. 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 conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
May 12, 1999, except for Note 12
as to which the date is August 13, 1999
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1998
-----------------
<S> <C>
Current assets:
Cash $ 322
Inventories 38,967
Refundable state income taxes 677
Deferred income taxes 4,685
Other current assets 978
-----------------
Total current assets 45,629
Property, plant and equipment, net 34,954
Goodwill, net 18,384
Other assets 710
-----------------
Total assets $ 99,677
-----------------
-----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion long-term debt $ 50
Accounts payable 28,682
Book overdraft 5,350
Accrued liabilities 15,297
-----------------
Total current liabilities 49,379
Long-term debt 177
Accrued employee benefit obligations 1,749
Advances form Falcon 44,132
Deferred income taxes 748
Other long-term liabilities 2,658
-----------------
Total liabilities 98,843
-----------------
Stockholder's equity:
Common stock, par value $.01 per share, 1,000 shares
authorized, issued and outstanding --
Additional paid-in capital 388,729
Accumulated deficit (387,895)
-----------------
Total stockholder's equity 834
-----------------
Total liabilities and stockholder's equity $ 99,677
-----------------
-----------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,1998
------------------
<S> <C>
Net sales $ 389,110
Cost of Sales 327,592
------------------
Gross profit 61,518
Selling, general and administative expenses 28,529
Write-down of assets 1,123
Parent Company allocation 26,790
Interest expense 22
------------------
Income before income taxes 5,054
Income tax provision 2,157
------------------
Net income $ 2,897
------------------
------------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ -- $ 388,729 $ (390,792) $ (2,063)
Net income 2,897 2,897
------------- ------------- ------------- -------------
Balance at December 31, 1998 $ -- $ 388,729 $ (387,895) $ 834
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net-income $ 2,897
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 4,410
Amortization 846
Write-down of assets 1,123
Deferred income taxes 3,337
Cash effects of changes in:
Inventories (2,203)
Other current assets 2,439
Accounts payable 16,493
Accrued liabilities and accrued employee benefit
obligations 384
-------------------
Net cash provided by operating activities 29,726
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,862)
-------------------
Net cash used in investing activities (8,862)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments to Parent Company (20,738)
Repayments of long-term debt (58)
-------------------
Net cash used in financing activities (20,796)
-------------------
INCREASE IN CASH 68
CASH, BEGINNING OF PERIOD 254
-------------------
CASH, END OF PERIOD $ 322
-------------------
-------------------
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
Interest $ 22
Income taxes from Falcon $ (992)
Income taxes to third parties $ 65
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION
Falcon Manufacturing, Inc. and Subsidiary (the "Company") is a wholly owned
subsidiary of Falcon Building Products, Inc. ("Falcon"). The Company is a
leading producer of consumer and commercial air compressors, electric generators
and pressure washers for home improvement applications. The consolidated
statement of income reflects an allocation of certain costs and expenses from
Falcon. The accompanying consolidated financial statements may not necessarily
be indicative of the financial position, results of operations or cash flows of
the Company in the future or what the financial position, results of operations
or cash flows would have been had the Company been a separate, independent
company during the period presented.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Falcon Manufacturing, Inc. and its wholly-owned subsidiary, DeVilbiss Air Power
Company. All significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenues as products are shipped to customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash balances and highly liquid investments
with an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes raw
materials, labor and manufacturing overhead. The first-in, first-out ("FIFO")
method of inventory valuation is used.
IMPAIRMENT OF LONG-LIVED ASSETS
An impairment loss is recognized in the event that facts and circumstances
indicate that the carrying amount of an asset may not be recoverable and an
estimate of future undiscounted cash flows is less than the carrying amount of
the asset.
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The straight-line method is
generally used to provide for depreciation over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Buildings 10 - 40 years
Machinery and equipment 3 - 12 years
</TABLE>
Upon sale or retirement of property, plant and equipment, the related costs and
accumulated depreciation are removed from the respective accounts, and any
resulting gain or loss is included in the consolidated statement of income.
GOODWILL
Goodwill represents the purchase price associated with acquired businesses in
excess of the fair value of the net assets acquired. Goodwill is amortized on a
straight-line basis, over forty years. Accumulated amortization was
approximately $3,232,000 at December 31, 1998. The recoverability of goodwill is
reassessed periodically to determine if current operating income is sufficient
to recover the current amortization. When events and circumstances indicate the
future operating income and cash flow may be negatively affected, the
recoverability is evaluated based upon the estimated future operating income and
undiscounted cash flow of the related entity during the remaining period of
goodwill amortization.
PRODUCT WARRANTY
A provision for estimated warranty costs is recorded at the time of sale and
periodically adjusted to reflect actual experience.
INCOME TAXES
The Company is included in Falcon's consolidated U.S. federal income tax return.
Under the terms of a tax-sharing arrangement with Falcon, the Company computes
and pays to/receives from Falcon its liability/receivable for U.S. federal
income taxes as if the Company filed a separate U.S. federal tax return. The
Company files separate and combined state income tax returns, as applicable.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company participates in Falcon's asset securitization program whereby a
subsidiary of Falcon sells, with limited recourse, on a continuous basis, an
undivided interest in all of the Company's accounts receivable for cash. The
securitization expense incurred is recorded at Falcon. Falcon's securitization
program extends until 2002.
<PAGE>
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt consists of industrial revenue bonds, which bear
interest rates ranging from 6.15% to 6.70%. The industrial revenue bonds mature
on August 1, 2001. The aggregate maturities of long-term debt over the next
three years are as follows: 1999- $50,000; 2000- $88,000; and 2001- $89,000. The
carrying amount approximates fair value as rates approximate borrowing rates
currently available to the Company for similar loans.
NOTE 5 - EMPLOYEE RETIREMENT AND BENEFIT PLANS
The Company has a plan which provides post-retirement life and health-care
benefits to certain hourly and salaried employees retiring from the Company.
Benefits are determined on varying formulas based on age at retirement and years
of active service. The plan is non-contributory. The Company has not funded any
of this post-retirement benefits liability. Contributions to the post-retirement
plans are made by the Company as claims are incurred.
<TABLE>
<CAPTION>
DECERNBER 31, 1998
------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Change in benefit obligations:
Benefit obligation at beginning of year $ 3,059
Interest cost 219
Actuarial loss 159
Benefits paid (430)
------------------
Benefit obligation at end of year $ 3,007
------------------
------------------
Change in plan assets:
Fair value of plan asets at beginning of year $ -
Company contribution 430
Benefits paid (430)
------------------
Fair value of plan assets at end of year $ -
------------------
------------------
Funded status $ (3,007)
Unrecognized actuarial loss 1,138
------------------
Accrued benefit cost $ (1,869)
------------------
------------------
</TABLE>
<PAGE>
NOTE 5 - EMPLOYEE RETIREMENT AND BENEFIT PLANS, CONTINUED
<TABLE>
<S> <C>
Assumptions as of December 31, 1998:
Discount rate 7.00%
Health care cost trend rate 7.00% for 1999
decreasing to 5%
for 2001 and later
</TABLE>
<TABLE>
<S> <C>
Interest cost $ 219
Recognized actuarial loss 61
------------
Net periodic benefit cost $ 280
------------
------------
</TABLE>
<TABLE>
<CAPTION>
1 -Percentage-Point 1-Percentage-Point
Item Increase Decrease
---- -------- --------
<S> <C> <C>
Effect on total of service and interest cost
components $ 13 $ (13)
Effect on post-retirement benefit obligation $ 180 $ (180)
</TABLE>
The Company's salaried employees and certain hourly employees are eligible to
participate in Falcon's Cash Balance Pension Plan. The expense recognized in the
Company's consolidated statement of income associated with this plan was
approximately $438,000 in 1998. The funded status of this plan is accounted for
at Falcon.
Certain of the Company's employees are also eligible to participate in Falcon's
Employee Savings Plan. Company contributions to this plan were approximately
$397,000 in 1998. Company contributions to this plan are determined based on a
percentage of the contribution made by the employee.
<PAGE>
NOTE 6 - INCOME TAXES
The Company's consolidated balance sheet reflects the following deferred tax
assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Deferred tax assets:
Warranty and product return reserves $ 3,064
Inventory and receivable reserves 1,258
Insurance reserves 1,158
Accrued employee benefit obligations 717
Other 359
------------
$ 6,556
------------
------------
Deferred tax liabilities:
Property, plant and equipment basis differences $ 2,619
------------
$ 2,619
------------
------------
</TABLE>
Based on management's assessment, it is more likely than not that all of the net
deferred tax assets will be realized through future taxable earnings or
implementation of tax planning strategies.
The income tax provision consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Provision (benefit) for income taxes:
Current:
U.S. federal $ (992)
U.S. state (188)
------------
Subtotal $ (1,180)
------------
Deferred:
U.S. federal $ 2,791
U.S. state 546
------------
Subtotal 3,337
------------
Total $ 2,157
------------
------------
</TABLE>
<PAGE>
NOTE 6 - INCOME TAXES, CONTINUED
A reconciliation of income before income taxes computed at the U.S. federal
statutory rate to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
U.S. federal statutory rate 34%
Income taxes at U.S. federal statutory rate $ 1,718
State income taxes, net of U.S. federal tax impact 236
Amortization of intangibles 261
Other (58)
-------------
Income tax provision $ 2,157
-------------
-------------
Effective income tax rate 42.7%
-------------
-------------
</TABLE>
NOTE 7 - BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31, 1998
---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Inventories:
Raw materials and supplies $ 15,377
Work in process 225
Finished goods 23,365
---------------------
Total $ 38,967
---------------------
---------------------
Property, plant and equipment:
Land $ 1,031
Buildings 17,373
Machinery and equipment 31,750
Construction in progress 2,995
Less accumulated depreciation (18,195)
---------------------
Total $ 34,954
---------------------
---------------------
</TABLE>
<PAGE>
NOTE 7 - BALANCE SHEET DETAIL, CONTINUED
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Accrued liabilities:
Accrued product returns $ 5,175
Accrued product warranty 2,248
Accrued salaries and wages 2,444
Accrued rebates 2,167
Other accrued liabilities 3,263
-------------------
Total $ 15,297
-------------------
-------------------
</TABLE>
NOTE 8 - WRITE-DOWN OF ASSETS
The Company recorded a $1,123,000 charge during fiscal year 1998 to write-down
to market automotive assets that were no longer being utilized. At December 31,
1998, approximately 60% of the automotive assets had been sold to a third party.
NOTE 9 - RELATED PARTY TRANSACTIONS
Falcon makes advances to the Company for its operating liquidity needs,
including the funding of its working capital requirements. In addition,
allocations of corporate expense and certain pension expense (see Note 5) as
well as payments associated with a tax sharing agreement (see Note 6) and
insurance are included in Advances from Falcon. These advances include the
effects of the Company's sale of accounts receivable to Falcon.
The Company is included in Falcon's risk insurance and general liability
insurance program. Falcon administers the payment of all insurance premiums and
claims, which are reimbursed by the Company through Advances from Falcon. The
liabilities and associated expense related to these policies are recorded in the
Company's consolidated financial statements.
Falcon provides strategic direction, financial management and other corporate
administrative services to the Company. Falcon allocates its pretax expenses,
including securitization and financing costs incurred by Falcon, to its
subsidiaries. The Company's proportional share of these expenses was
$26,790,000 for the year ended December 31, 1998.
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouse space, manufacturing equipment, copiers and
other office equipment. Most of the realty leases contain renewal options and
escalation clauses. Total rent expense, including related real estate taxes,
amounted to $760,000 for the year ended December 31, 1998.
Future minimum lease payments required as of December 31, 1998 (in thousands)
are as follows:
<TABLE>
<S> <C>
1999 $ 123
2000 123
2001 123
2002 109
-----------
$ 478
-----------
-----------
</TABLE>
NOTE 11 - CONCENTRATION OF MAJOR CUSTOMERS
Approximately 67% of the Company's net sales for the year ended December 31,
1998 were provided by three major customers.
NOTE 12 - SUBSEQUENT EVENT
On August 13, 1999, Falcon signed a definitive agreement with Pentair, Inc. for
the sale of the Company. The transaction is expected to be completed in
September 1999.
<PAGE>
FALCON MANUFACTURING, INC.
AND SUBSIDIARY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended June 30, 1999
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
Financial Statements --------
<S> <C>
Condensed Consolidated Balance Sheets.............................. 3
Condensed Consolidated Statements of Income........................ 4
Condensed Consolidated Statements of Cash Flows.................... 5
Notes to Condensed Consolidated Financial Statements............... 6
</TABLE>
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------ -------------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash......................................................... $ 144 $ 322
Inventories, net............................................. 55,538 38,967
Deferred income taxes........................................ 6,547 4,685
Other current assets......................................... 1,258 1,655
------------------ -------------------
Total current assets......................................... 63,487 45,629
Property, plant and equipment, net................................ 36,113 34,954
Goodwill, net..................................................... 18,000 18,384
Other assets...................................................... 628 710
------------------ -------------------
Total assets................................................. $118,228 $ 99,677
------------------ -------------------
------------------ -------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion long-term debt............................... $ 50 $ 50
Accounts payable............................................. 45,262 34,032
Accrued liabilities.......................................... 25,288 15,297
------------------ -------------------
Total current liabilities.................................... 70,600 49,379
Long-term debt.................................................... 170 177
Accrued employee benefit obligation............................... 1,705 1,749
Advances from Falcon.............................................. 30,421 44,132
Deferred income taxes............................................. 690 748
Other long-term liabilities....................................... 2,955 2,658
------------------ -------------------
Total liabilities............................................ 106,541 98,843
------------------ -------------------
Stockholder's equity:
Common stock................................................. -- --
Additional paid-in capital................................... 388,729 388,729
Retained deficit............................................. (377,042) (387,895)
------------------ -------------------
Total stockholder's equity................................... 11,687 834
------------------ -------------------
Total liabilities and stockholder's equity........................ $118,228 $ 99,677
------------------ -------------------
------------------ -------------------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------
JUNE 30, 1999 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Net sales......................................... $269,384 $188,729
Cost of sales..................................... 218,344 161,607
------------------ -----------------
Gross profit................................. 51,040 27,122
Selling, general and administrative expenses...... 20,919 13,641
Corporate allocation.............................. 12,106 13,190
Interest expense.................................. 8 12
------------------ -----------------
Income before income taxes........................ 18,007 279
Income tax provision.............................. 7,154 107
------------------ -----------------
Net income........................................ $ 10,853 $ 172
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED
-------------------------------------
JUNE 30, 1999 JUNE 30, 1998
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $10,853 $ 172
Adjustments to reconcile net income to net cash from operations:
Depreciation.......................................................... 2,622 1,948
Amortization.......................................................... 423 423
Provision (benefit) for deferred income taxes......................... (1,920) --
Cash effect of changes in working capital, accrued employee benefit
obligations, and other long-term liabilities........................ 5,300 8,689
----------------- ----------------
Net cash from operating activities ................................... 17,278 11,232
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................... (4,045) (3,716)
Other................................................................... 307 (120)
----------------- ----------------
Net cash used in investing activities................................. (3,738) (3,836)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments to Parent Company.......................................... (13,711) (7,296)
Payment on debt......................................................... (7) (29)
----------------- ----------------
Net cash used in financing activities................................. (13,718) (7,325)
----------------- ----------------
CHANGE IN CASH............................................................. (178) 71
CASH, BEGINNING OF PERIOD.................................................. 322 254
----------------- ----------------
CASH, END OF PERIOD........................................................ $ 144 $ 325
----------------- ----------------
----------------- ----------------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
Falcon Manufacturing Inc. and Subsidiary (the "Company") is a
wholly owned subsidiary of Falcon Building Products, Inc. ("Falcon"). The
accompanying unaudited Condensed Consolidated Financial Statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for a complete set of financial statements. In the
opinion of management, all adjustments considered necessary, consisting only
of normal recurring adjustments, are included for fair presentation.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the full year. The unaudited
Condensed Consolidated Financial Statements should be read in conjunction
with the audited Consolidated Financial Statements of the Company for the
year ended December 31, 1998.
(2) ACCOUNTS RECEIVABLE
The Company participates in Falcon's asset securitization program
whereby a subsidiary of Falcon sells, with limited recourse, on a continuous
basis, an undivided interest in all of the Company's accounts receivable for
cash. The securitization expense incurred is recorded at Falcon. Falcon's
securitization program extends until 2002.
(3) BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- ----------------
(UNAUDITED)
(dollars in thousands)
<S> <C> <C>
Inventories:
Raw materials and supplies....... $ 29,680 $ 15,377
Work in process.................. 638 225
Finished goods................... 25,220 23,365
---------------- ----------------
$ 55,538 $ 38,967
---------------- ----------------
---------------- ----------------
Accrued liabilities:
Accrued product returns.......... $ 6,679 $ 5,175
Accrued product warranty......... 4,652 2,248
Accrued salaries and wages....... 3,268 2,444
Accrued rebates.................. 5,081 2,167
Other accrued liabilities........ 5,608 3,263
---------------- ----------------
$ 25,288 $ 15,297
---------------- ----------------
---------------- ----------------
</TABLE>
6
<PAGE>
FALCON MANUFACTURING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(4) RELATED PARTY TRANSACTIONS
Falcon makes advances to the Company for its operating liquidity
needs, including the funding of its working capital requirements. In
addition, allocations of corporate expense and certain pension expense as
well as payments associated with a tax sharing agreement and insurance are
included in Advances from Falcon. These advances include the effects of the
Company's sale of accounts receivable to Falcon.
The Company is included in Falcon's risk insurance and general
liability insurance program. Falcon administers the payment of all insurance
premiums and claims, which are reimbursed by the Company through Advances
from Falcon. The liabilities and associated expense related to these policies
are recorded in the Company's consolidated financial statements.
Falcon provides strategic direction, financial management and other
corporate administrative services to the Company. Falcon allocates its pretax
expenses, including securitization and financing costs, to its subsidiaries.
The Company's proportional share of these expenses was $12,106,000 and
$13,190,000 for the six months ended June 30, 1999 and 1998, respectively.
(5) CONCENTRATION OF MAJOR CUSTOMERS
Approximately 67% and 62% of the Company's net sales were provided
by three major customers for the six months ended June 30, 1999 and 1998,
respectively.
(6) SUBSEQUENT EVENTS
On August 13, 1999, Falcon signed a definitive agreement with
Pentair, Inc. for the sale of the Company. The transaction is expected to be
completed in September.
7
<PAGE>
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
St. Paul, MN 55113-3105
651 636 7920 Tel
651 639 5203 Fax
NEWS RELEASE [LOGO]
FOR IMMEDIATE RELEASE
Contact: Mark Cain (651) 639-5278
PENTAIR COMPLETES ESSEF ACQUISITION, EXPANDING WATER GROUP TO $1 BILLION IN
2000
St. Paul, MN - August 10, 1999 -- Pentair, Inc. (NYSE: PNR) announced today
it has completed the acquisition of Essef Corporation (Nasdaq: ESSF) of
Chardon, Ohio, for $18.97 per share, or $310 million, and the assumption of
approximately $120 million of Essef debt. Pentair, which financed the
purchase of Essef through a new $400 million bridge loan facility and its
regular lines of credit, expects the acquisition to be accretive to earnings
in the first 12 months after acquisition and contribute significantly to the
full year 2000. Due to the seasonality of the pool business and the August
timing of the transaction, the Essef acquisition will be dilutive in the
third quarter of 1999 and for the full year.
"As with our other acquisitions, Pentair will aggressively pursue
synergies between Essef and Pentair's existing water businesses and
accelerate contributions from the acquisition," said Pentair Chairman,
President, and Chief Executive Officer, Winslow H. Buxton. "With Essef, sales
in Pentair's Water and Fluid Technologies Group will grow to an estimated $1
billion in 2000. Combined with our existing pump and valve companies, the
Essef business expands our considerable position in global water markets,
making Pentair a leader in the residential and industrial water equipment
business. Essef also offers many synergies with Pentair's existing
businesses, significantly expands our presence in international markets, and
provides vehicles for growth through new water filter and control
technologies."
Essef Corporation designs, manufactures, and distributes products
used in moving, treating, and storing water, including pumps, storage tanks,
and filtration systems for residential, commercial, municipal, and industrial
customers. Essef is a leading manufacturer of pool and spa equipment used in
residential and commercial pools, water parks, and commercial aquariums. The
company's 1999 sales are projected to be approximately $350 million,
exclusive of its Anthony & Sylvan pool construction business, which was
split-off by Essef to its current shareholders at the closing. Exclusive of
the pool construction business, Essef employs approximately 2,000 people at
manufacturing locations throughout the world.
(more)
<PAGE>
PENTAIR COMPLETES ESSEF ACQUISITION
AUGUST 10, 1999
PAGE TWO
The addition of Essef's market-leading water storage tank products
reinforces Pentair's number one position in water conditioning control
valves. Essef's high-strength, lightweight tanks offer major safety and
environmental advantages in water conditioning and treatment markets
throughout the world. Similarly, Pentair's strong position in pumps and water
systems for residential applications is enhanced with Essef's residential
pressure tanks, which are key components of household well water systems.
Essef also gives Pentair a strong position in the swimming pool and
spa equipment industry. Essef's product offering for this market segment
includes a wide range of filters, pumps, heaters, controls, valves, lights,
and accessories.
With the completion of the transaction, Pentair is reorganizing
Essef to take advantage of synergies with existing Pentair businesses.
Essef's PacFab pool and spa equipment business will be combined with the
Pentair Pump Group to form a new organization called the Pentair Pump and
Pool Group under the guidance of President Michael V. Schrock. Essef's
Structural Fibers pressure tank business will be combined with Pentair's
Fleck Controls unit to form the Pentair Water Treatment business, under the
direction of President Jorge Fernandez.
"This new organization positions Pentair to provide a broader range
of products and services, while streamlining service to customers and
enhancing opportunities for new product development," said Richard J.
Cathcart, Pentair executive vice president and president of the Water and
Fluid Technologies Group.
Pentair announced plans to expand its presence in water product
markets in early 1995 and subsequently acquired the Fleck Controls control
valve business in November 1995. In August 1997, Pentair acquired the General
Signal Pump Group, which has since been integrated with existing pump
operations to form the Pentair Pump Group. Sales of the Water and Fluid
Technologies Group totaled $537.9 million in 1998.
Pentair (http://www.pentair.com) is a diversified manufacturer
operating in three principal markets: professional tools and equipment, water
and fluid technologies, and electrical and electronic enclosures. Pentair
brands include Delta woodworking machinery; Porter-Cable power tools; Myers,
Fairbanks Morse, Aurora, and Hydromatic pumps; Fleck water conditioning
control valves; Century, Solar, and Lincoln service equipment; Lincoln
Industrial lubrication systems; and Hoffman and Schroff enclosures. Pentair
employs 10,000 people in more than 50 locations around the world, and had
1998 sales of $1.9 billion.
Any statements made about the company's anticipated financial
results are forward-looking statements subject to risks and uncertainties
such as those described in the company's Annual Report on Form 10K for the
year ended December 31, 1998. Actual results may differ materially from
anticipated results.
-- 30 --
<PAGE>
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
St. Paul, MN 55113-3105
651 636 7920 Tel
651 639 5203 Fax
NEWS RELEASE [LOGO]
FOR IMMEDIATE RELEASE
Contact: Evelyn Vida (651) 639-5229
PENTAIR TO ACQUIRE DEVILBISS AIR POWER COMPANY; TRANSACTION WILL DRIVE
PENTAIR REVENUES ABOVE $3 BILLION IN 2000
St. Paul, Minn. - August 13, 1999 - Pentair, Inc. (NYSE: PNR) today announced
that it has entered into an agreement to acquire the DeVilbiss Air Power
Company of Jackson, Tennessee, for approximately $460 million in cash. A
leading manufacturer of air compressors, pressure washers, and generators,
DeVilbiss Air Power Company had net sales of approximately $470 million for
the 12 months ended June 30, 1999. Pentair, which will finance the purchase
through a new $400 million bridge loan facility and its regular lines of
credit, expects the acquisition to be accretive to earnings in 1999 and to
add significantly to earnings in 2000. Completion of the transaction is
targeted for August/September 1999.
"The acquisition of DeVilbiss Air Power Company will drive sales in
Pentair's Professional Tools and Equipment Group to more than $1.5 billion
and Pentair's total revenues to well over $3 billion in the year 2000," said
Winslow H. Buxton, Pentair chairman, president, and chief executive officer.
The DeVilbiss Air Power Company agreement is the second significant
acquisition announced by Pentair in a little more than three months. On
August 10, Pentair completed its acquisition of Essef Corporation, a global
producer of products for the water industry that will have 1999 sales of
approximately $350 million.
"DeVilbiss Air Power Company fits exceptionally well with our tools
and equipment businesses and gives us the leading position in both the retail
air compressor and retail pressure washer markets," said Buxton.
"We are especially enthusiastic about this acquisition because
nearly all the products of DeVilbiss Air Power Company are new to Pentair,
while virtually all their customers are already part of our extensive
customer base," Buxton said. "With the addition of these highly respected
product lines, we substantially expand our tools and equipment product
offerings, increase our ability to meet the broad needs of our customers, and
leverage our strength in multiple distribution channels."
(more)
<PAGE>
PENTAIR TO ACQUIRE DEVILBISS AIR POWER COMPANY
AUGUST 13, 1999
PAGE TWO
DeVilbiss Air Power Company employs approximately 1,300 people in
Jackson, Tennessee, and Decatur, Arkansas. Its products are sold under the
Ex-Cell, Air America, and Charge Air Pro brands. In addition, DeVilbiss Air
Power Company manufactures products under private label arrangements.
"We see many sales and operating synergies among DeVilbiss Air Power
Company and our existing businesses," said James A. White, president of
Pentair's Professional Tools and Equipment Group. "For example, both
DeVilbiss Air Power Company and our Porter-Cable tool business have
headquarters, manufacturing, and distribution centers in Jackson, Tennessee.
"And, as previously announced," White added, "our Delta
International Machinery Corp. will combine its headquarters and distribution
center with Porter-Cable in Jackson in the first quarter of 2000. Operating
these businesses from one city will increase our ability to take advantage of
distribution, manufacturing, and administrative synergies. We will be able to
coordinate our activities to better serve our customers and manage costs."
J.P. Morgan & Co. provided a fairness opinion to the Pentair Board
of Directors in connection with the DeVilbiss Air Power Company acquisition.
A Pentair shelf registration statement for up to $700 million of
debt and/or equity securities became effective August 5, 1999. Pentair
intends to maintain financial flexibility consistent with an investment-grade
profile.
Pentair (http://www.pentair.com) is a diversified manufacturer
operating in three principal markets: professional tools and equipment, water
and fluid technologies, and electrical and electronic enclosures. Pentair
brands include Delta woodworking machinery; Porter-Cable power tools; Myers,
Fairbanks Morse, Aurora, and Hydromatic pumps; Fleck water conditioning
control valves; WellMate composite pressure vessels; Pac-Fab pool and spa
equipment; Century, Solar, and Lincoln service equipment; Lincoln Industrial
lubrication systems; and Hoffman and Schroff enclosures. Pentair employs
11,000 people in more than 50 locations around the world, and had 1998 sales
of $1.9 billion.
Any statements made about the company's anticipated financial results
are forward-looking statements subject to risks and uncertainties such as those
described in the company's Annual Report on Form 10K for the year ended December
31, 1998. Actual results may differ materially from anticipated results.
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