SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest
event reported): November 18, 1994
WATTS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-14787 04-2916536
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
815 Chestnut Street, North Andover, Massachusetts 01845
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(508) 688-1811
N/A
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
Watts Industries, Inc. (the "Company") has completed four
acquisitions since July 15, 1994, none of which individually is deemed
significant for purposes of Regulation S-X of the Securities and
Exchange Commission and none of which individually required the filing
by the Company of a Current Report on
Form 8-K.
Tanggu Watts.
On July 15, 1994, Watts Investment Company, a wholly owned
subsidiary of the Company, acquired a controlling 60% equity interest
in Tianjin Tanggu Watts Valve Company Limited ("Tanggu Watts"). Tanggu
Watts, which is a Chinese limited liability equity joint venture, was
formed with Tianjin Tanggu Valve Plant ("Tanggu Valve"), a manufacturer
of butterfly valves and other valve products located in Tianjin,
People's Republic of China.
The total registered capital invested in Tanggu Watts by both the
Company and Tanggu Valve was RMB 123,000,000 (Chinese Renminbi), which
is equal to approximately US$14,100,000. Of this amount, the Company
has contributed cash in the approximate amount of US$8,500,000 which is
equal to approximately RMB 73,800,000 or 60% of the total registered
capital. The Company's source of capital to finance this acquisition
was from existing cash balances. Tanggu Valve contributed machinery
and equipment, a land development fee, technology and certain inventory
in the amount of RMB 49,200,000, which is equal to approximately
US$5,600,000 or 40% of the total registered capital.
Tanggu Watts, which maintains its headquarters and manufacturing
operations in Tianjin, People's Republic of China, will manufacture
butterfly, globe and check valves for the water distribution and
industrial markets in the People's Republic of China, the United
States, Europe, Australia and Southeast Asia. The Company intends that
Tanggu Watts will continue to use the assets of Tanggu Watts within the
same industry, as described in the immediately preceding sentence, as
they were used by Tanggu Valve prior to the formation of the joint
venture. Tanggu Valve's sales for the twelve-month period ended
December 31, 1993 were approximately the equivalent of US$8,000,000.
Jameco.
On July 28, 1994, Jameco Acquisition Corp., a wholly owned
indirect subsidiary of the Company, acquired from certain individual
and trust stockholders all of the issued and outstanding capital stock
of Jameco Industries, Inc., a New York corporation ("Jameco"), for a
price of $29,503,030 (of which approximately $25 million was paid in
cash at closing and $3.75 million in cash was deposited into and is
still being held in an interest-bearing escrow account and the
remaining amount was deducted from the total price as a result of
amounts owed to Jameco by one of the selling stockholders). The money
held in the escrow account will be paid pursuant to and in accordance
with terms of the Escrow Agreement, attached as an exhibit to Exhibit
2.2 hereto, to secure the payment of claims for indemnification made
against the three principal selling stockholders. Jameco had
approximately $13 million of outstanding bank debt that remains
outstanding. The Company's source of capital to finance this
acquisition was from existing cash balances.
The acquisition also included the purchase by the Company of the
parcel of land, together with the buildings and improvements thereon,
on which the facilities of Jameco are situated for an additional cash
payment of $5.3 million. Prior to its acquisition by the Company, the
land was owned indirectly by two of the principal selling stockholders
of Jameco.
Jameco, headquartered in Wyandanch, New York, is a manufacturer of
metal and plastic water supply products including valves, tubular
products and sink strainers that are sold primarily to the residential
construction and home repair and remodeling markets in the United
States and overseas. Jameco's sales for the twelve-month period ended
June 30, 1994 were approximately $56 million. The Company intends to
continue to use the assets of Jameco within the same industry in which
they were used prior to the acquisition.
Cryolab.
On August 4, 1994, Circle Seal Controls, Inc., a wholly-owned
subsidiary of the Company, acquired substantially all of the assets,
subject to certain liabilities, of the Cryolab product line (the
"Cryolab Business") of SAES Pure Gas, Inc. ("SAES") for a cash price of
$886,122 paid at closing. The Company's source of capital to finance
this acquisition was from existing cash balances.
The assets acquired, which included inventory, raw materials,
patterns, drawings, toolings, dies, machinery and equipment, goodwill
and certain intellectual property rights, were used by SAES to
manufacture and sell cryogenic valves to control the flow of gases and
liquids exhibiting a temperature of -100 degrees fahrenheit and lower.
The products made in the Cryolab Business include globe, "Y", angle,
vacuum-jacketed, extended stem, and vacuum seal-off type valves and
operators. The Company intends to use the assets of the Cryolab
Business in the existing cryogenic valve business of Circle Seal
Controls, Inc., which is located in Corona, California. SAES's sales
from the Cryolab Business for the twelve-month period ended December
31, 1993 were approximately $1,500,000.
Pibiviesse.
On November 18, 1994, two wholly owned indirect subsidiaries of
the Company acquired from Philabel International NV all of the issued
and outstanding capital stock of Philabel NV, a Dutch holding company
owning all of the issued and outstanding capital stock of Pibiviesse
S.p.A. ("PBVS"), an Italian valve manufacturing company located in
Milan, Italy, for a price of 29,827,193,801 Italian Lire (approximately
US$18.5 million), 90% of which was paid at closing and all or a portion
of the balance to be paid within 4 months of the closing based on a
post-closing determination of the balance sheet of PBVS as of the
closing date, plus certain contingent deferred payments that may become
payable in the future. The contingent deferred payments become payable
upon achievement of a number of different benchmarks for gross revenues
of PBVS during the three-year period ending December 31, 1997 and could
equal a maximum of 6,000,000,000 Italian Lire (approximately US$3.7 million)
in the aggregate if all of the specified benchmarks are achieved.
PBVS manufactures ball and gate valves for the oil and gas
markets. The Company intends to continue to use the assets of PBVS
within the same industry in which they were used prior to the
acquisition. Sales for PBVS for the twelve-month period ended June 30,
1994 were approximately US$34,000,000.
The Company's sources of capital to finance this acquisition were
existing cash balances and a draw down of a portion of the Company's
unsecured line of credit for $125,000,000 with the First National Bank
of Boston.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(a) Financial Statements of
Businesses Acquired. Not applicable.
(b) At the time of the filing of this Form 8-K, it is
impracticable for the Company to provide the pro
forma financial information relating to the
acquisition by the Company of Tanggu Watts,
Jameco, Cryolab and PBVS. Such financial
information will be filed by amendment not later than
February 3, 1995, in accordance with Item 7, paragraph
(b)(2) of Form 8-K.
(c) Exhibits.
*2.1 Joint Venture Contract, dated
as of June 27, 1994, by and between
Tianjin Tanggu Valve Plant and Watts
Investment Company.
*2.2 Stock Purchase Agreement, dated
as of July 28, 1994, by and between
Jameco Acquisition Corp. and Harry
Lipman, Michael Lipman, Walter Lipman,
Sidney Greenberg, David Chasin, Kenneth
S. Lipman, Peter A. Lipman, Ethel S.
Lipman, Gloria Lipman, Walter Lipman
Trust for the Benefit of Ilene Burstein,
Walter Lipman Trust for the Benefit of
Staci Burstein and Walter Lipman Trust
for the Benefit of Joshua Burstein.
*2.3 Asset Purchase Agreement, dated
as of August 4, 1994, by and between
Circle Seal Controls, Inc. and SAES Pure
Gas, Inc.
*2.4 Stock Purchase Agreement, dated
as of November 18, 1994, by and between
Watts Industries Europe BV, KF Industries
Europe BV, Philabel International NV,
Antonio Vienna, and G.I.V.A. S.p.A.
* The Company will supply the Commission upon
request with copies of any schedules to Exhibits
2.1, 2.2, 2.3, and 2.4 which are not included
herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WATTS INDUSTRIES, INC.
By:/s/ William C. McCartney
William C. McCartney,
Vice President of
Finance
Date: December 5, 1994
_________________________
JOINT VENTURE CONTRACT
_________________________
BY AND BETWEEN
__________________________________________________
TIANJIN TANGGU VALVE PLANT
AND
WATTS INVESTMENT COMPANY
__________________________________________________
_________________________
RELATING TO THE ESTABLISHMENT OF
TIANJIN TANGGU WATTS VALVE COMPANY LIMITED
_________________________
DATED JUNE 27, 1994
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS 1
ARTICLE 2 - PARTIES TO THE CONTRACT 4
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY 6
ARTICLE 4 - THE PURPOSE AND SCOPE OF PRODUCTION AND OPERATION 8
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 8
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES 17
ARTICLE 7 - PURCHASE OF PARTY A'S INVENTORY AND CONTRIBUTION
OF ASSETS 19
ARTICLE 8 - TECHNOLOGY AND TECHNICAL SERVICES 21
ARTICLE 9 - SALE OF JOINT VENTURE PRODUCTS 23
ARTICLE 10 - BOARD OF DIRECTORS 24
ARTICLE 11 - OPERATION AND MANAGEMENT 28
ARTICLE 12 - BUILDINGS AND LAND 31
ARTICLE 13 - TRADEMARKS 34
ARTICLE 14 - SUPPLY AND PURCHASE OF RAW MATERIALS AND SERVICES 34
ARTICLE 15 - LABOR MANAGEMENT 35
ARTICLE 16 - FINANCIAL AFFAIRS AND ACCOUNTING 37
ARTICLE 17 - TAXATION AND INSURANCE 42
ARTICLE 18 - CONFIDENTIALITY 43
ARTICLE 19 - THE JOINT VENTURE TERM 45
ARTICLE 20 - TFRMINATION, BUY-OUT AND LIQUIDATION PROCEDURES 46
ARTICLE 21 - FORCE MAJEURE 50
ARTICLE 22 - SETTLEMENT OF DISPUTES 51
ARTICLE 23 - EXPERT PROCEDURES 53
ARTICLE 24 - APPLICABLE LAW 54
ARTICLE 25 - MISCELLANEOUS PROVISIONS 55
SIGNATURES
LIST OF EXHIBITS
Exhibit A - Articles of Association
Exhibit B - List of PARTY A's Contribution of Machinery, Equipment and
Inventory
Exhibit C - Agreement Regarding Land Use Rights
Exhibit D - Technology License Contract between the Company and PARTY A
Exhibit E - Technology License Contract between the Company and PARTY B
Exhibit F - Trademark License Contract between the Company and PARTY B
Exhibit G - Plant Services Contract between the Company and PARTY A
Exhibit H - Export Distributor Contract between the Company and Party B
Exhibit I - Buildings Lease Contract
JOINT VENTURE CONTRACT
THIS CONTRACT is made in the People's Republic of China on
this 27th day of June, 1994, by and between TIANJIN TANGGU
VALVE PLANT a legal person duly organized and existing under the
laws of the People's Republic of China and having its registered
address at 5 Yongtai Road, Tanggu, Tianjin, the People's Republic of
China ("PARTY A") and WATTS INVESTMENT COMPANY, a company
duly organized and existing under the laws of the State of Delaware,
United States of America, and having its head office at 715 King
Street, Suite 300, Wilmington, Delaware, United States of America
19801 ("PARTY B").
PRELIMINARY STATEMENT
After friendly consultations conducted in accordance with the
principle of equality and mutual benefit, PARTY A and PARTY B have
agreed to establish a limited liability equity joint venture in
accordance with the Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment (the "Joint Venture
Law"), the Implementing Regulations issued thereunder (the "Joint
Venture Regulations") and the provisions of this Contract.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE 1 - DEFINITIONS
Unless the terms or context of this Contract otherwise
provides, the following terms shall have the meanings set out below:
1.01 "Affiliate" means any company which, through ownership
of voting stock or otherwise, directly or indirectly, is controlled by,
under common control with, or in control of a PARTY; the term
"control" being used in the sense of power to elect a majority of
directors or to direct the management of a company.
1.02 "Approval Authority" shall mean the Ministry of
Foreign Trade and Economic Cooperation or the local authority
designated by such Ministry to approve this Contract and the Central
and Municipal agencies as may be necessary to implement the
provisions of this Contract and any ancillary contracts referred to
herein.
1.03 "Articles of Association" shall mean the Articles of
Association of the Company as set forth in Exhibit A attached hereto.
1.04 "Board" shall mean the board of directors of the
Company.
1.05 "Business License" shall mean the business license of the
Company issued by the SAIC following approval of this Contract.
1.06 "China or "PRC" shall mean the People's Republic of
China (and will refer to the Chinese Mainland only).
1.07 "Company" shall mean Tianjin Tanggu Watts Valve
Company Limited, a joint venture limited liability company formed by
the PARTIES pursuant to this Joint Venture Contract, the Joint
Venture Law, the Joint Venture Regulations, and other relevant
Chinese laws.
1.08 "Contributed Assets" shall mean those assets contributed
by PARTY A pursuant to Article 5.03(a) and which are more
particularly described in Exhibit B.
1.09 "Effective Date" shall mean the effective date of this
Contract, which date shall be the date on which all of the following
conditions have been fulfilled:
(a) Agreement and Articles. This Contract and the
Articles of Association have been approved by the Approval Authority
without any additional or different conditions being imposed; and
(b) Business License. The Business License has been
issued by the SAIC, reflecting the status and structure of the
Company as described herein, without any additional or different
conditions being imposed.
1.10 "Joint Venture Products" shall mean valve products
including center line wafer type butterfly valves, large rubber-seated
butterfly valves, high performance butterfly valves, above ground and
underground valves, gate valves, check valves, small high pressure
ball valves, large rubber-seated ball valves, and other valves used in
gas, liquid, water pipelines, mud and paper-making industries.
1.11 "Joint Venture Term" shall mean the term of the
Company as set forth in Article 19 hereof.
1.12 "Land" shall mean the land more particularly described in
Exhibit C and located at 5 Yongtai Road, Tanggu, Tianjin
Municipality, The People's Republic of China.
1.13 "Management Personnel" shall mean and include the
General Manager, Executive Vice General Manager, Vice General
Manager, Production Manager, Financial Controller, Marketing
Manager, Production Engineer, Auditor and such other personnel
designated as Management Personnel by the Board.
1.14 "PARTY" or "PARTIES" means PARTY A and PARTY B
individually or collectively.
1.15 "Renminbi" or "RMB" shall mean the lawful currency of China.
1.16 "SAEC" means the State Administration of Exchange
Control of China and/or its local branches as appropriate to the
context.
1.17 "SAIC" means the State Administration of Industry and
Commerce of China and/or its local branches as appropriate to the
context.
1.18 "United States Dollars", "U.S. Dollars" and "US$" shall
mean the lawful currency of the United States of America.
1.19 "Working Personnel" shall mean the employees of the
Company except the Management Personnel.
ARTICLE 2 - PARTIES TO THE CONTRACT
2.01 The Parties
The PARTIES to this Contract are:
(a) PARTY A, Tianjin Tanggu Valve Plant, registered in
Tanggu District, Tianjin, with its registered address at 5 Yongtai
Road, Tanggu, Tianjin, the People's Republic of China.
Legal Representative: Han You Sheng
Position: President
Nationality: Chinese
(b) PARTY B, Watts Investment Company, a company
registered in the state of Delaware, United States of America with its
head office at 715 King Street, Suite 300, Wilmington, Delaware,
United States of America 19801.
Legal Representative: David A. Bloss, Sr.
Position: Executive Vice President
Nationality: U.S.A.
2.02 Authority
Each PARTY hereby represents and warrants to the other
PARTY that, as of the date hereof and as of the Effective Date:
(a) such PARTY is duly organized, validly existing and
in good standing under the laws of the place of its establishment or
incorporation;
(b) such PARTY has all requisite power, authority and
authorization required to enter into this Contract and, upon the
Effective Date, will have all requisite power, authority and
authorization to perform fully each and every one of its obligations
hereunder;
(c) such PARTY has taken all actions necessary to
authorize it to enter into this Contract and such PARTY
representative whose signature is affixed hereto is fully authorized to
sign this Contract, and to bind such PARTY thereby;
(d) upon the Effective Date, this Contract shall
constitute the legal, valid and binding obligations of such PARTY;
(e) neither the execution of this Contract, nor the
performance of such PARTY's obligations hereunder, will conflict
with, or result in a breach of, or constitute a default under, any
provision of the Articles of Incorporation or By-Laws of such PARTY,
or any law, rule, regulation, authorization or approval of any
government agency or body, or of any contract or agreement to which
it is a party or subject;
(f) there is no lawsuit, arbitration, or legal,
administrative or other proceeding or governmental investigations
pending or, to the best knowledge of such PARTY, threatened against
such PARTY with respect to the subject matter of this Contract; and
(g) that all documents and information which is
provided to the other PARTY must be authentic, accurate and reliable
and will not have an adverse affect on such PARTY in performing its
obligations under this Contract.
ARTICLE 3 - ESTABLISHMENT OF THE JOINT VENTURE COMPANY
3.01 Establishment of the Company
The PARTIES hereby agree to establish the Company promptly
after the Effective Date in accordance with the Joint Venture Law, the
Joint Venture Regulations and the provisions of this Contract.
3.02 Name and Address of the Company; Branches
(a) Name. The name of the Company shall be:
"[CHINESE SYMBOLS]" in Chinese, and "Tianjin Tanggu Watts
Valve Company Limited" in English. At the expiration or
termination of this Contract, the Company shall forthwith change its
name by removing therefrom the trade names "Watts" and
"[CHINESE SYMBOLS]" without replacing them or any parts thereof
by any similar words or expressions. Similarly, notwithstanding
anything in this Contract to the contrary, should PARTY B's
participation in the registered capital of the Company at any time
during the existence of this Contract fall below 50%, the Company
shall forthwith change its name if requested by PARTY B in the same
manner as provided above. PARTY A in any case undertakes not to
continue or take over the Company's business using the trade name
"Watts" or "[CHINESE SYMBOLS]" or any parts thereof or any similar
words or expressions.
(b) Address. The legal address of the Company shall be 5 Yongtai Road,
Tanggu District, Tianjin, the People's Republic of China.
(c) Branches. The Company may establish necessary branch offices inside
of China with the approval of the
Board and the relevant authority in the location of the proposed
branch.
3.03 Limited Liability Company
The form of organization of the Company shall be a limited
liability company. Except as otherwise provided herein, once a
PARTY has paid in full its contribution to the registered capital of the
Company, it shall not be required to provide any further funds to or
on behalf of the Company by way of capital contribution, loan,
advance, guarantee or otherwise. Except as otherwise provided
pursuant to written agreement signed by the PARTY to be charged,
creditors of the Company shall have recourse only to the assets of
the Company and shall not seek repayment from any PARTY. The
Company shall indemnify the PARTIES against any and all losses,
damages or liability suffered by the PARTIES in respect of third-party
claims arising out of the operation of the Company. Subject to the
above, the profits, risks and losses of the Company shall be shared
by the PARTIES in proportion to and limited by their respective
contributions to the Company's registered capital.
3.04 Laws and Decrees
The Company shall be a legal person under the laws of China.
The activities of the Company shall be governed and protected by the
relevant published and publicly available laws, decrees, rules and
regulations of China.
ARTICLE 4 - THE PURPOSE AND SCOPE
OF PRODUCTION AND OPERATION
4.01 Purpose and Scope of the Company
(a) Purpose. The Company shall adopt advanced technology and scientific
management methods with the aim to earn lawful profits, gain a
competitive position in the market and make a contribution to the people
of China.
(b) Scope. The scope of the Company is to manufacture, distribute, and
sell Joint Venture Products.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND
REGISTERED CAPITAL
5.01 Total Investment. The Company's total investment shall be
Two Hundred and Twenty Nine Million Eight Hundred and Ninety Thousand
Renminbi (RMB 229,890,000).
5.02 Registered Capital. The Company's registered capital
shall be One Hundred and Twenty Three Million Renminbi (RMB
123,000,000).
5.03 Contribution to Capital
(a) The contribution to the registered capital of the
Company subscribed by PARTY A shall be Forty Nine Million Two
Hundred Thousand Renminbi (RMB 49,200,000), representing a forty
percent (40%) share of the registered capital of the Company.
PARTY A's contribution shall consist of:
(i) Machinery and equipment as more particularly described in the list set
forth as Exhibit B which, based on the results of evaluation, the
PARTIES agree is valued at Twenty Seven Million Two Hundred and Ninety
Five Thousand Renminbi (RMB 27,295,000);
(ii) land development fee which, based on the results of evaluation, the
PARTIES agree are valued at Sixteen Million Four Hundred and Forty Nine
Thousand Renminbi (RMB 16,449,000);
(iii)Technology as more particularly described in Exhibit D which, based
on the results of evaluation, the PARTIES agree is valued at Three
Million Five Hundred and Thirty Seven Thousand Renminbi
(RMB 3,537,000); and
(iv) Inventory to be selected from the finished goods in PARTY A's total
inventory up to a cost value of One Million Nine Hundred and Nineteen
Thousand Renminbi (RMB 1,919,000).
(b) The contribution to the registered capital of the Company subscribed
by PARTY B shall be Eight Million Four Hundred Eighty Thousand United
States Dollars (US$8,480,000), equivalent to Seventy Three Million Eight
Hundred Thousand Renminbi (RMB 73,800,000) and representing a sixty
percent (60%) share of the registered capital of the Company.
(c) The capital contributions which shall be made by PARTY A and PARTY B
shall be used by the Company only in the implementation of this
Contract. Except as otherwise provided herein and in the Technology
License attached as Exhibit E, all of the items contributed by the
PARTIES to the Company shall remain the property of the Company
throughout the entire term of this Contract.
5.04 Payment of Registered Capital and Conditions Precedent Thereto
(a) Subject to Article 5.04 (b) below, each PARTY shall pay into the Company
the capital contribution subscribed by it as follows: one third of each
PARTY's capital contribution shall be contributed within a (30) days
after the Effective Date; an additional one third shall be contributed
within sixty (60) days of the Effective Date; and the final one third
shall be deposited within ninety (90) days of the Effective Date.
(b) Notwithstanding the foregoing, the PARTIES' obligations to make their
respective contribution to the Company's registered capital shall not
arise until each of the following conditions has been fulfilled:
(i) approval of the following, if necessary, has been obtained from the
Approval Authority or other relevant authorities:
(1) This Contract, the Articles of Association attached hereto as Exhibit A,
and theFeasibility Study; and
(2) the Technology License Contract to be executed by the Company and
Tianjin Tanggu Valve Plant in the form set forth in Exhibit D
attached hereto and made a part hereof, and
(3) the Technology License Contract to be executed by the Company and
Watts Investment Company in the form set forth in Exhibit E attached
hereto respectively and made a part hereof; and
(4) the Trademark License Contract to be executed by the Company and Watts
Investment Company in the form set forth in Exhibit F attached hereto
and made a part hereof,
(ii) the issuance of the Company's Business License (with a scope of
business as set forth in Article 4.01 hereof);
(iii)the Company has submitted an application to the Tianjin Commission
of Foreign Trade and Economic Cooperation for designation as a
"Technologically Advanced Enterprise"; and
(iv) the Company has received a land use rights certificate from the
relevant governmental authorities evidencing the Company's right to
the exclusive possession, use and enjoyment of the Land for the full
scope of operation specified in Article 4.01 for the Joint Venture Term.
5.05 Late Contribution to Registered Capital Subject to Article 5.04 (b) ,
any delay in payment of either PARTY's contribution in accordance with
Article 5.04 (a) shall result in a payment of penalty to the Company
equal to 1% of the relevant PARTY's total contribution for that month
or part thereof that the delay in payment continues.
5.06 Investment Certificate
After each PARTY's contribution to the registered capital has
been made in full, an independent Chinese registered accountant
appointed by the Company in accordance with this Contract shall
verify the contribution and issue a contribution verification report to
the Company. Thereupon, the Company shall issue within sixty (60)
days after the payment of the contribution an investment certificate
to each PARTY signed by the Chairman of the Board. Each
investment certificate shall indicate on its face the amount of the
capital contribution evidenced thereby and a copy shall be submitted
to the Approval Authority for the record. The Board shall request the
Financial Controller to maintain a register identifying the investment
certificates that have been issued to the PARTIES.
5.07 Additional Financing
(a) Any additional capital investment in excess of the registered capital
or additional required working capital, may be obtained in the form of
loans to the Company from Chinese or foreign sources. As a general
principle and subject to Board approval, borrowings of the Company, if
any, shall be secured by the tangible assets of the Company.
(b) Interest on loans incurred by the Company shall be debited as a
financing cost of the Company.
(c) Except for the portion of working capital (i) to be provided by the
PARTIES as capital contribution or (ii) from bank loans received by the
Company, additional operating funds may be obtained principally from
net revenues generated by sales of the Company or as agreed to by the
Board of Directors.
5.08 Transfer or Assignment of Register
(a) General Principle. Each PARTY hereto undertakes to the other PARTY
that, except as permitted in this Article 5.08, it shall not:
(i) transfer, assign, sell or otherwise dispose of the legal or beneficial
ownership of; or
(ii)create any mortgage, charge, pledge, or other encumbrance over either
the whole or any part of its interest in the Company's registered
capital ("Interest") or its rights, obligations and benefits under this
Contract.
(b) Transfers to Affiliates. Notwithstanding the foregoing, either of the
PARTIES ("Transferor Party") may transfer its Interest to its affiliates
("Transferee Affiliates") on giving thirty (30) days' prior written
notice to the other PARTY.
The PARTIES hereby agree that in any such transfer between a Transferor
Party and its Transferee Affiliates, the other PARTY shall:
(i) waive any pre-emptive rights to purchase the Transferor Party's
Interest;
(ii) upon the request of the Transferor Party, give its written consent to
such transfer; and
(iii) cause its directors on the Board to vote in favor of a resolution
approving such transfer.
(c) Transfers to Third Parties. A Transferor Party shall have the right to
transfer its Interest to a non-Affiliate third party ("Third-Party
Transferee") provided:
(i) the Transferor Party first offers to transfer its Interest to the other
PARTY ("Non-transferring Party") in accordance with the preemption
procedures set out in Article 5.08(d) below and the Non-transferring
Party has declined to exercise its rights thereunder;
(ii) the Non-transferring Party has given its consent to the transfer in
writing to the Transferor Party; and
(iii)the Board has unanimously passed a written resolution approving the
transfer.
(d) Pre-emptive Rights. Where a Transferor Party desires to transfer its
Interest to a Third-Party Transferee, the Non-transferring Party shall
have a preemptive right to purchase or acquire such Interest in
accordance with, the provisions of this Article 5.08(d). In any
proposed transfer to a Third-Party Transferee, the Transferor Party
shall provide written notice (the "Disposal Notice") to the
Non-transferring Party setting forth the identity of the
Third-Party Transferee, the amount of consideration to be paid and
other particulars of the proposed transfer. By written notice to the
Transferor Party within sixty (60) days from the date of the Disposal
Notice, the Non-transferring Party shall have the right, but not the
obligation, to either:
(i) acquire the Transferor Party's interest under the same terms and
conditions and for the same consideration offered to the Third-Party
Transferee; or
(ii) introduce a new party or parties of its choice ("Substitute Party or
Parties") to acquire such interest from the Transferor Party under the
same terms and conditions and for the same consideration offered to the
Third-Party Transferee.
(e) Pre-emptive Rights. If the terms and conditions of a proposed
assignment described in a Disposal Notice do not provide
a purchase price or provide a purchase price which is not payable
entirely in cash, then the Non-transferring Party, or the Substitute
Party or Parties, shall have a pre-emptive right of purchase
exercisable in the same manner as provided in Article 5.08(d) for a
purchase price equivalent to the open market value of the Company
allocated on a pro-rata basis to the Transferor Party's interest. For
purposes of this Article, the "open market value" of the Company
shall be determined by the PARTIES or, if the PARTIES are unable to
agree on such value within a (30) days of the date of the Disposal
Notice, by an Expert as defined in Article 23. The expenses of such
Expert shall be bore equally by the PARTIES.
(f) Disposal. If the Non-transferring Party, or the Substitute Party or
Parties, fails to exercise the pre-emptive right as aforesaid, the
Transferor Party may, subject to the consent of the Non-transferring
Party and the decision of the Board, assign, sell or otherwise dispose
of all or part of its Interest for a purchase price equal or greater to
that described in the Disposal Notice to a third party.
(g) Third Party to be Bound by Contract. Subject to this Article 5.08, in
the event of a sale, assignment or other disposition of the Transferor
Party's interest, any purchaser, transferee or assignee shall together
with the remaining PARTY or PARTIES execute such documents as are
necessary to make such third party bound by the terms of this Contract.
(h) Continued Operation. In the event that PARTY B, or a Substitute Party
or Parties, acquire PARTY A's interest and as a consequence the Company
is no longer a Sino-foreign equity joint venture, PARTY A shall assist
and support PARTY B in seeking the necessary approvals to allow PARTY B
to continue operations of the Company as a wholly foreign-owned
enterprise or otherwise.
(i) Approval. Any sale or assignment pursuant to this Article shall be
submitted to the Approval Authority for examination and approval.
Upon receipt of the approval of the Approval Authority, the Company
shall register the change in ownership with the SAIC.
(j) Confidentiality. Notwithstanding the assignment of the registered
capital pursuant to this Article, the PARTIES agree they will not be
relieved of their confidentiality obligations under Article 18 hereof.
The -above-mentioned confidentiality obligations shall remain in effect
for twenty (20) years following the effective date of such assignment.
5.09 Increase of Registered Capital
(a) Any increase in the registered capital of the Company shall be
contributed by the PARTIES in accordance with the ratio of each PARTY's
share of the registered capital at the time of such increase and within
the limit and in the form specified by the Board for such increase.
In the event of either PARTY refusing or failing to contribute to the
increase in the capital in full or in part, the same could be
contributed by the other PARTY in addition to its respective share of
the increase within the total increase in capital approved by the Board
with the resultant changes in the proportions of the interests of each
PARTY in the registered capital of the Company.
(b) Notwithstanding any other provision of this Contract, in the event that
PARTY B wishes to increase its share of the registered capital, PARTY A
shall have the right to make additional contributions in accordance
with the ratio of their interest of the registered capital at the time
of such increase and within the limit and in the form specified by
PARTY B, provided, however, that should either PARTY refuse or fail to
contribute to an increase in accordance with this Article 5.09(b), the
other PARTY shall be permitted to contribute to such increase with the
resultant changes in the proportions of the interest of each PARTY in
the registered capital of the Company. The PARTIES shall cause
their directors on the Board of Directors to vote in favor of an
increase in capital under this Article 5.09(b).
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES
6.01 Responsibilities of PARTY A
In addition to its other obligations under this Contract, PARTY
A shall be responsible for the following matters:
(a) Approvals. Assist the Company in obtaining (1) the right to use the
Land and Buildings for the Joint Venture Term, and (2) the approvals,
permits and licenses necessary for the establishment and operation of
the Company and the manufacture, distribution and sale of the Joint
Venture Products; (b) Tax Treatment. Assist the Company in applying
for and obtaining the most favorable tax and customs duty
reductions and exemptions and other investment incentives available
for the Company under the laws of China, Tianjin Municipality or
other local laws;
(c) Imports. Assist with the procedures for applying for, and procuring
licenses for the import of machinery and equipment, materials and
supplies required by the Company and arranging for the transport of
imported equipment;
(d) Employee Assistance. Assist the foreign or expatriate employees and
work force of the Company and of the parties with whom it contracts and
their families, to obtain all entry visas and work permits necessary,
and arrange boarding, lodging, office space, transportation and medical
facilities for such persons in Tianjin during the operation of the
Company;
(e) Bank Accounts. Assist the Company in opening RMB and convertible
currency bank accounts immediately upon issuance of the Company's
Business License;
(f) Raw Materials Assist the Company in securing preferential purchasing
status for purchases of raw materials, machinery and equipment in China,
including, if necessary, the official allocations of all raw materials
the Company deems critical at the lowest possible price;
(g) Technologically Advanced Enterprise. Assist the Company in the
application process for designation as a "Technologically Advanced
Enterprise" and securing the appropriate confirmation certificate;
(h) Loans. Assist the Company in obtaining RMB loans from local financial
institutions upon the decision of the Board;
(i) Modifications to Buildings. Assist the Company in organizing,
preparing and executing the detailed design, construction
and implementation of modifications and additions to the Buildings
including the layout of the machinery and equipment in accordance
with the design program to be provided by PARTY B pursuant to the
Technology License Contract attached as Exhibit E;
(j) Plant Services. Provide the Company with services as more particularly
described in the Plant Services Contract attached hereto as Exhibit G
including use of the clinic, canteen, buses for transportation of
personnel between their homes and the Company and other personnel
related services provided by PARTY A to Company's employees; and
(k) Sales Orders. Transfer to the Company any sales orders received by
PARTY A as of the Effective Date.
6.02 Responsibilities of PARTY B
In addition to its other obligations under this Contract, PARTY
B shall have the following responsibilities:
(a) Personnel. Assist the Company in recruiting personnel in charge of
management, technical, engineering, production, finance and quality
control;
(b) Domestic Materials. Assist the Company in the purchase of the equipment
and raw materials manufactured in China to ensure they are of the
proper quantity and quality for the conduct of the Company's business;
(c) Offshore Financing. Assist the Company in arranging offshore financing
subject to the decision of the Board;
(d) Technology Licence. Perform its obligations under the Technology License
Contract attached as Exhibit E; and
(e) Export Sales. Use its best efforts to assist the Company to achieve its
export target of 40%.
6.03 Expenses
In assisting the Company with respect to any matter discussed in Article
6.01 or 6.02, should either PARTY incur any reasonable expense on behalf
of the Company, such reasonable expenses will be reimbursed by the
Company.
ARTICLE 7 - PURCHASE OF PARTY A'S INVENTORY AND
CONTRIBUTION OF ASSETS
7.01 PARTY A's Inventory
Upon the execution of this Contract and subsequent to the
Effective Date, the Company will purchase selected raw materials,
finished components in addition to all or a portion of the work in
progress of PARTY A (the "Inventory") up to a cost value of Forty Five
Million Renminbi (RMB 45,000,000). The purchase price for the
Inventory will be the same as PARTY A's cost in manufacturing such
Inventory.
7.02 Condition Precedent to Purchase
The purchase by the Company of PARTY A's Inventory shall be
subject to the condition precedent that PARTY A's representations
and warranties as stated in Article 7.03 below remain as true and
accurate on the date of the purchase as if such representations and
warranties were made on the date of purchase. If any of the
representations or warranties of Article 7.03 concerning the Inventory
are not true and accurate on the date of purchase, the Company
may, in addition to whatever other rights it may have, refuse to
purchase all or a portion of the Inventory.
7.03 PARTY A Representations and Warrants
PARTY A represents and warrants as follows:
(a) PARTY A is the lawful owner of the Contributed Assets and the
Inventory, which are free and clear of any lien, mortgage or other
security interests and claims;
(b) PARTY A possesses rights, powers and authorization adequate for it to
dispose of the Contributed Assets and the Inventory in the manner
described in this Contract;
(c) there is no ongoing or future legal procedure, lawsuit, arbitration
procedure, administrative litigation or other government or court order,
interdiction, decision or ruling to which PARTY A is a party or which
binds or affects the Contributed Assets or the Inventory or is capable
of so doing;
(d) all information provided to PARTY B concerning the Contributed Assets
or the Inventory, business, finances and other aspects of business is
true, accurate and complete in every respect;
(e) as of the date of this Contract and as of the Effective Date, all of
the Contributed Assets are in good operating condition, consistent with
PARTY A's past practices;
(f) as of the Effective Date and as of the date of purchase of the Inventory,
all the Inventory selected by PARTY B in accordance with this Article 7
shall be of the quality and standard that is consistent with PARTY A's
past practices;
(g) PARTY A has conducted its business in compliance with all laws,
regulations, provisions and orders of any governmental authority with
jurisdiction over it, its business, finances or operations or its
property; and
(h) before and after the execution of this Contract, PARTY A has taken and
shall take all necessary or appropriate actions to cause this Contract
to be adequately performed in accordance with the terms hereof.
ARTICLE 8 - TECHNOLOGY AND TECHNICAL SERVICES
8.01 Technology License Contract with PARTY A
(a) PARTY A shall license certain proprietary technology to the Company
in accordance with the Technology License Contract set forth as Exhibit
D hereto.
(b) The PARTIES shall cause their representatives to execute the Technology
License Contract between the Company and PARTY A simultaneously with
the execution of this Contract; provided, however, that such contracts
will not enter into effect until (i) they have been approved by the
relevant Approval Authority and (ii) are ratified by the Board of
Directors after the issuance of the Business License.
8.02 Technology License Contract with PARTY B
(a) PARTY B shall license certain proprietary technology and provide
technical support and assistance to the Company in accordance with the
Technology License Contract set forth as Exhibit E hereto.
(b) The PARTIES shall cause their representatives to execute the Technology
License Contract between the Company and PARTY B simultaneously with
the execution of this Contract; provided, however, that such contracts
will not enter into effect until (i) they have been approved by the
relevant Approval Authority and (ii) are ratified by the Board of
Directors after the issuance of the Business License. The Parties
shall cause their Directors on the Board of Directors to vote in favor
of ratification of the Technology License Contract at the first Board
meeting.
8.03 Other Products
If the Company decides to produce other products utilizing
technology possessed by PARTY B not licensed to the Company, the
technology and know-how for producing such products will be
obtained from PARTY B through a separate technology license
agreement or agreements to be mutually negotiated and agreed
between the Company and PARTY B, subject to any applicable
provisions of the Technology License Contract to be executed between
the Company and PARTY B set forth as Exhibit E hereto.
8.04 Technologically Advanced Enterprise
As soon as feasible after issuance of the Business License, the
Company shall apply to the Approval Authority for certification as a
"Technologically Advanced Enterprise". The PARTIES agree that the
Company should qualify itself as a technologically advanced
enterprise and will therefore exercise their best efforts to obtain such
status for the Company.
ARTICLE 9 - SALE OF JOINT VENTURE PRODUCTS
9.01 Domestic Sales
The Company, with the assistance of the PARTIES, shall develop effective
sales channels for the domestic market with the aim of maximizing the
Company's profitability. Products may be sold for both Renminbi and
foreign exchange (or any combination thereof) upon approval of the SAEC.
The principles for determining the currency of the Company's sales shall
be set by the Board, and the sales prices shall be implemented and
adjusted, as required, by the General Manager.
9.02 International Sales
(a) The Company shall strive to make its products competitive on the
international market in terms of price, quality and delivery time;
provided that increasing export sales will be dependent on the Company's
products meeting international quality standards.
(b) Subject to paragraph (c) below, the Company shall appoint PARTY B as its
exclusive export distributor for its international sales and shall
enter into the export distributor contract substantially in the form
attached hereto as Exhibit H. As the exclusive export distributor,
PARTY B shall make its best efforts to assist the Company in reaching
its export targets.
(c) The Company may be permitted to act as an export distributor for the
Company's products with respect to export sales to existing clients or
customers of PARTY A, under terms and conditions to be agreed upon by
the Company and PARTY A.
ARTICLE 10 - BOARD OF DIRECTORS
10.01 The Formation of the Board
(a) Composition. The Board shall consist of five (5) directors, two (2)
of whom shall be appointed by PARTY A and three (3) of whom shall be
appointed by PARTY B. At the time this Contract is executed and each
time directors are appointed, each PARTY shall notify the others of the
names of its appointees.
(b) Term and Replacement. Each director shall be appointed for a term of
four (4) years and may serve consecutive terms if reappointed by the
PARTY which originally appointed him. If a seat on the Board is vacated
by the retirement, resignation, illness, disability or death of a
director or by the removal of such director by the PARTY which
originally appointed him, the PARTY which originally appointed such
director shall appoint a successor to serve out such director's term.
(c) Chairman. The Chairman of the Board shall be appointed by PARTY B, and
the Vice Chairman shall be appointed by PARTY A. The Chairman of the
Board shall be the legal representative of the Company. Whenever the
Chairman of the Board is unable to perform his responsibilities, he
shall authorize the Vice Chairman to exercise the Chairman's
responsibilities.
(d) Additional Attendees. Reflecting the importance of close
communications between the Board and the management of the
Company, the General Manager may attend Board meetings upon
invitation of a majority of the Board but shall not vote unless he is a
director in his own right. Other managers, including the Financial
Controller, as well as other parties that are not directly related to
the Company or either PARTY, may attend such meetings upon the
invitation of a majority of the Board.
10.02 Meetings and Powers of the Board
(a) Powers. The Board shall be the highest authority of the Company.
It shall discuss and determine all major issues regarding the Company.
(b) Meetings. The first Board meeting shall be held as soon as possible
within sixty (60) days after the date of issuance of the Business
License. Thereafter, regular meetings of the Board shall be held at
least two times each year. Upon the written request of three (3) or
more of the directors of the Company specifying the matters to be
discussed, the Chairman of the Board shall call a meeting of the Board.
(c) Notice and Agenda. Board meetings shall be held at the registered
address of the Company or such other address in China or abroad as may
be designated by the Chairman. Meetings shall be held on twenty-one
(21) days notice to the directors if held in China and thirty (30) days
notice if held abroad, provided that the directors may waive such notice
by unanimous written consent. A notice of a Board m meeting shall
cover the agenda, time and place for such meeting. The Chairman of the
Board shall be responsible for convening and presiding over such
meetings. The General Manager shall assist the Chairman in preparing an
agenda for each Board meeting.
(d) Proxies. In case a Board member is unable to participate in a Board
meeting in person or by telephone, he may issue a proxy and entrust
another person to participate in the meeting on his behalf. The have
the same rights and powers as the Board member. A representative shall
be permitted to serve as a proxy for up to three (3) Board members
appointed by the same PARTY as such representative. If a Board member
fails to participate or to entrust another to participate, he will be
deemed as having waived such right.
(e) Quorum. Four (4) directors present in person, by proxy or by telephone
shall constitute a quorum which shall be necessary for the conduct of
business at any meeting of the Board.
(f) Voting. Each director present in person, by proxy or by telephone at
a meeting of the Board of Directors shall have one vote.
(g) Unanimous Votes. Resolutions involving the following matters may only
be adopted at a duly constituted and convened meeting of the Board of
Directors upon the unanimous affirmative vote of each and every director
of the Board voting in person, by proxy or by telephone at such meeting:
(i) the amendment of the Articles of Association;
(ii) the merger of the Company with another organization;
(iii) termination and dissolution of the Company; and
(iv) the increase or assignment of the Company's registered capital.
(h) Super Majority. Resolutions involving the following major matters may
only be adopted at a duly constituted and convened meeting of the Board
of Directors upon the affirmative vote of four (4) directors of the
Board voting in person, by proxy or by telephone at such meeting:
(i) the formulation of or changes to the management structure of the Company;
(ii) the formulation of policies and plans relating to the recruitment of
employees, employees wages, welfare and compensation, as well as the
formulation of labor management rules; and
(iii)the appointment, dismissal, limitations on authority and compensation
of Management Personnel, except the Executive Vice General Manager.
(i) Simple Majority. Other issues that require resolutions by the Board
may be raised at a duly convened meeting of the Board and must be
adopted by the affirmative vote of three (3) of the directors present
in person, by proxy or by telephone at such meeting where a quorum is
present.
(j) Action without a Meeting. Any action by the Board may be taken without
a meeting if all members of the Board consent in writing to such action.
Such written consent shall be filed with the minutes of the Board
proceedings and shall have the same force and effect as a unanimous or
majority vote, as the case may be, taken by members physically present.
(k) Expenses. The Company shall be responsible for the reasonable travel,
lodging and meal expenses incurred by appointed directors or their proxy
in attending Board meetings.
ARTICLE 11 - OPERATION AND MANAGEMENT
11.01 Management Procedures and Structures
The policies, structures and procedures concerning operational
management, sales and marketing, health and safety,
environmental and technological matters, which may be adopted by
the Board from time to time shall be developed in consultation with
PARTY B so as to be generally in accordance with PARTY B's
practices in its worldwide operations subject to the overall direction
and approval of the Board.
11.02 Management Organization
The Company shall adopt a management system under
which the management organization shall be responsible to and
under the leadership of the Board. All Management Personnel,
including the General Manager, Executive Vice General Manager, and
Vice General Manager shall serve at the discretion of the Board. The
Company shall have a General Manager nominated by PARTY A, an
Executive Vice General Manager nominated by PARTY B and a Vice
General Manager nominated by PARTY A and appointed by the Board
pursuant to a duly adopted resolution. The terms of office of the
General Manager, Executive Vice General Manager and Vice General
Manager shall be as determined by the Board. The General
Manager, Executive Vice General Manager and Vice General Manager
may be dismissed only by a resolution of the Board of Directors. If it
becomes necessary, due to dismissal or resignation, to replace the
General Manager, Executive Vice General Manager or Vice General
Manager, PARTY A shall nominate the General Manager's
replacement, PARTY B shall nominate the Executive Vice General
Manager's replacement and PARTY A shall nominate the Vice General
Manager's replacement for appointment by the Board.
11.03 Responsibilities and Powers of the General Manager
The duties of the General Manager shall consist of carrying out
the decisions of the Board and organizing and directing the day-to-
day operation and management of the Company in accordance with
the modern management practices and structures as determined by
the Board. Within the scope granted by the Board, the General
Manager will represent the Company in external matters and, within
the Company, he will appoint and dismiss personnel subordinate to
himself and exercise other functions and powers granted him by the
Board.
11.04 Management Personnel
(a) Other Management Personnel. The Company shall have such number and
types of other Management Personnel as determined by the General Manager
and approved by the Board to be necessary or advisable to implement the
modern management practices and structures determined by the Board.
All Management Personnel shall be responsible to and under the direction
of the General Manager.
(b) Salaries. The salaries and other remuneration of the Management
Personnel of the Company (including the General Manager) shall be
determined by the Board in its sole discretion on an individual basis.
11.05 Annual Plans and Budgets
The General Manager, assisted by the other Management Personnel,
shall be responsible for the preparation of the annual business plan
and budget of the Company. The annual business plan and budget
(including the projected balance sheet, profit and loss statement and
cash transaction report) for each fiscal year shall be submitted to the
Board and shall include comprehensive detailed information on:
(a) the procurement of equipment and other assets of the Company;
(b) the raising and application of funds;
(c) plans with respect to production and sale of Joint Venture Products;
(d) the repair and maintenance of the assets and equipment of the Company;
(e) the estimated income and expenditures of the Company covered by the
production plan and budget;
(f) plans for training the staff and workers of the Company;
(g) wage and salary plans for staff and workers of the Company;
(h) requirements of raw materials, fuel, water, electricity and other
utilities, and all other inputs for the next year's production;
(i) plans for the proportion of foreign currency sales;
(j) plans for balancing foreign exchange receipts and expenditures; and
(k) any other matter in respect of which the Board may have requested a
report.
The General Manager shall prepare a monthly management report containing
such information as shall be requested by the Board.
11.06 Approval and Implementation of Annual Plans and Budgets
The Board shall examine and approve the annual business plan and budget.
The General Manager, assisted by the other Management Personnel, shall
be responsible for the implementation of the plan and budget approved
by the Board.
ARTICLE 12 - BUILDINGS AND LAND
12.01 Description of Location of Buildings
The Buildings, located at 5 Yongtai Road, Tanggu, Tianjin
Municipality, The People's Republic of China, are more particularly
described in the Building Lease Contract set forth as Exhibit I.
12.02 Buildings Lease Contract
Simultaneously with the execution of this Contract, the PARTIES will
cause their representatives to execute the Buildings Lease Contract
attached hereto as Exhibit I on behalf of the Company;
provided, however, that such Contract shall not enter into effect until
ratified by the Board of Directors.
12.03 Land Description
The Land located on the site, which consists of an area of
63,265.79 square meters at 5 Yongtai Road, Tanggu, Tianjin
Municipality, the People's Republic of China.
12.04 Land Use Rights
Details and undertakings regarding the land use rights are set
forth in the "Agreement Regarding Land Use Rights" attached hereto
as Exhibit C. Within a (30) days after the Effective Date, Party A
will use its best efforts to complete all necessary formalities
regarding the transfer of the land use rights to the Company and
procure on behalf of the Company the "Land Use Rights Certificate for a
Foreign Invested Enterprise" in the Company's name.
12.05 Representation and Warranties
PARTY A hereby represents and warrants that:
(a) it has acquired and presently possesses the exclusive right to use the
Buildings for the Joint Venture Term or longer;
(b) except for the land use fees described in Exhibit C, no other fees are
or will be payable with respect to the Company's use of land for the
entire Joint Venture Term; any such additional fees will be the
responsibility of PARTY A and PARTY A shall indemnify and hold harmless
the Company and PARTY B against any obligation to pay such fees.
(c) upon the Effective Date, the Company will possess the exclusive right
to use the Buildings and the Land for the Joint Venture Term;
(d) possesses the authority to lease the Buildings to the Company;
(e) the Buildings and Land will be free of defects and free and clear of
any mortgage, lien or encumbrance;
(f) no government or administrative department, military unit, organization,
company, or any entity in any form, or any individual, has any right or
potential right to use, occupy, or control the Buildings and the Land
or any part thereof or to subject PARTY A's right to use the Buildings
and the Land to any conditions except for those specified herein.
12.06 Indemnity
(a) With respect to the Buildings and the Land and the operations of
PARTY A prior to the establishment of the Company at the Buildings and
the Land, PARTY A shall indemnify and hold harmless PARTY B and the
Company against all damages, losses, costs, judgments, expenses
(including reasonable attorney's fees) in connection with:
(i) any operations of PARTY A which resulted in the discharge of air
pollutants, water pollutants or process wastewater or the disposal of
solid or hazardous wastes;
(ii) any pollution to the environment or other event, condition or
circumstance arising before the Effective Date that may interfere with
the conduct of the Company's business or the Company's compliance with
any environmental laws or regulations;
(iii) any environmental contamination presently on or arising from the
Buildings and the Land or failure by PARTY A to have contained
substances which are or may be harmful to the environment, or which may
require the Company to undertake any remedial or corrective work; and
(iv) the failure by PARTY A to have obtained all necessary permits,
environmental clearances and other governmental approvals required for
the conduct of its operations.
(b) PARTY A shall indemnify and hold harmless PARTY B and the Company
against all damages, losses, costs, judgments and expenses
(including reasonable attomey's fees) arising out of or caused by the
actions or omissions of PARTY A.
12.07 Additional Fees and Taxes
Party A shall bear the costs of any additional fees or taxes imposed in
connection with the use of the Buildings or the Land apart from the
fees and taxes specified in Exhibit C, "Agreement Regarding Land Use
Rights", and Exhibit 1, Buildings Lease Contract.
12.08 Plant Services and Related Fees
PARTY A shall provide certain employee and operating services
to the Company in accordance with a fee-based Plant Services
Contract to be executed after the issuance of the Company's
Business License between the Company and PARTY A. These
services shall include employee food service, clinic, buses to
transport employees between their homes and their place of work and
other services. A list of the services covered will be included as part
of the Plant Services Contract attached as Exhibit G.
ARTICLE 13 - TRADEMARKS
13.01 Trademark Licenses
Simultaneous with the execution of this Contract, the Company and
PARTY B shall execute the Trademark License Contract attached as
Exhibit F, provided that such Contract shall enter into effect only
after ratification by the Board and after the issuance of the Business
License. The PARTIES shall cause their Directors on the Board to vote
in favor of ratification of the Trademark License Contract at the first
Board meeting. Upon the termination of this Contract, neither the
Company nor PARTY A shall have any right to use the trademarks licensed
under such Contract.
ARTICLE 14 - SUPPLY AND PURCHASE OF RAW
MATERIALS AND SERVICES
14.01 Raw Materials and Supplies
It is contemplated by the PARTIES that the raw material, parts,
means of transportation and other supplies required by the Company
for the production of Joint Venture Products will be first purchased
within China provided that such goods are of the requisite quality,
competitively priced and otherwise meet the requirements of the
Company.
14.02 Imported Materials, Supplies and Equipment
The Company shall subject to Article 14.01 above have the right to
import raw materials, machinery, equipment, components, spare parts and
other supplies in the qualities, quantities and prices necessary for
the production of Joint Venture Products.
14.03 Domestic Materials and Supplies
Materials, supplies and services purchased by the Company within China
shall be purchased in Reminbi at either the lowest market price, or the
prices charged to local state-owned enterprises for purchases of similar
materials and services.
14.04 Services The Company shall have the right to appoint foreign
architects, consultants, engineers and contractors to undertake
relevant work when there are no local companies or individuals qualified
or available to undertake such work according to the General Manager.
ARTICLE 15 - LABOR MANAGEMENT
15.01 Governing Principle
The General Manager shall formulate a plan for matters concerning the
recruitment, employment, dismissal, wages, labor insurance, welfare
benefits, reward and discipline of the workers and staff members of the
Company in accordance with modem management standards, practices and
policies determined by the Board, the "Regulations of the People's
Republic of China on Labor Management in Joint Ventures Using Chinese
and Foreign Investment ", the "Provisions of the Ministry of Labor and
Personnel of the People's Republic of China on the Right of Autonomy of
Enterprises with Foreign Investment in the Hiring of Personnel and
on Wages, Insurance and Welfare Expenses of Staff and Workers",
and relevant regulations of Tianjin Municipality. The plan shall be
submitted for the approval of the Board of Directors.
15.02 Working Personnel
Working Personnel shall be employed by the Company in accordance with
a labor contract which shall be entered into between the Company and
each individual worker after the establishment of the Company. Such
labor contract shall establish all terms governing the employment,
duties and benefits of that individual. The Board shall approve the
general form and terms and conditions included in such contracts.
15.03 Management Personnel
Management Personnel shall be employed by the Company in accordance with
the terms of individual employment contracts. The detailed terms and
conditions of the employment and compensation of the Management
Personnel shall be decided by the Board.
15.04 Expatriate Personnel
As the Company's needs require, expatriate Management Personnel and
senior technical personnel shall be hired by the General Manager after
approval by the Board of Directors, upon the recommendation of PARTY B.
Such personnel shall enter into individual employment contracts with
the Company. The PARTIES agree that such expatriate personnel shall
receive salaries and benefits in accordance with PARTY B's personnel
policies.
15.05 Conformity with Labor Protection
The Company shall conform to rules and regulations of the Chinese
government concerning labor protection and ensure safe and civilized
production. Labor insurance for the working personnel of the Company
shall be handled in accordance with the relevant regulations of the
Chinese government.
15.06 Trade Union
To the extent required by law, the Company shall establish a trade union
to represent the rights and interests of the workers and staff members,
to mediate disputes between the workers and staff members on the one
hand and the Company on the other and to protect the lawful interests
of the workers and staff members. To the extent required by law, the
Company shall actively support the work of the trade union, provide the
trade union facilities to conduct union activities and other lawful
activities after working hours, and allocate trade union funds.
15.07 Trade Union Fund
In accordance with Article 99 of the Joint Venture Regulations,
the Company shall allot each month two Percent (2%) of the total
amount of real wages received by the company staff and workers,
including expatriate employees, for payment into a trade union fund,
such payments to be an expense of the Company. The trade union
may use these funds in accordance with the relevant control
measures of labor union funds formulated by the All China
Federation of Labor Unions.
ARTICLE 16 - FINANCIAL AFFAIRS AND ACCOUNTING
16.01 Accounting System
(a) Responsibilities. The Financial Controller of the
Company, under the leadership of the General Manager, shall be
responsible for the financial management of the Company.
(b) Procedures. The General Manager and the
Financial Controller shall prepare the accounting system and
procedures in accordance with the Accounting System of the People's
Republic of China for Foreign Investment Enterprises, the
supplementary stipulations promulgated by the Ministry of Finance
and, to the extent possible, general accepted international accounting
principles. All vouchers, receipts, statistical statements and reports
shall be written in Chinese and English concurrently. In addition,
the Company shall adopt operating and financial policies and
procedure sand shall prepare periodic reporting of financial
information in accordance with the requirements of PARTY B.
16.02 Auditing
(a) Company Auditor. The Board shall establish a
position for a Company Auditor who will be responsible for examining
and auditing the Company's financial and accounting books and will
prepare a report for the Board and expenditures the General
Manager.
(b) Independent Audit. An independent accountant
registered in China and otherwise qualified to render opinions on the
compliance by the Company with the accounting standards provided
herein, shall be engaged by the Board of Directors as the Company's
auditor to examine and verify the annual report on the final accounts
("Independent Auditor"). The Company shall submit to the PARTIES
the annual financial statements (including the audited Profit and
Loss Account, the Balance Sheet and Cash Flow Balance and Foreign
Exchange Balance for the fiscal year) within three (3) months after
the end of the fiscal year, together with the audit report of the
Chinese registered accountant. The annual financial statements, the
audit report and the monthly reports shall be prepared in both
Chinese and English.
(c) Board Review. The Board shall review and approve
the periodic audits of the accounts. In the event that the Board
determines that the audits submitted by the Independent Auditor are
unable to properly meet the standards set forth above, the Board may
replace the Independent Auditor or retain another auditor at
Company expense, to supplement or adjust the work of the
Independent Auditor or to perform specific accounting and auditing
tasks.
(d) Notwithstanding anything contained in 16.02(a)
and (b), at PARTY B's cost, PARTY B may at any time, employ a
foreign auditor or send its internal auditor to examine the records
and procedures of the Company and PARTY A and the Company shall
cooperate and use best efforts to assist such auditors.
16.03 Bank Accounts and Foreign Exchange Control
The Company shall separately open foreign exchange accounts
and Renminbi accounts at banks within or outside China upon
approval by the relevant authorities. The Company's foreign
exchange transactions shall be handled in accordance with the
regulations of China relating to foreign exchange control.
16.04 Foreign Exchange Balance
The Company shall be responsible to maintain a balance in its
foreign exchange receipts and expenditures. The principal methods
for balance foreign exchanges will be as follows:
(i) Foreign Currency Sales. The primary means
for balancing foreign exchange will be through the sale of the
Joint Venture Products in foreign currency.
(ii) Export of Domestic Product. Subject to the
approval of the Approval Authority, the Company may
purchase products domestically in Renminbi and export them
for foreign currency.
(iii) Other Measures. If the Company is unable
to balance its foreign exchange using the measures described
above, the Board of Directors will consider all other methods
permitted under the laws and regulations of the People's
Republic of China.
16.05 Fiscal Year
The Company shall adopt the calendar year as its fiscal
year for Chinese statutory accounting purposes, which shall begin on
January 1 and end on December 31 of the same year, provided that
the first fiscal year of the Company shall commence on the date the
Company receives its Business License, and shall end on the
immediately succeeding December 31.
16.06 Allocations to Three Funds
To the extent required by law, the Company shall make
payments in Renminbi into a reserve fund, an enterprise expansion
fund and a bonus and welfare fund for its workers and staff members
(the "Three Funds"). The proportion of each year's payments shall be
discussed and determined by the Board of Directors on the basis of
the Company's circumstances and in the general interest of the
Company and its workers; provided, however, that the payments to
each individual Fund shall not exceed seven percent (7%) of the
Company's after tax income and the total of the payments to the
Three Funds shall not exceed fifteen percent (15%) of the Company's
after-tax income in the relevant year. Plans for the application of
these Three Funds shall be formulated by the General Manager.
16.07 Profit Distribution
(a) Proportionate Distributions. After required
allocations, if any, have been made to the Three Funds in accordance
with Article 16.06, the Board shall determine distribution of profits
by way of dividend among the PARTIES in proportion to their
respective shares in the registered capital of the Company and the
balance of net profits will be retained in the Company and utilized as
may be decided by the Board from time to time. If the Company
carries over losses from the previous year, the profit of the current
year shall first be used to cover such losses. No profit shall be
distributed unless a prior deficit is made up. The profit retained by
the Company and carried over from the previous years may be
distributed together with the distributable profit of the current year,
or after the deficit of the current year is made up therefrom.
(b) Insufficient Foreign Exchange. In the event that
there is not sufficient foreign exchange to pay PARTY B's share of
distributed profits, the Company shall, to the extent of the unpaid
portion, hold distributed Remninbi profits in trust for PARTY B in a
special interest bearing account set up for that purpose, when such
account is available, in satisfaction of the Company's obligation to
distribute such share of the Company's profit to PARTY B. From and
after the date on which such account is established, the Company
shall not withdraw or use the funds therein except upon PARTY B's
prior written instructions. When the Company obtains foreign
exchange that is available for distribution to PARTY B pursuant to
Article 16.07 (a), the Company any interest earned therefrom) with its
U.S. Dollar equivalent in accordance with the average of the buying
and selling rates published by the Bank of China at the time of the
transaction. The Company shall then immediately pay such U.S.
Dollars to PARTY B. PARTY B may from time to time instruct the
Company to distribute Renminbi as directed by PARTY B in such
account for any legal purpose.
(c) Method of Payment. All payments to be
distributed under this Article 16 shall at the request of the receiving
PARTY be remitted to an account at a bank specified in advance by
such PARTY.
ARTICLE 17 - TAXATION AND INSURANCE
17.01 Income Tax, Customs Duties and Other Taxes
(a) Tax Payments. The Company shall pay tax under
the relevant laws of China and any special tax regulations applicable
to Tianjin. Chinese and foreign management and working personnel
shall be periodically reminded to pay their individual income tax in
accordance with the tax laws of China.
(b) Tax Preference. The Company will use its best
endeavors to apply for and obtain preferential tax treatment,
reductions and exemptions, as provided by the relevant regulations.
Promptly after the execution of this Contract, the PARTIES shall
submit an application to the Tianjin Municipal Tax Bureau for
confirmation of the Company's tax treatment.
17.02 Insurance
The Company shall, at its own cost and expense, take out and
maintain full and adequate insurance of the Company against loss or
damage by fire and such other risks as may be decided by the Board.
The property, transportation, product liability and other items of
insurance of the Company shall be obtained within or outside China,
subject to any legal restrictions which may apply, and such policies
will be denominated in Chinese and foreign currencies, as
appropriate. The types and amounts of insurance coverage shall be
determined by the Board in accordance with applicable Chinese laws,
if any.
ARTICLE 18 - CONFIDENTIALITY
18.01 Confidential Information
From time to time and during the term of this Contract, either
PARTY may disclose to one another whether in writing, orally,
visually or by any other means, information which is either non-
public, confidential or proprietary in nature. All such information
disclosed to one PARTY, including to its directors, officers, employees,
agents or representatives, including attorneys, accountants and
consultants (collectively, "Representatives"), by the other PARTY or
any of its Representatives, and all proposals, analyses, studies or
other documents prepared by either PARTY or its Representatives
containing or based, in whole or in part, on any such information is
herein referred to as the "Confidential Information".
18.02 Mutual Obligation
Except as otherwise provided in any Agreement between the
Company and a PARTY, the receiving PARTY will during the term of
this Contract and for twenty (20) years after or in the event the
Company is not established, for 50 years after the date of this
Contract, keep confidential and will not, without the prior written
consent of the PARTY originally disclosing the Confidential
Information, disclose the Confidential Information in whole or in part
to any third party. The Confidential Information will not be used by
the PARTY receiving the Confidential Information or its
Representatives directly or indirectly for any purpose other than
evaluating and/or in connection with the establishment or operation
of the Company. The PARTY receiving the Confidential Information
agrees to transmit the Confidential Information only to those
Representatives on a need to know basis provided that the Party
receiving the Confidential Information notifies the PARTY disclosing
the Confidential Information prior to the disclosure and provided
further that the Representatives are informed of the confidential
nature of the Confidential Information. The PARTY receiving
Confidential Information will be responsible for any breach of this
Article 18 by any of its Representatives and will indemnify and hold
harmless the PARTY disclosing the Confidential Information for any
losses, damages, fees or expenses (including reasonable attomey's
fees) arising out of or resulting from such breach.
18.03 Return of Confidential Information
The written Confidential Information and all copies thereof will
be destroyed or returned immediately, without retaining any copies
thereof, as directed by the PARTY disclosing the Confidential
Information, if such PARTY is no longer privy to the Contract or upon
termination of this Contract.
18.04 Disclosure
In the event that the PARTY receiving the Confidential
Information or its Representative is requested or becomes legally
compelled to disclose any of the Confidential Information, such
PARTY will notify the other PARTY promptly in writing so that the
PARTY which originally disclosed the Confidential Information may
seek a court order or other appropriate remedy and/or waive compliance with
this Article 18; the PARTY who has been requested or who has become legally
compelled to disclose any of the Confidential Information will cooperate
with the other PARTY in such efforts. In the event that a court order or
other remedy is not obtained, the PARTY who has been compelled to disclose
Confidential Information will disclose only that portion of the Confidential
Information which is legally required and will exercise its best efforts
to obtain an assurance that the Confidential Information will be treated
confidentially.
18.05 Public Domain
The foregoing obligations of confidentiality, non-disclosure and non-use
shall apply to Confidential Information which:
(a) the PARTY receiving the Confidential Information is already in
possession of such Confidential Information at the time of disclosure,
and which was not acquired directly or indirectly from the PARTY
disclosing the Confidential Information; or
(b) was in the public domain at the time of disclosure; or
(c) has become part of the public domain by publication through no fault
of the PARTY receiving the Confidential Information.
ARTICLE 19 - THE JOINT VENTURE TERM
19.01 Joint Venture Term
The Joint Venture Term of the Company shall commence on
the Effective Date and shall expire thirty (30) years therefrom.
19.02 Extension of the Joint Venture Term
Prior to the expiration of the Joint Venture Term, upon the
agreement of the PARTIES, the Company may apply for an extension
of up to a (30) years. The PARTIES will notify the Board of their
desire to extend the term no later than nine (9) months prior to
expiration of the Joint Venture Term. The PARTIES shall cause their
directors on the Board to unanimously approve such extension and
will submit an application for such extension to the Approval
Authority for approval no less than six (6) months prior to the
expiration of the Joint Venture Term. PARTY B shall be offered
terms under an extended term that are no less favorable than the
terms of this Contract and those being offered at that time to other
foreign enterprises negotiating joint venture projects in China.
19.03 Failure to Agree on Extension
Upon the expiry of the term of the Company as set out in
Article 19.01, and any extension thereof under Article 19.02, this
Contract shall terminate and the provisions of Article 20 hereof shall
apply.
19.04 Contract to Continue in Force
This Contract shall remain in force for the term of the
Company and any extension thereof provided that the rights and
obligations of the PARTIES under Article 18 shall remain in force
indefinitely notwithstanding expiry of this Contract or liquidation of
the Company.
ARTICLE 20 - TFRMINATION, BUY-OUT AND
LIQUIDATION PROCEDURES
20.01 Reasons for Termination
A PARTY shall have the right to terminate this Contract by
written notice to the other PARTY and notify of its desire to
commence negotiations under Article 20.02 below if the following
occurs:
(a) Material Breach. If the other PARTY materially
breaches this Contract or violates the Articles of Association, and
such breach or violation is not cured within sixty (60) days of written
notice to the breaching Party;
(b) Liquidation. If the Company or the other PARTY
becomes bankrupt, or is the subject of proceedings for liquidation or
dissolution, or ceases to carry on business or becomes unable to pay
its debts as they become due;
(c) Expropriation. If all or any material part of the
assets of the Company are expropriated by any government
authority;
(d) Government Action. If any government authority
having authority over a PARTY requires any provision of this
Contract or the Articles of Association to be revised in such a way as
to cause significant adverse consequences to the Company or any of
the PARTIES;
(e) Force Majeure. If the conditions or consequences
of Force Majeure prevail for a period in excess of three (3) consecutive
complete calendar months and the PARTIES have been unable to find
an equitable solution pursuant to Article 21.01(d) hereof;
(f) Termination of Related Agreements. If any of the
Technology License Contract, Trademark License Contract or the
Export Agency Contract between the Company and PARTY B is
terminated prior to its scheduled expiration (in which case only
PARTY B shall have the right to terminate); or
(g) Economic Necessity. If an event described in
Article 24.02 hereof occurs, or the effects of the market such as
pricing, competition or cost of materials has an adverse impact and
the PARTIES do not reach an agreement on economic adjustment
within sixty (60) days after the initiation of discussions.
20.02 Notification Procedure
In the event that a PARTY gives notice pursuant to Article
20.01 hereof a desire to terminate this Contract, the PARTIES shall
within a one-month period after such notice is given commence
negotiations and endeavor to resolve the reason for notification of
termination. In the event matters are not resolved to the satisfaction
of the PARTIES within one month after commencement of
negotiations or the non-notifying PARTY refuses to commence
negotiations within the period stated above, the notifying PARTY may
terminate this Contract by and effective upon giving the other PARTY
final written notice of termination.
20.03 Buy-Out
(a) In the event that this Contract is terminated
pursuant to Article 20.01 or for any other reason (whether by the
expiration of the Joint Venture Term, agreement of the PARTIES or
otherwise), then any PARTY shall be entitled to withdraw from the
Joint Venture (the "Withdrawing Party") and the other PARTY (the
"Acquiring Party") shall have a priority right to purchase the
Withdrawing Party's interest in the Joint Venture Company's
registered capital ("Interest"). If desired, the Acquiring Party may
continue the operations of the Company. For this purpose:
(i) the PARTIES shall agree upon the value of
the Company and if they are unable to so agree within a (30)
days such value will be determined within thirty (30) days
thereafter, at the expense of the Company, on a going concern
basis, and if the PARTIES are not able to agree, then such
value shall be determined by an Expert in accordance with
Article 23;
(ii) the purchase price for the Withdrawing
Party's Interest shall be equal to that percentage figure which is such
PARTY's percentage share of the registered capital of the Company
multiplied by the value of the Company as so agreed upon or
determined;
(iii) the Withdrawing Party may decline to sell its
Interest in the Company to the Acquiring Party within fifteen (15)
days of notification of the value of the Company as determined above.
(b) The full purchase price for the Withdrawing Party's
Interest shall be paid by the Acquiring Party in United States Dollars.
Such payment shall be made within sixty (60) days after the PARTIES
shall have agreed upon the value of the Company or notification of
the value of the Company as determined by the above-mentioned
Expert. If PARTY A purchases the Interest of PARTY B the United
States Dollar purchase price will, upon application to the SAEC, be
freely remittable out of China in accordance with the foreign
exchange regulations of China.
(c) Any other provisions of this Contract to the
contrary notwithstanding, until such time as the sale of the Interest
of a Withdrawing Party to the Acquiring Party or Parties is completed,
the Company will continue to conduct its business in the ordinary
course.
20.04 Liquidation
(a) Option upon Termination. In the event that this
Contract has been terminated in accordance with 20.01 hereof or for
any other reason and the PARTIES have not agreed on an acquisition
of the Company as a going concern by either PARTY or by a third
party, then the physical assets of the Company shall be valued by
and liquidated under the direction of a Liquidation Committee formed
within 30 days of termination in accordance with the Joint Venture
Regulations.
(b) Valuing and Selling Procedure. In valuing and
selling physical assets, the Liquidation Committee shall use every
effort to obtain the highest possible price for such assets, including
the retention of an independent third party expert knowledgeable in
assessing the value of the types of assets owned or held by the
Company to assist in such valuation. Any disputes as to valuation
by the expert shall be handled in accordance with Article 23. Sales
of the Company's assets shall be in United States Dollars to the
fullest extent possible.
(c) Settlement and Payment. After liquidation and
the settlement of all outstanding debts of the Company and subject
to the payment of any applicable taxes, the joint account shall be
paid over to the PARTIES in proportion to their respective shares in
the registered capital of the Company. Any and all amounts payable
to PARTY B pursuant to this Article 20 shall be paid promptly in
United States Dollars and shall be freely remittable by PARTY B out
of China in accordance with the Foreign Exchange Regulations of
China.
20.05 Survival
To the extent permitted by law, the provisions of Articles 18
and 20 and the obligations and benefits hereunder shall survive the
termination of this Contract and the termination, dissolution or
liquidation of the Company.
ARTICLE 21 - FORCE MAJEURE
21.01 Force Majeure
(a) Definition and Examples. "Force Majeure" shall
mean all events which are beyond the control of the PARTIES to this
Contract, and which are unforeseen, or if foreseen, unavoidable, and
which prevent total or partial performance by either PARTY. Such
events shall include but are not limited to any strikes, lockouts,
explosions, shipwrecks, acts of nature, fires, flood, sabotage,
accidents, wars, riots, inability to obtain transportation, and any
other similar or different contingency.
(b) Effect. If an event of Force Majeure occurs, to the
extent that the contractual obligations of the PARTIES to this
Contract (except the obligations under Article 18 hereof) cannot be
performed as a result of such event, such contractual obligations
shall be suspended during the period of delay caused by the Force
Majeure and shall be automatically extended, without penalty, for a
period equal to such suspension.
(c) Notice Required. The PARTY claiming Force
Majeure shall promptly inform the other PARTY in writing and shall
furnish appropriate proof of the occurrence and duration of such
Force Majeure. The PARTY claiming Force Majeure shall also use all
reasonable endeavors to terminate the Force Majeure.
(d) Consultation Required. In the event of Force
Majeure, the PARTIES shall immediately consult with each other in
order to find an equitable solution and shall use all reasonable
endeavors to minimize the consequences of such Force Majeure.
ARTICLE 22 - SETTLEMENT OF DISPUTES
22.01 Consultation
In the event a dispute arises in connection with the
interpretation or implementation of this Contract, the PARTIES shall
attempt in the first instance to resolve such dispute through friendly
consultations.
22.02 Arbitration.
If the dispute is not resolved through friendly consultation
within sixty (60) days after the commencement of discussions or such
longer period as the PARTIES agree to in writing at that time, then
notwithstanding any other provision of this Contract the PARTIES
shall resolve the dispute in Stockholm, Sweden according to the
arbitration rules of the Stockholm Chamber of Commerce ("SCC").
Arbitration shall be conducted as follows:
(a) English Proceedings. All proceedings in any
such arbitration shall be conducted in English and a daily
transcript in English of such proceedings shall be prepared.
(b) One Arbitrator. There shall be one (1) arbitrator,
fluent in English, appointed by the SCC.
(c) Award Binding. The arbitration award shall be
final and binding on the PARTIES, and the PARTIES agree to be
bound thereby and to act accordingly.
(d) Obligations to Continue. When any dispute occurs
and when any dispute is under arbitration, except for the matters
under dispute the PARTIES shall continue to exercise their remaining
respective rights, and fulfil their remaining respective obligations
under this Contract.
(e) Enforcement. In any arbitration proceeding, any
legal proceeding to enforce any arbitration award or any legal action
between the PARTIES relating to this Contract, each PARTY expressly
waives the defense of sovereign immunity and any other defense
based on the fact or allegation that it is an agency or instrumentality
of a sovereign state. Any award of the arbitrators shall be
enforceable by any court having jurisdiction over the PARTY against
which the award has been rendered, or wherever assets of the PARTY
against which the award has been rendered can be located and shall
be enforceable in accordance with the "United Nations Convention on
the Reciprocal Enforcement of Arbitral Awards (1958).
ARTICLE 23 - EXPERT PROCEDURES
23.01 Appointment of Expert
If this Contract so provides, or if the PARTIES otherwise agree,
that a controversy or dispute between them should be resolved by an
Expert, either PARTY may request that such controversy or dispute
shall be resolved by such Expert as provided herein and such costs
shall be borne by the requesting PARTY.
23.02 Recourse to ICC
If any PARTY requests an Expert determination the PARTIES
shall attempt in the first instance to agree on a single expert to whom
the matter shall be referred. If, within fourteen (14) days from
receipt of such request, the PARTIES have failed to agree on the
appointment of a single Expert, then the PARTIES agree to have
recourse to the International Centre for Technical Expertise of the
International Chamber of Commerce ("ICC") in accordance with the
ICC's Rules for Technical Experts.
23.03 Expert Procedures
The Expert so appointed shall promptly fix a reasonable time
and place for receiving submissions or information from the PARTIES
and may make such other enquiries and require such other evidence
as the expert deems necessary for resolving the matter. All
information and data submitted by either PARTY as confidential shall
not be disclosed by the Expert to third parties. The PARTIES shall
have the opportunity to make representations to the Expert.
23.04 Effect of Expert Decision
The Expert shall be deemed not to be an arbitrator but shall
render his decision as an Expert, and no law or regulation relating to
arbitration shall apply to such Expert or his determinations or the
procedure by which he reaches his determinations. The PARTIES
shall rely on the determination of the Expert, unless one or more of
them believes in good faith that the determinations of the Expert are
incorrect or patently unfair or have been made as a consequence of
misconduct on the part of such Expert. In such event, either PARTY
shall have the right to refer the dispute or controversy to arbitration
in accordance with Article 22.
ARTICLE 24 - APPLICABLE LAW
24.01 Applicable Law
The formation, validity, interpretation and implementation of
this Contract and settlement of disputes arising therefrom shall be
governed by the published and publicly available laws, decrees and
regulations promulgated by the People's Republic of China, but in the
event that there is no published and publicly available law, decree or
regulation in China governing any particular matter relating to this
Contract, reference shall be made to general international commercial
practice.
24.02 Economic Adjustment
If either PARTY's economic benefits are adversely and
materially affected by the promulgation of any new laws, rules or
regulations of China or the amendment or interpretation of any
existing laws, rules or regulations of China after the date of this
Contract, the PARTIES shall promptly consult with each other and
use their best endeavors to implement any adjustments necessary to
maintain each PARTY's economic benefits derived from this Contract
on a basis no less favorable than the economic benefits it would have
derived if such laws, rules or regulations had not been promulgated
or amended or so interpreted.
24.03 Preferential Treatment
The Company and the PARTIES shall be entitled to any tax,
investment or other benefits or preferences that become available or
publicly known after the signing of this Contract and which are more
favorable than those set forth in this Contract.
ARTICLE 25 - MISCELLANEOUS PROVISIONS
25.01 Waiver
Failure or delay on the part of any PARTY hereto to exercise
any right, power or privilege under this Contract, or under any other
contract or agreement relating hereto, shall not operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege preclude any other future exercise thereof.
25.02 Amendments
This Contract may not be changed orally, but only by a written
instrument signed by the Parties and approved, if required, by the
relevant authorities in China.
25.03 Language
This Contract is written and executed in Chinese and English,
and both language versions shall be equally valid.
25.04 Severability
The invalidity of any provision of this Contract shall not affect
the validity of any other provision of this Contract.
25.05 Entire Agreement
This Contract and the Exhibits attached hereto constitute the
entire agreement among the PARTIES with respect to the subject
matter of this Contract and supersede all prior discussions,
negotiations and agreements among them. In the event of any
conflict between the terms and provisions of this Contract and the
Articles of Association, the terms and provisions of this Contract
shall prevail.
25.06 Headings
The headings used herein are for convenience only and shall
not be used to interpret, construe or otherwise affect the meaning of
the provisions of this Contract.
25.07 Approvals
The PARTIES obligations under this Contract are subject to the
requisite permissions, approvals and sanctions of their respective
governmental authorities under applicable laws.
25.08 Notices
Any notice or written communication provided for in this
Contract by one PARTY to the others, including but not limited to any
and all offers, writings, or notices to be given hereunder, shall be
made in English and Chinese by registered airmail letter or by
facsimile or telex confirmed by registered airmail letter, promptly
transmitted or addressed to the appropriate PARTY. The date of
receipt of a notice or communication hereunder shall be deemed to be
twelve (12) days after its postmark in the case of an airmail letter and
two (2) working days after dispatch in the case of a facsimile or telex.
All notices and communications shall be sent to the appropriate
address as set forth below, until the same is changed by notice given
in writing to the other PARTY or the PARTIES, as the case be.
PARTY A:
Tianjin Tanggu Valve Plant
5 Yongtai Road
Tanggu, Tianjin
People's Republic of China
Fax: (022) 589-5087
Attention: Mr. Han You Sheng
PARTY B:
Watts Investment Company
c/- Watts Industries, Inc
815 Chestnut Street
North Andover, Massachusetts 08145 U. S. A.
Fax: (1-508) 688-2976
Attention: Mr. David A. Bloss, Sr.
25.09 Exhibits
The Exhibits attached hereto are hereby made an integral part
of this Contract and are equally binding with these Articles 1-25.
The Exhibits are as follows:
Exhibit A Articles of Association
Exhibit B List of PARTY A's Contribution of Machinery and Equipment
Exhibit C Matters Concerning Land Use Rights
Exhibit D Technology License Contract between the Company and PARTY A
Exhibit E Technology License Contract between the Company and PARTY B
Exhibit F Trademark License Contract between the Company and PARTY B
Exhibit G Plant Services Contract between the Company and PARTY A
Exhibit H Export Distributor Contract between the Company and Party B
Exhibit I Buildings Lease Contract
IN WITNESS WHEREOF, each of the PARTIES hereto have
caused this Contract to be executed by their duly authorized
representatives on the date first set forth above.
PARTY A: PARTY B
TIANJIN Tianjin Tanggu Valve Plant WATTS INVESTMENT COMPANY
/S/ Han You Sheng /s/ David A. Bloss
Name: Han You Sheng Name: David A. Bloss, Sr.
Title: President Title: Executive Vice President
Nationality: Chinese Nationality: U.S.A.
EXHIBIT A
TIANJIN TANGGU WATTS VALVE COMPANY LIMITED
______________________________
ARTICLES OF ASSOCIATION
______________________________
DATED 27 JUNE 1994
CONTENTS
Article
1. Introduction
2. Parties to the Joint Venture
3. Establishment of the Company
4. The Purpose, Scope and Scale of Production and Operation
5. Total Amount of Investment and Registered Capital
6. Board of Directors
7. Operation and Management
8. Labor Management
9. Financial Affairs and Accounting
10. Foreign Exchange
11. Distribution of Profit
12. Taxation and Insurance
13. Joint Venture Term
14. Termination, buy-out Liquidation Procedures
15. Amendments and Conflicts
16. Waiver
17. Language
Signatures
ARTICLES OF ASSOCIATION
ARTICLE 1 - INTRODUCTION
1.01 Introduction
THESE ARTICLES OF ASSOCIATION ("Articles of Association")
of TIANJIN TANGGU WATTS VALVE COMPANY LIMITED are made by
TIANJIN TANGGU VALVE PLANT, ("PARTY A") and WATTS
INVESTMENT COMPANY ("PARTY B") in accordance with the Law of
the People's Republic of China on Joint Ventures Using Chinese and
Foreign Investment (the "Joint Venture Law"), the Implementing
Regulations issued thereunder (the "Joint Venture Regulations") and
the provisions of the Joint Venture Contract ("Joint Venture
Contract") entered into by and among the PARTIES dated June 27,
1994.
1.02 Terms
Terms used but not defined herein shall have the meanings set
forth in the Joint Venture Contract.
ARTICLE 2 - PARTIES TO THE JOINT VENTURE
2.01 The Parties
The PARTIES to the Joint Venture Contract are:
(a) PARTY A, __________ , Tianjin Tanggu Valve Plant
registered in Tianjin, with its registered address at 5 Yongtai Road,
Tanggu, Tianjin, the People's Republic of China.
Legal Representative: Han You Sheng
Position : President
Nationality: Chinese
(b) PARTY B, Watts Investment Company, a company
registered in the state of Delaware, United States of America with its
head office at 715 King Street, Suite 300, Wilmington, Delaware,
United States of America 19801.
Legal Representative: David A. Bloss Sr.
Position : Executive Vice President
Nationality: U. S. A.
ARTICLE 3 - ESTABLISHMENT OF THE COMPANY
3.01 Name
The name of the Company shall be: "________________________"
in Chinese, and "Tianjin Tanggu Watts Valve Company Limited" in English.
3.02 Address
The legal address of the Company shall be 5 Yongtai Road,
Tanggu District, Tianjin, the People's Republic of China.
3.03 Branches
The Company may establish necessary branch offices inside of
China with the approval of the Board and the relevant authority in
the location of the proposed branch.
3.04 Limited Liability Company
The form of organization of the Company shall be a limited
liability company. Except as otherwise provided herein, once a
PARTY has paid in full its contribution to the registered capital of the
Company, it shall not be required to provide any further funds to or
on behalf of the Company by way of capital contribution, loan,
advance, guarantee or otherwise. Except as otherwise provided
pursuant to written agreement signed by the PARTY to be charged,
creditors of the Company shall have recourse only to the assets of the
Company and shall not seek repayment from any PARTY. The
Company shall indemnify the PARTIES against any and all losses,
damages or liability suffered by the PARTIES in respect of third-party
claims arising out of the operation of the Company. Subject to the
above, the profits, risks and losses of the Company shall be shared
by the PARTIES in proportion to and limited by their respective
contributions to the Company's registered capital.
3.05 Laws and Decrees
The Company shall be a legal person under the laws of China.
The activities of the Company shall be governed and protected by the
relevant published and publicly available laws, decrees, rules and re
rations of China.
ARTICLE 4 - THE PURPOSE, SCOPE AND SCALE
OF PRODUCTION AND OPERATION
4.01 Purpose
The Company shall adopt advanced technology and scientific
management methods with the aim to earn lawful profits, gain a
competitive position in the market and make a contribution to the
people of China.
4.02 Scope
The scope of the Company is to manufacture, distribute, and
sell Joint Venture Products.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT
AND REGISTERED CAPITAL
5.01 Total Investment
The Company's total investment shall be Two Hundred and
Twenty Nine Million Eight Hundred and Ninety Thousand
Renminbi (RMB229,890,000).
5.02 Registered Capital
The Company's registered capital shall be One Hundred and
Twenty Three Million Renminbi (RMB123,000,000).
5.03 Contribution to Capital
(a) The contribution to the registered capital of the Company
subscribed by PARTY A shall be Forty Nine Million Two Hundred
Thousand Renminbi (RMB49,200,000), representing a forty percent
(40%) share of the registered capital of the Company.
(b) The contribution to the registered capital of the Company
subscribed by PARTY B shall be Eight Million Four Hundred and
Eighty Thousand United States Dollars (US$8,480,000) equivalent to
Seventy Three Million Eight Hundred Thousand Renminbi
(RMB73,800,000) and representing a sixty percent (60%) share of the
registered capital of the Company.
(c) The capital contributions which shall be made by PARTY
A and PARTY B shall be used by the Company only in the
implementation of the Joint Venture Contract. Except as otherwise
provided herein and in the Technology License Contract set forth as
Exhibit E and attached to the Joint Venture Contract, all of the items
contributed by the PARTIES to the Company shall remain the
property of the Company throughout the entire term of the Joint
Venture Contract.
5.04 Investment Certificate
After each PARTY's contribution to the registered capital has
been made in full, an independent Chinese registered accountant
appointed by the Company in accordance with this Contract shall
verify the contribution and issue a contribution verification report to
the Company. Thereupon, the Company shall issue within sixty (60)
days after the payment of the contribution an investment certificate
to each PARTY signed by the Chairman of the Board. Each
investment certificate shall indicate on its face the amount of the
capital contribution evidenced thereby and a copy shall be submitted
to the Approval Authority for the record. The Board shall request the
Financial Controller to maintain a register identifying the investment
certificates that have been issued to the PARTIES.
5.05 Additional Financing
(a) Any additional capital investment in excess of the
registered capital or additional required working capital may be
obtained in the form of loans to the Company from Chinese or foreign
sources. As a general principle and subject to Board approval,
borrowing of the Company, if any, shall be secured by the tangible
assets of the Company.
(b) Interest on loans incurred by the Company shall be
debited as a financing cost of the Company.
(c) Except for the portion of working capital (i) to be provided
by the PARTIES as capital contribution or (ii) from bank loans
received by the Company, additional operating funds may be
obtained principally from net revenues generated by sales of the
Company or as agreed to by the Board of Directors.
5.06 Transfer or Assignment of Registered Capital
The PARTIES may not assign, sell or otherwise dispose of their
registered capital except in accordance with Article 5.08 of the Joint
Venture Contract.
5.07 Increase of Registered Capital
Any increase in the registered capital of the Company shall be
handled in accordance with Article 5.09 of the Joint Venture
Contract.
ARTICLE 6 - BOARD OF DIRECTORS
6.01 Composition
The Board shall consist of five (5) directors, two (2) of whom
shall be appointed by PARTY A and three (3) of whom shall be
appointed by PARTY B. At the time these Articles of Association are
executed and each time directors are appointed each PARTY shall
notify the others of the names of its appointees.
6.02 Term and Replacement
Each director shall be appointed for a term of four (4) years and
may serve consecutive terms if reappointed by the PARTY which
originally appointed him. If a seat on the Board is vacated by the
retirement, resignation, illness, disability or death of a director or by
the removal of such director by the PARTY which originally appointed
him, the PARTY which originally appointed such director shall
appoint a successor to serve out such director's term.
6.03 Chairman
The Chairman of the Board shall be appointed by PARTY B,
and the Vice Chairman shall be appointed by PARTY A. The
chairman of the board shall be the legal representative of the
Company. Whenever the Chairman of the Board is unable to perform
his responsibilities, he shall authorize the Vice Chairman to exercise
the Chairman's responsibilities.
6.04 Additional Attendees
Reflecting the importance of close communications between the
Board and the management of the Company, the General Manager
may attend Board meetings upon invitation of a majority of the Board
but shall not vote unless he is a director in his own right. Other
managers, including the Financial Controller, may attend such
meetings upon the invitation of a majority of the Board.
6.05 Powers
The Board shall be the highest authority of the Company. It
shall discuss and determine all major issues regarding the Company.
6.06 Meetings
The first Board meeting shall be held as soon as possible
within sixty (60) days after the date of issuance of the Business
License. Thereafter, regular meetings of the Board shall be held at
least two times each year. Upon the written request of three (3) or
more of the directors of the Company specifying the matters to be
discussed, the Chairman of the Board shall call a meeting of the
Board.
6.07 Notice and Agenda
Board meetings shall be held at the registered address of the
Company or such other address in China or abroad as may be
designated by the Chairman. Meetings shall be held on twenty-one
(21) days notice to the directors if held in China and thirty (30) days
notice if held abroad, provided that the directors may waive such
notice by unanimous written consent. A notice of a Board meeting
shall cover the agenda, time and place for such meeting. The
Chairman of the Board shall be responsible for convening and
presiding over such meetings. The General Manager shall assist the
Chairman in preparing an agenda for each Board meeting.
6.08 Proxies
In case a Board member is unable to participate in a Board
meeting in person or by telephone, he may issue a proxy and entrust
another person to participate in the meeting on his behalf. The
representative so entrusted shall have the same rights and powers as
the Board member. A representative shall be permitted to serve as a
proxy for up to three (3) Board members appointed by the same
PARTY as such representative. If a Board member fails to participate
or to entrust another to participate, he will be deemed as having
waived such right.
6.09 Quorum
Four (4) directors present in person, by proxy or by telephone
shall constitute a quorum which shall be necessary for the conduct of
business at any meeting of the Board.
6.10 Voting
Each director present in person, by proxy or by telephone at a
meeting of the Board of Directors shall have one vote.
6.11 Unanimous Votes
Resolutions involving the following matters may only be
adopted at a duly constituted and convened meeting of the Board of
Directors upon the unanimous affirmative vote of each and every
director of the Board voting in person, by proxy or by telephone at
such meeting:
(i) the amendment of the Articles of Association;
(ii) the merger of the Company with another organization;
(iii) termination and dissolution of the Company; and
(iv) the increase or assignment of the Company's registered capital.
6.12 Super Majority
Resolutions involving the following major matters may only be
adopted at a duly constituted and convened meeting of the Board of
Directors upon the affirmative vote of four (4) directors of the Board
voting in person or by proxy or by telephone at such meeting:
(i) the formulation of or changes to the management
structure of the Company;
(ii) the formulation of policies and Plans relating to the
recruitment of employees, employee wages, welfare and
compensation, as well as the formulation of labor
management rules; and
(iii) the appointment, dismissal, limitations on authority and
compensation of Management personnel, except the Executive Vice General
Manager.
6.13 Simple Majority
Other issues that require resolutions by the Board may be
raised at a duly convened meeting of the Board and must be adopted
by the affirmative vote of three (3) of the directors present in person,
by proxy or by telephone at such meeting where a quorum is present.
6.14 Action without a Meeting
Any action by the Board may be taken without a meeting if all
members of the Board consent in writing to such action. Such
written consent shall be filed with the minutes of the Board
proceedings and shall have the same force and effect as a unanimous
or majority vote, as the case may be, taken by members physically
present.
6.15 Expenses
The Company shall be responsible for the reasonable travel,
lodging and meal expenses incurred by appointed directors in
attending Board meetings.
6.16 Preparation of Minutes
The minutes of the Board of Directors' meetings shall be
prepared in English and Chinese and shall be signed by the
Chairman. The minutes shall be distributed within thirty (30) days
from the date of the relevant meeting to each director and each PARTY.
6.17 Amendments to Minutes
Any director who wishes to propose any amendment or
addition to the minutes of the Board of Directors' meetings shall
submit the same in writing to the Chairman within fourteen (14) days
after receipt of such director's copy of the original signed minutes.
Provided that all directors consent, the amendment or addition shall
be incorporated into the official minutes. If there is disagreement
among the directors concerning the proposed amendment or
addition, the issue shall be decided by a resolution of the Board.
6.18 Filing of Minutes
All directors present at a Board meeting shall sign the finalized
minutes of each Board meeting, which shall then be placed on file
with the Company.
ARTICLE 7 - OPERATION AND MANAGEMENT
7.01 Management Procedures and Structures
The policies, structures and procedures concerning operational
management, sales and marketing, health and safety, environmental
and technological matters, which may be adopted by the Board from
time to time shall be developed in consultation with PARTY B so as to
be generally in accordance with PARTY B's practices in its worldwide
operations subject to the overall direction and approval of the Board.
7.02 Management Organization
The Company shall adopt a management system under which
the management organization shall be responsible to and under the
leadership of the Board. All Management Personnel, including the
General Manager, Executive Vice General Manager and Vice General
Manager shall serve at the discretion of the Board. The Company
shall have a General Manager nominated by PARTY A, an Executive
Vice General Manager nominated by PARTY B and a Vice General
Manager nominated by PARTY A and appointed by the Board
pursuant to a duly adopted resolution. The terms of office of the
General Manager, Executive Vice General Manager and Vice General
Manager shall be as determined by the Board. The General Manager,
Executive Vice General Manager and Vice General Manager may be
dismissed only by a resolution of the Board of Directors. If it
becomes necessary, due to dismissal or resignation, to replace the
General Manager, Executive Vice General Manager or Vice General
Manager, PARTY A shall nominate the General Manager's
replacement, PARTY B shall nominate the Executive Vice General
Manager's replacement and PARTY A shall nominate the Vice General
Manager's replacement for appointment by the Board.
7.03 Responsibilities and Powers of the General Manager
The duties of the General Manager shall consist of carrying out
the decisions of the Board and organizing and directing the day-to-
day operation and management of the Company in accordance with
the modern management practices and structures as determined by
the Board. Within the scope granted by the Board, the General
Manager will represent the Company in external matters and, within
the Company, he will appoint and dismiss personnel subordinate to
himself and exercise other functions and powers granted him by the
Board.
7.04 Management Personnel
(a) Other Management Personnel. The Company shall have
such number and types of other Management Personnel as
determined by the General Manager and approved by the Board to be
necessary or advisable to implement the modern management
practices and structures determined by the Board. All Management
Personnel shall be responsible to and under the direction of the
General Manager.
(b) Salaries. The salaries and other remuneration of the
Management Personnel of the Company (including the General
Manager) shall be determined by the Board in its sole discretion on
an individual basis.
7.05 Annual Plans and Budgets
The General Manager, assisted by the other Management
Personnel, shall be responsible for the preparation of the annual
business plan and budget of the Company.
The annual business plan and budget (including the projected
balance sheet, profit and loss statement and cash transaction report)
for each fiscal year shall be submitted to the Board and shall include
comprehensive detailed information on:
(a) the procurement of equipment and other assets of the Company;
(b) the raising and application of funds;
(c) plans with respect to production and sale of Joint Venture Products;
(d) the repair and maintenance of the assets and equipment
of the Joint Venture Company;
(e) the estimated income and expenditures of the Company
covered by the production plan and budget;
(f) plans for training the staff and workers of the Company;
(g) wage and salary plans for staff and workers of the Company;
(h) requirements of raw materials, fuel, water, electricity and
other utilities, and all other inputs for the next year's production;
(i) plans for the proportion of foreign currency sales;
(j) plans for balancing foreign exchange receipts and expenditures; and
(k) any other matter in respect of which the Board may have
requested a report.
The General Manager shall prepare a monthly management
report containing such information as shall be requested by the
Board.
7.06 Approval and Implementation of Annual Plans and Budgets
The Board shall examine and approve the annual business
plan and budget. The General Manager, assisted by the other
Management Personnel, shall be responsible for the implementation
of the plan and budget approved by the Board.
ARTICLE 8 - LABOR MANAGEMENT
8.01 Governing Principle
The General Manager shall formulate a plan for matters
concerning the recruitment, employment, dismissal, wages, labor
insurance, welfare benefits, reward and discipline of the workers and
staff members of the Company in accordance with modern
management standards, practices and policies determined by the
Board, the "Regulations of the People's Republic of China on Labor
Management in Joint Ventures Using Chinese and Foreign
Investment" and the "Provisions of the Ministry of Labor and
Personnel of the People's Republic of China on the Right of Autonomy
of Enterprises with Foreign Investment in the Hiring of Personnel and
on Wages, Insurance and Welfare Expenses of Staff and Workers"
and relevant regulation of Tianjin Municipality. The plan shall be
submitted for the approval of the Board of Directors.
8.02 Working Personnel
Working Personnel shall be employed by the Company in
accordance with a labor contract which shall be entered into between
the Company and each individual worker after the establishment of
the Company. Such labor contract shall establish all terms
governing the employment, duties and benefits of that individual.
The Board shall approve the general form and terms and conditions
included in such contracts.
8.03 Management Personnel
Management Personnel shall be employed by the Company in
accordance with the terms of individual employment contracts. The
detailed terms and conditions of the employment and compensation
of the Management Personnel shall be decided by the Board.
8.04 Expatriate Personnel
As the Company's needs require, expatriate Management
Personnel and senior technical personnel shall be hired by the
General Manager after approval by the Board of Directors, upon the
recommendation of PARTY B. Such personnel shall enter into
individual employment contracts with the Company. The PARTIES
agree that such expatriate personnel shall receive salaries and
benefits in accordance with PARTY B's personnel policies.
8.05 Conformity with Labor Protection
The Company shall conform to rules and regulations of the
Chinese government concerning labor protection and ensure safe and
civilized production. Labor insurance for the working personnel of
the Company shall be handled in accordance with the relevant
regulations of the Chinese government.
8.06 Trade Union
To the extent required by law, the Company shall establish a
trade union to represent the rights and interests of the workers and
staff members, to mediate disputes between the workers and staff
members on the one hand and the Company on the other and to
protect the lawful interests of the workers and staff members. To the
extent required by law, the Company shall actively support the work
of the trade union, provide the trade union facilities to conduct union
activities and other lawful activities after working hours, and allocate
trade union funds.
8.07 Trade Union Fund
In accordance with Article 99 of the Joint Venture Regulations,
the Company shall allot each month two percent (2%) of the total
amount of real wages received by the Company staff and workers,
including expatriate employees for payment into a trade union fund,
such payments to be an expense of the Company. The trade union
may use these funds in accordance with the relevant control
measures of labor union funds formulated by the All China
Federation of Labor Unions.
ARTICLE 9 - FINANCIAL AFFAIRS AND ACCOUNTING
9.01 Accounting System
(a) Responsibilities. The Financial Controller of the
Company, under the leadership of the General Manager, shall be
responsible for the financial management of the Company.
(b) Procedures. The General Manager and the Financial
Controller shall prepare the accounting system and procedures in
accordance with the Accounting System of the People's Republic of
China for Foreign Investment Enterprises, the supplementary
stipulations promulgated by the Ministry of Finance and, to the
extent possible, general accepted international accounting principles.
All vouchers, receipts, statistical statements and reports shall be
written in Chinese and English concurrently. In addition, the
Company shall adopt operating and financial policies and procedures
and shall prepare periodic reporting of financial information in
accordance with the requirements of PARTY B.
9.02 Auditing
(a) The Board shall establish a position for a Company
Auditor who will be responsible for examining and auditing the
Company's financial expenditures and accounting books and will
prepare a report for the Board and the General Manager.
(b) Independent Audit. An independent accountant
registered in China and otherwise qualified to render opinions on the
compliance by the Company with the accounting standards provided
herein, shall be engaged by the Board of Directors as the Company's
auditor to examine and verify the annual report on the final accounts
("Independent Auditor"). The Company shall submit to the PARTIES
the annual financial statements (including the audited Profit and
Loss Account, the Balance Sheet and Cash Flow Balance and Foreign
Exchange Balance for the fiscal year) within three (3) months after
the end of the fiscal year, together with the audit report of the
Chinese registered accountant. The annual financial statements, the
audit report and the monthly reports shall be prepared in both
Chinese and English.
(c) Board Review. The Board shall review and approve the
periodic audits of the accounts. In the event that the Board
determines that the audits submitted by the Independent Auditor are
unable to properly meet the standards set forth above, the Board may
replace the Independent Auditor or retain another auditor at
Company expense, to supplement or adjust the work of the
Independent Auditor or to perform specific accounting and auditing
tasks.
(d) Notwithstanding anything contained in Article 9.02(a)
and (b), at PARTY B's cost, PARTY B may at any time, employ a
foreign auditor or send its internal auditor to examine the records
and procedures of the Company and PARTY A and the Company shall
cooperate and use best efforts to assist such auditors.
9.03 Fiscal Year
The Company shall adopt the calendar year as its fiscal year for
Chinese statutory accounting purpose, which shall begin on January
1 and end on December 31 of the same year, provided that the first
fiscal year of the Company shall commence on the date the Company
receives its Business License, and shall end on the immediately
succeeding December 31.
ARTICLE 10 - FOREIGN EXCHANGE
10.01 Bank Accounts and Foreign Exchange Control
The Company shall separately open foreign exchange accounts
and Renminbi accounts at banks within or outside China upon
approval by the relevant authorities. The Company's foreign
exchange transactions shall be handled in accordance with the
regulations of China relating to foreign exchange control.
10.02 Foreign Exchange Balance
The Company shall be responsible to maintain a balance in its
foreign exchange receipts and expenditures. The principal methods
for balancing foreign exchange will be as follows:
(i) Foreign Currency Sales. The primary means for
balancing foreign exchange will be through the sale of the Joint
Venture Products in foreign currency.
(ii) Export of Domestic Product. Subject to the approval of
the Approval Authority, the Company may purchase products
domestically in Renminbi and export them for foreign currency.
(iii) Other Measures. If the Company is unable to balance its
foreign exchange using the measures described above, the Board of
Directors will consider all other methods permitted under the laws
and regulations of the People's Republic of China.
ARTICLE 11 - DISTRIBUTION OF PROFIT
11.01 Allocations to Three Funds
To the extent required by law, the Company shall make
payments in Renminbi into a reserve fund, an enterprise expansion
fund and a bonus and welfare fund for its workers and staff members
(the "Three Funds"). The proportion of each year's payments shall be
discussed and determined by the Board of Directors on the basis of
the Company's circumstances and in the general interest of the
Company and its workers; provided, however, that the payments to
each individual Fund shall not exceed seven percent (7%) of the
Company's after tax income and the total of the payments to the
Three Funds shall not exceed fifteen percent (15 %) of the Company's
after-tax income in the relevant year. Plans for the application of
these Three Funds shall be formulated by the General Manager.
11.02 Profit Distribution
(a) Proportionate Distributions. After required allocations, if
any have been made to the Three funds in accordance with Article
11.01, the Board shall determine distribution of profits by way of
dividend among the PARTIES in proportion to their respective shares
in the registered capital of the Company and the balance of net
profits will be retained in the Company and utilized as may be
decided by the Board from time to time. If the Company carries over
losses from the previous year, the profit of the current year shall first
be used to cover such losses. No profit shall be distributed unless a
prior deficit is made up. The profit retained by the Company and
carries over from the previous years may be distributed together with
the distributable profit of the current year, or after the deficit of the
current year is made up.
(b) Insufficient Foreign Exchange. In the event that there is
not sufficient foreign exchange to pay PARTY b's share of distributed
profits, the Company shall, to the extent of the unpaid portion, hold
distributed Renminbi profits in trust for PARTY B in a special interest
bearing account set up for that purpose, when such account is
available, in satisfaction of the Company's obligation to distribute
such share of the Company's profit to PARTY B. From and after the
date on which such account is established, the Company shall not
withdraw or use the funds therein except upon PARTY B's prior
written instructions. When the Company obtains foreign exchange
that is available for distribution to PARTY B pursuant to Article 11.02
(a), the Company shall, at PARTY B's option, replace the Renminbi in
such account (including any interest earned therefrom) with its U.S.
Dollar equivalent in accordance with the average of the buying and
selling rates published by the Bank of China at the time of the
transaction. The Company shall then immediately pay such U.S.
Dollars to PARTY B. PARTY B may from time to time instruct the
Company to distribute Renminbi as directed by PARTY B in such
account for any legal purpose.
(c) Method of Payment. All payments to be distributed
under this Article 11 shall at the request of the receiving PARTY be
remitted to an account at a bank specified in advance by such
PARTY.
ARTICLE 12 - TAXATION AND INSURANCE
12.01 Income Tax, Customs Duties and Other Taxes
(a) Tax Payments. The Company shall pay tax under the
relevant laws of China and any special tax regulations applicable to
Tianjin. Chinese and foreign management and working personnel
shall be periodically reminded to pay their individual income tax in
accordance with the tax laws of China.
(b) Tax Preferences. The Company will use its best
endeavours to apply for and obtain preferential tax treatment,
reductions and exemptions, as provided by the relevant regulations.
Promptly after the execution of this Contract, the PARTIES shall
submit an application to the Tianjin Municipal Tax Bureau for
confirmation of the Company's tax treatment.
12.02 Insurance
The Company shall, at its own cost and expense, take out and
maintain full and adequate insurance of the Company against loss or
damage by fire and such other risks as may be decided by the Board.
The property, transportation, product liability and other items of
insurance of the Company shall be obtained within or outside China,
subject to any legal restrictions which may apply, and such policies
will be denominated in Chinese and foreign currencies, as
appropriate. The types and amounts of insurance coverage shall be
determined by the Board in accordance with applicable Chinese laws,
if any.
ARTICLE 13 - THE JOINT VENTURE TERM
13.01 Joint Venture Term
The Joint Venture Term of the Company shall commence on
the Effective Date and shall expire thirty (30) years therefrom.
13.02 Extension of the Joint Venture Term
Extensions of the Joint Venture Term will be handled in
accordance with Article 19 of the Joint Venture Contract.
ARTICLE 14 - TERMINATION, BUY-OUT AND LIQUIDATION PROCEDURES
14.01 Termination, Buy-out and Liquidation
Termination, buy-out and liquidation procedures will be
handled in accordance with Article 20 of the Joint Venture Contract.
ARTICLE 15 - AMENDMENTS AND CONFLICTS
15.01 Amendments
These Articles of Association may not be changed orally, but
only by a written instrument signed by the Parties and approved by
the unanimous resolution of the Board of Directors and Approval
Authority.
15.02 Conflicts
In the event of any conflict between the terms and provisions of
the Joint Venture Contract and these Articles of Association, the
terms and provisions of the Joint Venture Contract shall prevail.
ARTICLE 16 - WAIVER
16.01 Waiver
Failure or delay on the part of any PARTY hereto to exercise
any right, power or privilege under the Joint Venture Contract, this
Articles of Association or under any other contract or agreement
relating thereto, shall not operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege preclude any
other future exercise thereof.
ARTICLE 17 - LANGUAGE
17.01 Language
These Articles of Association are written and executed in
Chinese and English, and both language versions shall be equally
valid.
IN WITNESS WHEREOF, each of the PARTIES hereto have
caused these Articles of Association to be executed by their duly
authorized representatives on the date first set forth above.
PARTY A:
TIANJIN TANGGU VALVE PLANT
/s/Han You Sheng
Name: Han You Sheng
Title: President
Nationality Chinese
PARTY B
WATTS INVESTMENT COMPANY
/s/David A. Bloss
Name: David A. Bloss, Sr.
Title: Executive Vice President
Nationality U.S.A.
STOCK PURCHASE AGREEMENT
by and between
JAMECO ACQUISITION CORP.
and
HARRY LIPMAN, MICHAEL LIPMAN,
WALTER LIPMAN, SIDNEY
GREENBERG, DAVID CHASIN,
KENNETH S. LIPMAN, PETER A.
LIPMAN, ETHEL S. LIPMAN, GLORIA
LIPMAN, WALTER LIPMAN TRUST
FOR THE BENEFIT OF ILENE
BURSTEIN, WALTER LIPMAN TRUST
FOR THE BENEFIT OF STACI
BURSTEIN AND WALTER LIPMAN
TRUST FOR THE BENEFIT
OF JOSHUA BURSTEIN
July 28, 1994
TABLE OF CONTENTS
Article I SALE AND PURCHASE OF SHARES
1.1. Sale of Shares
1.2. Purchase Price and Payment
1.3. Transfer Taxes
Article II CLOSING
2.1. The Representatives
2.2. Closing
Article III REPRESENTATIONS AND WARRANTIES OF CERTAIN SELLERS
3.1. Organization and Qualification
3.2. Subsidiaries
3.3. Capitalization and Authority
3.4. Certificate of Incorporation and By-Laws; Minute Books
3.5. Governmental Approvals
3.6. Financial Statements
3.7. No Material Adverse Change
3.8. Tax Matters
3.9. Compliance with Law
3.10. Litigation
3.11. Agreements
3.12. Title to Properties
3.13. Accounts Receivable; Loans to Affiliates
3.14. Inventory
3.15. Intangible Property
3.16. Liens
3.17. Indebtedness
3.18. Liabilities
3.19. Labor Matters
3.20. Employee Benefit Plans
3.21. Environmental Matters
3.22. Insurance
3.23. Operations of the Company
3.24. No Broker
3.25. Banking Relations
3.26. Transactions with Interested Persons
3.27. List of Certain Employees
3.28. Customers and Distributors.
3.29. No Government Contracts.
3.30. Backlog.
3.31. Warranty and Related Matters.
3.32. Disclosure.
Article IV INDIVIDUAL REPRESENTATIONS AND WARRANTIES
OF EACH OF THE SELLERS
4.1. Title to Shares
4.2. Authority Relative to this Agreement
4.3. Absence of Conflicts
Article V REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1. Organization
5.2. Authority Relative to this Agreement
5.3. Certificate of Incorporation and By-Laws
5.4. Absence of Conflicts
5.5. No Broker
5.6. Absence of Litigation
5.7. Purchase for Investment
5.8. Governmental Approvals
Article VI COVENANTS AND AGREEMENTS
6.1. Insurance
6.2. Payment of Debt, etc.
6.3. New York State Filings
6.4. Further Assurances
6.5. No Section 338 Election
6.6. Arbitration
6.7. Tax Refunds and Rebates
6.8. Payment of Employee Bonuses
6.9. Subsequent Tax Filings
6.10. Establishment of Pension Plan
Article VII CONDITIONS PRECEDENT TO
THE OBLIGATION OF THE BUYER TO CLOSE
7.1. Representations and Covenants
7.2. Good Standing Certificates
7.3. Permits and Approvals
7.4. Legislation
7.5. Legal Proceedings
7.6. Stock Certificates
7.7. Opinion of Counsel to the Sellers and the Company
7.8. Resignation of Directors and Officers
7.9. Employment Agreements
7.10. Hart-Scott-Rodino
7.11. Real Property Contract
7.12. Escrow Agreement
Article VIII CONDITIONS PRECEDENT TO
THE OBLIGATION OF THE SELLERS TO CLOSE
8.1. Representations and Covenants
8.2. Governmental Permits and Approvals
8.3. Legal Proceedings
8.4. Closing Payment
8.5. Employment Agreements
8.6. Opinion of Counsel to the Buyer
8.7. Hart-Scott-Rodino
8.8. Real Property Contract
8.9. Escrow Agreement
8.10. Good Standing Certificate
8.11. Harry's Policies
8.12. Guaranty Agreement
Article IX INDEMNIFICATION
9.1. Survival
9.2. Indemnification by the Principal Sellers
9.3. Limitations on Indemnification by the Principal Sellers
9.4. Indemnification by Buyer
9.5. Limitation on Indemnification by Buyer
9.6. Responsibility for Environmental Claims
9.7. Escrow Fund
9.8. Notice; Defense of Claims
9.9. Characterization of Indemnity Payments
9.10. Recoveries
9.11. Payment of Losses
9.12. Meaning of After-Tax Basis
Article X MISCELLANEOUS
10.1. Certain Definitions
10.2. Fees and Expenses
10.3. Notices
10.4. Entire Agreement
10.5. Waivers and Amendments
10.6. Governing Law
10.7. Binding Effect; Benefit
10.8. No Assignment
10.9. Variations in Pronouns
10.10. Counterparts
10.11. Exhibits and Schedules
10.12. Headings
10.13. Severability
10.14. Access to Books and Records After the Closing Date
10.15. Real Property Contract
10.16. Certain Remedies
EXHIBITS:
1.1
1.2(c)
1.2(d)
7.7
7.9(a)
7.9(b)
7.9(c)
8.6
11.1
SCHEDULES:
3.1
3.2
3.5
3.6
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16
3.19
3.20
3.22
3.23
3.25
3.26
3.27(a)
3.27(b)
3.28
3.30
3.31
4.3
5.10
6.6
7.3
8.2
9.2
9.8
STOCK PURCHASE AGREEMENT
AGREEMENT (the "Agreement"), dated July 28, 1994, by
and among Jameco Acquisition Corp., a Delaware corporation (the
"Buyer"), and Harry Lipman ("Harry"), Michael Lipman ("Michael"),
Walter Lipman ("Walter"), Sidney Greenberg ("Sidney"), David Chasin
("David"), Kenneth S. Lipman ("Kenneth"), Peter A. Lipman ("Peter"),
Ethel S. Lipman ("Ethel"), Gloria Lipman ("Gloria"), Walter Lipman
Trust for the benefit of Ilene Burstein ("Ilene Trust"), Walter Lipman
Trust for the benefit of Staci Burstein ("Staci Trust") and Walter Lipman
Trust for the benefit of Joshua Burstein ("Joshua Trust") (individually, a
"Seller" and collectively, the "Sellers"), the owners of all of the issued
and outstanding shares of capital stock of Jameco Industries, Inc., a New
York corporation (the "Company").
WHEREAS, the Sellers are the beneficial and record
owners of all of the issued and outstanding shares of capital stock of the
Company (collectively, the "Shares"); and
WHEREAS, the Sellers wish to sell, transfer, assign,
convey and deliver the Shares to the Buyer, and the Buyer wishes to
purchase, acquire and accept the Shares from the Sellers, upon the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants herein contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Article I
SALE AND PURCHASE OF SHARES
Section 1.1. Sale of Shares. At the closing provided for in section 2.2
hereof (the "Closing"): (i) subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and
covenants contained herein, each Seller agrees to sell, transfer, assign and
convey to the Buyer the number of Shares set forth opposite such Seller's
name on Exhibit 1.1 hereto for the purchase price set forth opposite such
Seller's name on Exhibit 1.1 hereto under the caption "Total Amount to
be Paid to Seller," and shall deliver to the Buyer a stock certificate or
certificates representing all of such Shares, duly endorsed in blank or with
duly executed stock powers attached, in proper form for transfer, with
appropriate transfer stamps, if any, attached, free and clear of any Lien
with respect thereto and without any restrictive legend other than with
respect to applicable securities laws; and (ii) subject to the terms and
conditions of this Agreement and in reliance upon the representations,
warranties and covenants contained herein, the Buyer agrees to purchase,
acquire and accept from each Seller the number of Shares set forth
opposite such Seller's name on Exhibit 1.1 hereto for the purchase price
set forth opposite such Seller's name on Exhibit 1.1 hereto under the
caption "Total Amount to be Paid to Seller."
Section 1.2. Purchase Price and Payment.
(a) Purchase Price. The Purchase Price for the Shares
shall be Twenty-Nine Million Five Hundred Three Thousand Thirty
Dollars ($29,503,030) (the "Purchase Price").
(b) Payment. (i) Twenty-Five Million Four Hundred
Eighty One Thousand One Hundred Thirty-Five Dollars ($25,481,135) of
the Purchase Price (representing $25,753,030 of the Purchase Price, less
$261,193 credit for amounts owed by Harry pursuant to section 6.2(b)
hereof, and $10,702 credit for amounts owed by Harry pursuant to section
6.2(d)) shall be paid by the Buyer to the Representatives on behalf of the
Sellers on the Closing Date (the "Closing Payment") in the manner
specified in section 1.2(c) hereof, and (ii) Three Million Seven Hundred
Fifty Thousand Dollars ($3,750,000) of the Purchase Price shall be paid
to the Escrow Agent named in section 1.2(d) hereof to be held in escrow
as described in section 1.2(d) (the "Escrow Payment") and shall be paid to
the Representatives only pursuant to and in accordance with the terms of
the Escrow Agreement.
(c) Payment of the Closing Payment. At the Closing,
the Closing Payment shall be paid by the Buyer in accordance with the
instructions set forth in Exhibit 1.2(c) by wire transfer of immediately
available funds to the accounts indicated by the Representatives in such
written instructions.
(d) Escrow Arrangements. The amounts specified in and
to be delivered by the Buyer pursuant to section 1.2(b)(ii) (the "Escrow
Fund") shall be delivered to The First National Bank of Boston, as escrow
agent (the "Escrow Agent"), under the terms of an escrow agreement in
the form of Exhibit 1.2(d) hereto (the "Escrow Agreement"). The
Escrow Fund shall be held by the Escrow Agent in accordance with and
subject to the limitations set forth in the Escrow Agreement to secure the
payment of claims for indemnification made in accordance with Article IX
of this Agreement.
Section 1.3. Transfer Taxes. Each Seller shall pay all stock transfer
Taxes, recording fees and other sales, transfer, use, purchase or similar
Taxes, if any, resulting from the sale of the Shares owned by such Seller
hereunder.
Article II
CLOSING
Section 2.1. The Representatives.
(a) By the execution and delivery of this Agreement and by
their act of surrendering certificates representing their Shares, each of the
Sellers hereby irrevocably constitutes and appoints Harry and Michael
jointly, as such Seller's true and lawful agents and attorneys-in-fact (the
"Representatives"), with full power of substitution to act in his, her or its
name, place and stead with respect to all transactions contemplated by and
all terms and provisions of this Agreement and the Escrow Agreement and
to act on his, her or its behalf in any dispute, litigation, mediation, or
arbitration involving this Agreement and the Escrow Agreement, and to
do or refrain from doing all such further acts or things, and execute all
such documents as the Representatives shall deem necessary or
appropriate in connection with the transactions contemplated by this
Agreement and the Escrow Agreement including, without limitation, the
power:
(i) to act for the Sellers with regard to matters
pertaining to indemnification referred to in this Agreement and the
Escrow Agreement, including the power to compromise any claim
on behalf of the Sellers and to conduct arbitration, mediation or
litigation on behalf of the Sellers;
(ii) to execute and deliver all ancillary agreements,
certificates and documents, and to make representations and
warranties therein, on behalf of the Sellers which the
Representatives deem necessary or appropriate in connection with
the consummation of the transactions contemplated by this
Agreement and the Escrow Agreement; and
(iii) to do or refrain from doing any further act or deed
on behalf of the Sellers which the Representatives deem necessary
or appropriate in their sole discretion relating to the subject matter
of this Agreement and the Escrow Agreement, including, without
limitation, to exercise any right of or pursue any remedy available
to any Seller under this Agreement and the Escrow Agreement, as
fully and completely as each Seller could do if personally present.
(b) If either Representative dies or otherwise becomes
incapacitated and is unable to serve as a Representative, or resigns as a
Representative in a writing delivered to the Buyer, then the remaining
Representative shall serve as the only Representative. The appointment of
the Representatives shall be deemed coupled with an interest and be
irrevocable. As long as Harry and Michael serve jointly as the
Representatives hereunder, their actions as Representatives shall require
the concurrence of both of them. The Buyer and any other Person may
conclusively and absolutely rely, without inquiry, upon the joint action of
Harry and Michael at any time during which they serve as joint
Representatives and upon the action of a Representative serving
individually, in either case, on behalf of the Sellers in all matters
contemplated by this Agreement and the Escrow Agreement. All notices
delivered by the Buyer to the Representatives (whether pursuant hereto or
otherwise) for the benefit of the Sellers shall constitute notice by the
Buyer to the Sellers. Each Representative shall act with respect to this
Agreement and the Escrow Agreement in a manner consistent with what
he believes to be in his best interest in his capacity as a Seller and
consistent with his obligations under this Agreement and the Escrow
Agreement, but a Representative shall not be liable or responsible to any
Seller for any loss or damages the Sellers may suffer by reason of the
performance by such Representative of his duties under this Agreement,
other than loss or damage arising from willful misconduct or gross
negligence in the performance of his duties under the Agreement. The
Representatives shall not be deemed to be trustees or fiduciaries for or on
behalf of any Seller, shall have no duty or obligation to consult with and
take direction from any Seller and shall not be liable for any action taken
or omitted in good faith in the absence of gross negligence or willful
misconduct. The Representatives shall not be liable for any action taken
or omitted in good faith upon the written advice of counsel and may act
upon any instrument or signature believed by them in good faith to be
genuine and may assume that any Person purporting to give any notice or
instructions hereunder, believed by them in good faith to be authorized,
has been duly authorized to do so.
Each Seller agrees jointly and severally to indemnify and
hold harmless each Representative for any loss or damage arising from the
performance of his duties as a Representative hereunder, including,
without limitation, the cost of any accounting, legal counsel or other
advisor retained by the Representatives on behalf of the Sellers, but
excluding any loss or damage arising from willful misconduct or gross
negligence in the performance of his duties under this Agreement and the
Escrow Agreement.
(c) All actions, decisions and instructions of the
Representatives taken, made or given pursuant to the authority granted to
the Representatives pursuant to this section 2.1 shall be conclusive and
binding upon all of the Sellers and no Seller shall have the right to object,
dissent, protest or otherwise contest the same. The Buyer hereby
acknowledges that the Representatives may with respect to any particular
action, decision or instruction, but shall not be required to, solicit the
consent of the Sellers before acting.
(d) The provisions of this section 2.1 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with
an interest and surviving death, legal incapacity or dissolution, granted by
the Sellers to the Representatives and shall be binding upon the executors,
heirs, legal representatives, successors and assigns of each such Seller.
(e) The Buyer shall be entitled to rely conclusively on the
instructions and decisions of the Representatives as contemplated by
section 2.1(b) as to any action required or permitted to be taken by the
Sellers or the Representatives hereunder, and no party hereunder shall
have any cause of action against the Buyer for any action taken by the
Buyer in reliance upon the instructions or decisions of the
Representatives.
Section 2.2. Closing. The Closing of the sale and purchase of the
Shares shall take place at the offices of Battle Fowler, 280 Park Avenue,
New York, New York 10017 at 10:00 a.m. (local time) on July 28, 1994
or at such other place, time or date as the Buyer and the Representatives
mutually agree. The date upon which the Closing occurs is hereinafter
referred to as the "Closing Date."
Article III
REPRESENTATIONS AND WARRANTIES OF CERTAIN SELLERS
Subject to the provisions in section 9.2 hereof pertaining to
the proportional responsibility of the Principal Sellers for the
indemnification obligations relating to breaches of the representations and
warranties contained in this Agreement, each of the Principal Sellers
represents and warrants to the Buyer as follows:
Section 3.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of New York and has the requisite corporate power
and lawful authority to own, lease and operate its assets, properties and
business and to carry on its business as it is now being conducted. The
Company is duly qualified as a foreign corporation to transact business,
and is in good standing, in each jurisdiction where the character of its
properties, owned or leased, or the nature of its activities makes such
qualification necessary, except where the failure to so qualify would not
have a Material Adverse Effect. The Company does not own or lease real
property in any jurisdiction other than its jurisdiction of incorporation and
the jurisdictions set forth on Schedule 3.1 hereto.
Section 3.2. Subsidiaries. Except as set forth in Schedule 3.2 hereto,
the Company has no subsidiaries. For purposes of this Agreement, the
term "Subsidiary" shall mean any Person as to which the Company,
directly or indirectly, owns or has the power to vote, or to exercise a
controlling influence with respect to, fifty percent (50%) or more of the
securities of any class of such Person, the holders of which class are
entitled to vote for the election of directors (or Persons performing similar
functions). Except as set forth in Schedule 3.2, the Company does not
own any securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank
certificates of deposit and money market accounts acquired as short-term
investments in the ordinary course of its business. Except as set forth in
Schedule 3.2, the Company does not own or have any direct or indirect
interest in or control over any corporation, partnership, joint venture or
entity of any kind. JESC was incorporated on February 1, 1994 in the
U.S. Virgin Islands and has engaged in no activities and has not incurred
any indebtedness or other liability since the date of its formation other
than in connection with its incorporation and maintaining its status as a
corporation.
Section 3.3. Capitalization and Authority. (a) The authorized capital
stock of the Company consists of 2,000,000 shares of common stock, par
value $ 0.10 per share (the "Jameco Common Stock"); 360,000 shares of
Jameco Common Stock are duly and validly issued of which 311,375.25
are outstanding. Each of such outstanding Shares is fully paid and
nonassessable and owned as indicated on Exhibit 1.1 hereto. 48,624.75 of
the issued Shares are held in the treasury of the Company as of the date
hereof and no shares are reserved for issuance. There are no other shares
of capital stock of the Company outstanding and no outstanding options,
warrants, convertible or exchangeable securities, subscriptions, rights
(including any preemptive rights), stock appreciation rights, calls or
commitments of any character whatsoever requiring the issuance, sale,
redemption, repurchase, registration or voting of shares of any capital
stock of the Company, and there are no contracts or other agreements to
issue additional shares of capital stock of the Company or any options,
warrants, convertible or exchangeable securities, subscriptions, rights
(including any preemptive rights), stock appreciation rights, calls or
commitments of any character whatsoever relating to such shares.
(b) The Company has full corporate power and authority to
enter into any agreement, document and instrument executed and
delivered or to be executed and delivered by it pursuant to or as
contemplated by this Agreement and to comply with its obligations
hereunder and thereunder. The execution, delivery and performance by
the Company of each such other agreement, document and instrument
have been duly authorized by all necessary action of the Company and its
stockholders and no other action on the part of the Company or its
stockholders is required in connection therewith. Each agreement,
document and instrument executed and delivered or to be executed and
delivered by the Company pursuant to or as contemplated by this
Agreement (to the extent it contains obligations to be performed by the
Company) constitutes or will when executed and delivered constitute, a
valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules and laws
governing specific performance, injunctive relief and other equitable
remedies. The execution, delivery and performance by the Sellers of their
respective obligations under this Agreement and each such other
agreement, document and instrument:
(i) do not and will not violate any provision of the
certificate of incorporation or by-laws of the Company;
(ii) do not and will not violate any statute, law, rule and
regulation, which is applicable to the Company or any of its assets,
properties, or businesses, or violate any judgment, ruling, order,
writ, injunction, award, decree, statute, law, ordinance, code, rule
or regulation of any court or foreign, federal, state, county or local
government or any other governmental, regulatory or
administrative agency or authority which is applicable to the
Company or any of its assets, properties or businesses; and
(iii) except as set forth on Schedule 3.3, do not and will
not result in a breach of, constitute a default under, accelerate any
obligation under, or give rise to a right of termination of any
indenture or loan or credit agreement or any other agreement,
contract, instrument, Lien, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award,
whether written or oral, to which the Company is a party or by
which the property of the Company is bound or affected, or result
in the creation or imposition of any Lien on any of the assets of the
Company.
Section 3.4. Certificate of Incorporation and By-Laws; Minute Books.
Copies of the certificate of incorporation and by-laws of the Company
and all amendments to each have heretofore been delivered to the Buyer
and such copies are true, complete and accurate. The records of the board
of directors' and shareholders' meetings contained in the minute books of
the Company are true and accurate records of those meetings. The stock
transfer ledger of the Company is true and accurate.
Section 3.5. Governmental Approvals. Other than in connection, or in
compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act") or as set forth on Schedule 3.5,
no notice to, filing or registration with, or permit, license, variance,
waiver, exemption, franchise, order, consent, authorization or approval
of, any foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority
(collectively, "Permits") is required by the Company for the conduct of its
business as currently conducted or for the consummation of the
transactions contemplated hereby. The Company has obtained or has
applied for all Permits listed on Schedule 3.5. All the Permits listed on
Schedule 3.5 (except those that are identified on such Schedule as
"pending" or "applied for") are valid and in full force and effect and,
except as set forth in Schedule 3.5 hereto, the Company is operating in
compliance therewith except where a contrary state of facts would not
result in a Material Adverse Effect. None of the Permits is subject to
termination by its express terms as the result of the consummation of the
transactions contemplated by this Agreement.
Section 3.6. Financial Statements. The balance sheet of the Company
as at December 31, 1993 and the related statements of earnings and
retained earnings and cash flow for the year then ended, including the
notes thereto, certified by KPMG Peat Marwick, independent certified
public accountants, copies of which are attached hereto as Schedule
3.6(a), fairly present the financial position of the Company as at such date
and the results of operations, the changes in retained earnings and cash
flow of the Company, for the year then ended in accordance with
generally accepted accounting principles applied on a consistent basis.
The combined balance sheets of the Company and Innovative Computer
and Innovative Systems as at December 31, 1992 and 1991 and the related
statements of earnings and retained earnings, and cash flows for the years
then ended, including the notes thereto, certified by KPMG Peat
Marwick, independent certified public accountants, are attached hereto as
Schedule 3.6(b). The combining schedules-balance sheets of the
Company as at December 31, 1991 and 1992 and the combining schedules
of operations and retained earnings for the years then ended included in
Schedule 3.6(b) are fairly stated in all material respects in relation to the
combined financial statements contained in Schedule 3.6(b) taken as a
whole. The unaudited balance sheet of the Company as at June 30, 1994
and the related unaudited statements of earnings and retained earnings for
the six-month period then ended, copies of which are attached hereto as
Schedule 3.6(c), are true and correct copies of management statements
prepared for internal use by the management of the Company. Such
statements fairly present the financial position of the Company as at such
date and the results of operations for the period then ended in accordance
with generally accepted accounting principles (except as set forth in
Schedule 3.6(d)) applied on a consistent basis with the financial statements
contained in Schedule 3.6(a). The foregoing financial statements are
hereinafter referred to collectively as the "Financials;" the unaudited
balance sheet as at June 30, 1994 included in the Financials is hereinafter
referred to as the "Balance Sheet;" and June 30, 1994 is hereinafter
referred to as the "Balance Sheet Date." Schedule 3.6(e) sets forth on an
itemized basis all reserves of the Company reflected on the Company's
balance sheet as of June 30, 1994. See Schedule 3.6(f) for information
concerning a liability of the Company arising from the repurchase by the
Company of certain shares of common stock of the Company.
Section 3.7. No Material Adverse Change. Since March 31, 1994,
there has been no change which, individually or in the aggregate, has had
or is reasonably likely to have a Material Adverse Effect (other than any
Material Adverse Effect resulting from conditions prevailing in the
economy or the U.S. plumbing products industry generally) and, to the
best of the Principal Sellers' Knowledge, no such change is threatened.
Since March 31, 1994, there has not been any damage, destruction or loss
to the Company or any of its properties, assets or businesses which has or
is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect whether or not covered by insurance. Anything contained
herein to the contrary notwithstanding, any environmental matter or
condition (including any environmental matter or condition which may
give rise to an Environmental Claim as defined in Section 9.6 hereof)
relating to the Company, or any of its properties (including, without
limitation, the Premises or any Property) shall not be the subject of the
representations and warranties contained in this Section 3.7.
Section 3.8. Tax Matters.
(a) Except as set forth on Schedule 3.8:
(i) The Company has paid or caused to be paid all
Taxes required to be paid by it through the date hereof, whether disputed
or not (other than current Taxes the liability for which is adequately
reserved for on the Financials).
(ii) The Company, in accordance with applicable law,
has filed all Tax Returns required to be filed by it through the date hereof,
and all such returns correctly and accurately set forth the amount of any
Taxes relating to the period covered by such Tax Returns. As of the time
of filing, the foregoing Tax Returns correctly reflected the facts regarding
the income, businesses, assets, operations, activities, status or other
matters of the Company or any other information required to be shown
thereon. A list of all Tax Returns filed with respect to the Company since
January 1, 1989 is set forth in Schedule 3.8, and said Schedule 3.8
indicates those Tax Returns that have been audited or currently are the
subject of an audit. The Company has delivered to the Buyer complete
and correct copies of all Tax Returns, examination reports and statements
of deficiencies assessed against or agreed to by the Company for the year
1989 and all subsequent years through 1992 and has made available all
such documents for prior years to the extent that the same are available.
Schedule 3.8 sets forth all federal Tax elections under the Internal
Revenue Code of 1986, as amended (the "Code"), that are in effect with
respect to the Company or for which an application by the Company is
pending.
(iii) Neither the Internal Revenue Service ("IRS") nor
any other governmental authority is now asserting or, to the best of the
Principal Sellers' Knowledge, threatening to assert against the Company
any deficiency or claim for additional Taxes. No claim has ever been
made by an authority in a jurisdiction where the Company does not file
reports and returns that the Company is or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of
the Company that arose in connection with any failure (or alleged failure)
to pay any Tax. The Company has never entered into a closing agreement
pursuant to section 7121 of the Code.
(iv) There has not been any audit since January 1, 1988
of any Tax Return filed by the Company, no audit of any Tax Return of
the Company is in progress, and the Company has not been notified by
any Tax authority that any such audit is contemplated or pending. No
extension of time with respect to any date on which a Tax Return was or
is to be filed by the Company is in force, and no waiver or agreement by
the Company is in force for the extension of time for the assessment or
payment of any Taxes.
(v) The Company has never consented to have the
provisions of section 341(f)(2) of the Code applied to it. The Company
has not agreed to make nor is it required to make any adjustment under
section 481(a) of the Code by reason of a change in accounting method or
otherwise. The Company (A) has never made any payments, (B) is not
obligated to make any payments, or (C) is not a party to any agreement
that under certain circumstances would obligate it to make any payments,
that will not be deductible under section 280G of the Code. The
Company has disclosed on its income Tax Returns all positions taken
therein that could give rise to a penalty for underpayment of federal Tax
under section 6662 of the Code (or any corresponding provision of state,
local or foreign tax law). The Company has never had any liability for
unpaid Taxes because it is a member of an "affiliated group" (as defined
in section 1504(a) of the Code). The Company has never filed, and has
never been required to file, a consolidated, combined or unitary tax return
with any entity. The Company is not a party to any tax sharing
agreement.
(vi) The Company computes its federal taxable income
under the accrual method of accounting. For purposes of computing
taxable income, all inventories of the Company are maintained on a
last-in, first-out ("LIFO") basis. Such inventory methods are correct in
all material respects for income tax purposes.
(vii) The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder
or other third party.
(b) Schedule 3.8 sets forth with respect to the Company a
tax basis balance sheet as of December 31, 1993.
(c) For purposes of this section 3.8, all references to
sections of the Code shall include any predecessor provisions to such
sections and any similar provisions of federal, state, local or foreign law.
Section 3.9. Compliance with Law. Except as set forth on
Schedule 3.9 and except with respect to Environmental Laws (which are
not the subject of this section 3.9), the Company has not violated or failed
to comply with and is not violating or failing to comply with, nor has the
Company received notice of any violation of or failure to comply with any
judgment, ruling, order, writ, injunction, award, decree, statute, law,
ordinance, code, rule or regulation, of any court or foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority applicable to it or to its assets,
properties, businesses or operations, except where any such violation or
failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth on Schedule 3.9 and except
as with respect to Environmental Laws (which are not the subject of this
section 3.9), the conduct of the Company's business is in conformity with
all foreign, federal, state, county and local energy, public utility, health or
occupational safety, regulatory and administrative requirements, except
where any such violation or nonconformity would not, individually or in
the aggregate, have a Material Adverse Effect.
Section 3.10. Litigation. Except as set forth on Schedule 3.10 hereto:
(i) there are no outstanding judgments, rulings, orders, writs, injunctions,
awards or decrees of any court or any foreign, federal, state, county or
local government or any other governmental, regulatory or administrative
agency or authority or arbitral tribunal against or involving the Company
or any of the Sellers that relate to the businesses of the Company or the
Shares, (ii) the Company is not a party to, or to the best of the Principal
Sellers' Knowledge, threatened with, any litigation or judicial,
governmental, regulatory, administrative or arbitration proceeding, and
(iii) there is no litigation or proceeding, in law or in equity, or any
proceeding or governmental investigation before any commission or other
administrative authority pending, or, to the best of the Principal Sellers'
Knowledge, threatened, against any of the Sellers or the transactions
contemplated hereby or whereby timely performance by the Sellers
according to the terms of this Agreement may be prohibited, prevented or
delayed.
Section 3.11. Agreements. Schedule 3.11 hereto sets forth all of the
following contracts and other agreements to which the Company is a party
or by or to which its assets, properties or businesses are bound or subject:
(i) currently effective contracts and other agreements with any current or
former officer, director, employee, consultant, agent or shareholder;
(ii) contracts and other agreements outside the ordinary course of the
Company's business involving annual payments under any such contract
or other agreement or under any related series of contracts or other
agreements of at least $50,000 for the sale of materials, supplies,
equipment, merchandise or services; (iii) contracts and other agreements
outside the ordinary course of the Company's business involving
payments since March 31, 1994 under any such contract or other
agreement or under any related series of contracts or other agreements of
at least $50,000 for the purchase or acquisition of materials, supplies,
equipment, merchandise or services and any contracts and other
agreements providing for the purchase of all or substantially all of its
requirements or a particular product from a supplier where such
requirement or product is not readily available from alternative sources at
comparable prices; (iv) distributorship, representative, management,
marketing, sales agency, printing or advertising contracts and other
similar agreements not terminable upon not more than thirty (30) days
notice; (v) contracts and other similar agreements for the grant to any
Person of any preferential rights to purchase any of the assets, properties
or business of the Company; (vi) joint venture contracts and other similar
agreements; (vii) contracts and other agreements under which the
Company has guaranteed the obligations of any Person or under which
any Seller has guaranteed the obligations of the Company; (viii) contracts
and other agreements under which the Company agrees to indemnify any
Person or to share Tax liability with any Person that will exist at Closing;
(ix) contracts and other agreements limiting the freedom of the Company
to engage in any line of business or to engage in business in any
geographic area; (x) contracts and other agreements relating to the
acquisition by the Company of any operating business or the capital stock
of any Person; (xi) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security instrument; (xii) any registration rights
agreements, warrants, warrant agreements or other rights to subscribe for
securities, any voting agreements, voting trusts, shareholder agreements
or other similar arrangements or any stock purchase or repurchase
agreements or stock restriction agreements; and (xiii) leases of real or
personal property with annual payments in excess of $25,000. All of the
contracts and other agreements set forth on Schedule 3.11 hereto are in
full force and effect as of the date hereof. To the best of the Principal
Sellers' Knowledge, the descriptions of the oral contracts set forth in
Schedule 3.11 are true, accurate and complete in all material respects.
Neither the Company nor, to the best of the Principal
Sellers' Knowledge, any other party to any contract, agreement, lease or
instrument of the Company, is in default in complying with any provisions
of any of the above, and no condition or event or facts exist which, with
notice, lapse of time or both would constitute a default thereof on the part
of the Company or, to the best of the Principal Sellers' Knowledge, on the
part of any other party thereto in any such case that could have a Material
Adverse Effect.
Section 3.12. Title to Properties. The Company owns no real property.
The personal property reflected on the Balance Sheet, together with
dispositions and additions in the ordinary course of business since the
Balance Sheet Date, is all of the personal property used in the operation of
the Company and, assuming no changes in Environmental Laws or other
laws, is all of the personal property necessary for the operation of the
Company as currently conducted on the date hereof. Except as otherwise
indicated in Schedule 3.12 or in the Balance Sheet, none of the personal
property of the Company is subject to any Lien or conditional sale
agreement. The Balance Sheet reflects all personal property of the
Company, subject to dispositions and additions in the ordinary course of
business consistent with this Agreement.
Section 3.13. Accounts Receivable; Loans to Affiliates. (a) Except as
disclosed in Schedule 3.13(a), all accounts receivable reflected on the
Balance Sheet (net of applicable reserves) and all accounts receivable
arising subsequent to the Balance Sheet Date have arisen in the ordinary
course of business, represent valid and enforceable obligations to the
Company and are fully collectable and subject to no set-off or
counterclaim, except for discounts, returns, payment terms and
allowances arising in the ordinary course of the Company's business.
Schedule 3.13(a) hereto sets forth a true and correct aged list of all
accounts receivable of the Company at June 30, 1994.
(a) Except as set forth on Schedule 3.13(b), the Company
has no accounts or loans receivable from any Person which is affiliated
with the Company or any director or officer of the Company.
Section 3.14. Inventory. Except as disclosed in Schedule 3.14, all
inventory items shown on the Balance Sheet or existing at the date hereof
are of a quality and quantity saleable in the ordinary course of business of
the Company. The values of the inventories stated in the Balance Sheet
reflect the normal inventory valuation policies of the Company on a FIFO
basis and were determined in accordance with generally accepted
accounting principles and methods consistently applied. Purchase
commitments for raw materials and parts are not in excess of normal
requirements and none is at a price materially in excess of current market
prices.
Section 3.15. Intangible Property. (a) All patents, patent applications,
trade names, trademarks, trademark registration applications, copyrights
and copyright registration applications presently owned by or licensed to
the Company or used or to be used by the Company in its business as
presently conducted are listed in Schedule 3.15 hereto. All of the patents
and registered trademarks of the Company and all of the patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or
issued by the United States Patent and Trademark Office, the New York
Department of State, the United States Register of Copyrights or the
corresponding offices of other countries identified on said Schedule, and
have been properly maintained and renewed in accordance with all
applicable provisions of law and administrative regulations in the United
States and each such country. Except as set forth in Schedule 3.15,
present use by the Company of said patents, trade names, trademarks, or
copyrights does not require the consent of any other Person and the same
are freely transferable by the Company (except as otherwise provided by
law). Except as set forth in Schedule 3.15, the Company has exclusive
ownership or exclusive license to use all patents, trade names, trademarks
or copyrights used or to be used by it in its business as conducted free and
clear of any attachments, Liens, royalties, license fees or adverse claims
and neither the present activities nor products of the Company infringe
any such patents, trade names, or trademarks of others. Except as set
forth in Schedule 3.15, (i) no other Person has an interest in or right or
license to use, or the right to license others to use, any of said patents,
patent applications, trade names, trademarks, or copyrights, (ii) there are
no claims or demands of any other Person pertaining thereto and no
proceedings have been instituted, or are pending or, to the best of the
Principal Sellers' Knowledge, threatened, which challenge the rights of
the Company in respect thereof, (iii) none of the patents, trade names,
trademarks, or copyrights listed in Schedule 3.15 is subject to any
outstanding order, decree, judgment or stipulation, or, to the best of the
Principal Sellers' Knowledge, is being infringed by others, (iv) no
proceeding charging the Company with infringement of any adversely
held patent, trade name, trademark or copyright has been filed or, to the
best of the Principal Sellers' Knowledge, is threatened to be filed, and (v)
to the best of the Principal Sellers' Knowledge, there exists no unexpired
patent or patent application which includes claims that would have a
Material Adverse Effect.
(a) Except as set forth in Schedule 3.15 hereto, the
Company has the right to use, free and clear of any claims or rights of
others, all trade secrets, inventions, customer lists and manufacturing and
secret processes required for or incident to the manufacture or marketing
of all products presently sold, manufactured, licensed, under development
or produced by it, including products licensed from others, and to the best
of the Principal Sellers' Knowledge, any products formerly sold by the
Company. Any payments required to be made by the Company for the
use of such trade secrets, inventions, customer lists and manufacturing
and secret processes are described in Schedule 3.15. To the best of the
Principal Sellers' Knowledge, the Company is not using or in any way
making use of any confidential information or trade secrets of any third
party, including without limitation, a former employer of any present or
past employee of the Company or of any of the predecessors of the
Company.
Section 3.16. Liens. Except as set forth on Schedule 3.16, and except
with respect to (i) assets, properties and businesses disposed of, or subject
to purchase or sales orders, in the ordinary course of business since the
Balance Sheet Date; or (ii) Liens securing Taxes, assessments,
governmental, regulatory or administrative charges or levies, or the
claims of materialmen, carriers, landlords and like Persons, which are not
yet due and payable (collectively, "Permitted Liens"), the Company owns
outright and has good and marketable title to all of its assets, properties
and businesses, including, without limitation, all of the assets, properties
and businesses reflected on the Balance Sheet, in each case, free and clear
of any Lien.
Section 3.17. Indebtedness. Except as set forth on Schedule 3.17, all
Indebtedness of the Company as at the Balance Sheet Date is set forth in
the Balance Sheet. All Indebtedness which has arisen after the Balance
Sheet Date has arisen in the ordinary course of business and represents
valid Indebtedness of the Company. As used herein, "Indebtedness" shall
mean all items which, in accordance with generally accepted accounting
principles (except as otherwise indicated on Schedule 3.6(d)), would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date Indebtedness is to be determined.
Section 3.18. Liabilities. As of the Balance Sheet Date and the Closing
Date, as applicable, the Company has no liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known
or unknown, whether or not such liabilities are required to be reported by
generally accepted accounting principles (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others,
or liabilities for Taxes due or then accrued or to become due or contingent
or potential liabilities relating to activities of the Company or the conduct
of its businesses prior to the Balance Sheet Date or the Closing Date, as
applicable, regardless of whether claims in respect thereof had been
asserted as of such date), which liabilities, when taken individually or in
the aggregate, have had or are reasonably likely to have a Material
Adverse Effect, except liabilities (i) stated or adequately reserved against
on the Financials or reflected in the footnotes thereto; (ii) reflected in
Schedules (including, without limitation, Schedule 3.18) to this
Agreement; (iii) incurred in the ordinary course of business of the
Company subsequent to the Balance Sheet Date and on a basis consistent
with the terms of this Agreement; or (iv) relating to Environmental
Claims.
Section 3.19. Labor Matters. Schedule 3.19 hereto sets forth the only
contracts or other agreements that exist between the Company and a union
representing any of the employees of the Company. The Company has
not taken any action that would constitute a plant closing or mass lay-off
within the meaning of the Workers Adjustment and Retraining
Notification Act. At June 10, 1994, the Company employed
approximately 361 full-time employees and one part-time employee. The
Company is not delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in Schedule 3.19, the
Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the
termination of employment. The Company is in compliance in all
material respects with all applicable laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of
employment, and wages and hours. Except as set forth on Schedule 3.19
hereto, there are no charges of employment discrimination or unfair labor
practices, nor are there any strikes, slowdowns, stoppages of work, or
any other concerted interference with normal operations existing, pending,
or to the best of the Principal Sellers' Knowledge, threatened against or
involving the Company. To the best of the Principal Sellers' Knowledge,
no question concerning representation exists respecting the employees of
the Company. There are no grievances, complaints or charges that have
been filed or, to the best of the Principal Sellers' Knowledge, threatened
against the Company under any dispute resolution procedure (including,
but not limited to, any proceedings under any dispute resolution procedure
under any collective bargaining agreement) that if decided adversely to the
Company would be reasonably likely to have a Material Adverse Effect,
and no claim therefor has been asserted. Except as set forth in Schedule
3.19, no collective bargaining agreements are in effect or are currently
being or are about to be negotiated by the Company. The Company is,
and at all times since November 6, 1986 has been, in compliance in all
material respects with the requirements of the Immigration Reform
Control Act of 1986. There are no changes pending with respect to
(including, without limitation, resignation of) the senior management or
key supervisory personnel of the Company nor has the Company received
any notice or information concerning any prospective change with respect
to the senior management or key supervisory personnel of the Company.
Section 3.20. Employee Benefit Plans.
(a) Schedule 3.20 sets forth a list of every Employee
Program that has been maintained by the Company at any time during the
three-year period ending on the date hereof.
(b) Each Employee Program which has been maintained by
the Company and which has at any time been intended to qualify under
section 401(a) or 501(c)(9) of the Code has received a favorable
determination or approval letter from the IRS regarding its qualification
under such section and has, in fact, been operated in accordance with the
applicable section of the Code from the effective date of such Employee
Program through and including the Closing (or, if earlier, the date that all
of such Employee Program's assets were distributed). Except as set forth
in Schedule 3.20, no event or omission has occurred which would cause
any such Employee Program to lose its qualification under the applicable
Code section.
(c) Except as set forth in Schedule 3.20, the Company has
complied in all material respects with any law applicable to it with respect
to the Employee Programs that have been maintained by the Company.
Except as set forth in Schedule 3.20, with respect to any Employee
Program now or heretofore maintained by the Company, there has
occurred no "prohibited transaction" as defined in section 406 of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or section 4975 of the Code, or breach of any duty under
ERISA or other applicable law (including, without limitation, any health
care continuation requirements or any other Tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which
could result, directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution), in any Taxes, penalties
or other liability to the Company or any Affiliate. No litigation,
arbitration, or governmental administrative proceeding (or investigation)
or other proceeding (other than those relating to routine claims for
benefits) is pending or, to the best of the Principal Sellers' Knowledge,
threatened with respect to any such Employee Program.
(d) Except as set forth on Schedule 3.20, neither the
Company nor any Affiliate has incurred any termination liability under
Title IV of ERISA which will not be paid in full prior to the Closing.
There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any Employee Program ever maintained by the
Company or any Affiliate and subject to Code section 412 or ERISA
section 302. Except as set forth on Schedule 3.20, with respect to any
Employee Program maintained by the Company or any Affiliate and
subject to Title IV of ERISA, there has been no (nor will there be any as a
result of the transaction contemplated by this Agreement) (i) "reportable
event," within the meaning of ERISA section 4043, or the regulations
thereunder (for which the notice requirement is not waived under
29 C.F.R. Part 2615) or (ii) event or condition which presents a material
risk of plan termination or any other event that may cause the Company or
any Affiliate to incur liability or have a lien imposed on its assets under
Title IV of ERISA. All payments and/or contributions required to have
been made (under the provisions of any agreements or other governing
documents or applicable law) with respect to all Employee Programs ever
maintained by the Company or any Affiliate, for all periods prior to the
Closing, either have been made or have been accrued (and all such unpaid
but accrued amounts are described on Schedule 3.20). Except as set forth
on Schedule 3.20, as of the Closing Date, no Employee Program
maintained by the Company or any Affiliate and subject to Title IV of
ERISA (other than a Multiemployer Plan) will have any "unfunded benefit
liability" within the meaning of ERISA section 4001(a)(18). With respect
to each Multiemployer Plan maintained by the Company or any Affiliate,
Schedule 3.20 states the estimated amount of withdrawal liability, as
determined in good faith by the Sellers after consultation with the plan
administrator thereof, that would be incurred by the Company or such
Affiliate if there were a cessation of operations or of the obligation to
contribute to such plan as of the Closing Date. None of the Employee
Programs ever maintained by the Company or any Affiliate has ever
provided health care or any other non-pension benefits to any employees
after their employment was terminated (other than as required by part 6 of
subtitle B of title I of ERISA) or has ever promised to provide such
post-termination benefits.
(e) The representations made in Subsections (a), (b), (c)
and (d) with respect to any Multiemployer Plan are made to the best of the
Principal Sellers' Knowledge only, unless otherwise specifically provided
therein.
(f) With respect to each Employee Program maintained by
the Company within the three years preceding the date hereof (other than
a Multiemployer Plan), complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered or made available to the Buyer: (i) all documents embodying or
governing such Employee Program, and any funding medium for the
Employee Program (including, without limitation, trust agreements) as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program
under Code section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three
most recently filed IRS Forms 5500, with all applicable schedules and
accountants' opinions attached thereto; (iv) the summary plan description
for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; and (v) any
insurance policy (including any fiduciary liability insurance policy) related
to such Employee Program. With respect to such Employee Program
maintained by the Company which is a Multiemployer Plan, complete and
correct copies of the following documents have been previously been
delivered or made available to the Buyer: (i) any participation, adoption
or other agreement relating to the Company's participation in or
contribution under such Plan and (ii) any material correspondence or
reports relating to such Plan received by the Company within the last
three years.
(g) Except as set forth on Schedule 3.20 and except for
union plans to which the Company makes contributions, each Employee
Program maintained by the Company as of the date hereof is subject to
termination by the Board of Directors of the Company without any further
liability or obligation on the part of the Company to make further
contributions to any trust maintained under any such Employee Program
following such termination.
(h) For purposes of this section 3.20:
(i) "Employee Program" means (A) all employee
benefit plans within the meaning of ERISA section 3(3), including,
but not limited to, multiple employer welfare arrangements (within
the meaning of ERISA section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit plans
(such as foreign or excess benefit plans) which are not subject to
ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements,
vacation plans, and all other employee benefit plans, agreements,
and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in
Code section 501(c)(9), each reference to such Employee Program
shall include a reference to such organization;
(ii) An entity "maintains" an Employee Program
if such entity sponsors, contributes to, or provides (or has
promised to provide) benefits under such Employee Program, or
has any obligation (by agreement or under applicable law) to
contribute to or provide benefits under such Employee Program,
or if such Employee Program provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents, or
beneficiaries);
(iii) An entity is an "Affiliate" of the Company for
purposes of this section 3.20 if it would have ever been considered
a single employer with the Company under ERISA section 4001(b)
or part of the same "controlled group" as the Company for
purposes of ERISA section 302(d)(8)(C); and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one
employer contributes and which is maintained pursuant to one or
more collective bargaining agreements.
Section 3.21. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings:
(i) "Environment" shall mean soil (surface and
subsurface), surface waters and ground waters, ambient air, and
any improvements on any real property. The real property located
at 248 Wyandanch Avenue, Wyandanch, New York is hereinafter
referred to as the "Premises" and all real properties owned and/or
operated by the Company and any of its predecessors on or prior
to the Closing Date are hereinafter collectively referred to as the
"Property."
(ii) "Environmental Laws" shall mean (a) all federal,
state, county and local statutes, laws and ordinances, and rules and
regulations adopted pursuant thereto, including, without limitation,
the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. section 9601, et seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C.
section 1801 et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. section 6901 et seq.; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq.;
the Clean Air Act, as amended, 42 U.S.C. 7401 et seq.; the Toxic
Substances Control Act, as amended, 15 U.S.C. 2601 et seq., the
New York Environmental Conservation Law; and the laws of
Suffolk County (collectively, the "Statutes") relating to the
protection of human health (except for OSHA) and the
Environment, including without limitation: all Statutes relating to
reporting, licensing, permitting, investigating or remediating
emissions, discharges, release or threat of release of any
Hazardous Materials in the Environment or relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Material; and
(b) all federal, state, county and local common law relating to the
protection of human health and the Environment, including, but
not limited to, nuisance and trespass.
(iii) "Hazardous Materials" shall mean (a) any toxic
substance or hazardous waste, substance or related material, or any
pollutant or contaminant; (b) radon gas, asbestos in any form
which is or could become friable, urea formaldehyde foam
insulation, petroleum and petroleum products, transformers or
other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of federal, state or local safety
guidelines, whichever are more stringent; (c) any substance, gas,
material or chemical which is included in the definition of
"hazardous substances," "toxic substances," "hazardous
materials," "hazardous wastes" or words of similar import under
any legal requirement including but not limited to the
Environmental Laws, and (d) any other chemical, material, gas or
substance, the storage, exposure to or release of which is or may
hereafter be prohibited, limited or regulated by any governmental
or quasi-governmental entity having jurisdiction over the Property
or the operations or activity at the Property, or any chemical,
material, gas or substance that does or may pose a hazard or risk
to human health or the Environment.
(iv) "Maintenance Plan" shall mean that certain
maintenance plan dated January, 1993, prepared by AKRF, Inc.,
with respect to the Premises identified in such plan as Site
#1-52-006, as may be amended from time to time.
(b) To the best of the Principal Sellers' Knowledge, all
Hazardous Materials transported at the Company's request from the
Property were transported by a duly licensed entity.
(c) The Premises are presently classified as a Class 4 site
on the New York State Inactive Hazardous Waste List. A complete copy
of the Maintenance Plan which has been approved by the New York State
Department of Environmental Conservation (the "NYSDEC") as in effect
at the date hereof is attached hereto as Schedule 3.21.
Section 3.22. Insurance. Schedule 3.22 hereto sets forth all policies or
binders of fire, earthquake, liability, workmen's compensation, vehicular
or other insurance held by or on behalf of the Company, including,
without limitation, policies covering the years 1991, 1992, and 1993 for
which all premiums due and owing have been paid, specifying the insurer,
the policy number or covering note number with respect to binders, and
setting forth the deductible and aggregate limit of any of the insurer's
liability thereunder and the period covered. Such policies and binders are
in full force and effect. The Company is not in default with respect to any
provision contained in any such policy or binder and has not failed to give
any notice or present any claim under any such policy or binder in due
and timely fashion. The Company has not received a notice of
cancellation or nonrenewal of any such policy or binder, and no Principal
Seller has any Knowledge of any state of facts which is reasonably likely
to be the basis for termination of any such insurance.
Section 3.23. Operations of the Company. Except as set forth on
Schedule 3.23 hereto, since March 31, 1994, the Company has not:
(i) amended its certificate of incorporation or by-laws
or merged with or into or consolidated with any other Person,
subdivided or in any way reclassified any shares of its capital stock
or changed or agreed to change in any manner the rights of its
outstanding capital stock or the character of its business;
(ii) issued, sold, purchased or redeemed, or entered into
any contracts or other agreements to issue, sell, purchase or
redeem, any shares of its capital stock or any options, warrants,
convertible or exchangeable securities, subscriptions, rights
(including preemptive rights), stock appreciation rights, calls or
commitments of any character whatsoever relating to its capital
stock;
(iii) entered into any contract or other agreement with
any labor union or association representing any employee; or
adopted, entered into or amended any employee benefit plan or
made any change in the actuarial methods or assumptions used in
funding any defined benefit pension plan, or made any change in
the assumptions or factors used in determining benefit
equivalencies thereunder;
(iv) declared, set aside or paid any dividends or
declared, set aside or made any distributions of any kind to its
shareholders, or made any direct or indirect redemption,
retirement, purchase or other acquisition of any shares of its
capital stock;
(v) adopted a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or
other reorganization of the Company;
(vi) made any change in its accounting methods,
principles or practices or made any change in depreciation or
amortization policies or rates adopted by it, except insofar as may
have been required by a change in generally accepted accounting
principles, including, without limitation, any change in its
methods, principles or practices regarding reserves or accruals;
(vii) revalued any portion of its assets, properties or
businesses including, without limitation, any write-down of the
value of inventory or other assets or any write-off of notes or
accounts receivable other than in the ordinary course of business in
a manner consistent with past practice;
(viii) incurred any indebtedness except in the ordinary
course of business or become subject to any increase in its
obligations as a guarantor or otherwise become contingently, as a
guarantor or otherwise, liable with respect to the obligations of
others; or cancelled any material debt or claim owing to, or
waived any material right of, the Company;
(ix) suffered any damage, destruction or loss, whether
or not covered by insurance, affecting any of the properties, assets
or business of the Company which is reasonably likely to have a
Material Adverse Effect;
(x) made any wage or salary increase or bonus, or
increase in any other direct or indirect compensation, for or to any
of its officers, directors, employees, consultants or agents or any
accrual for or contract or other agreement to make or pay the
same, other than customary merit increases made in the ordinary
course of business in a manner consistent with past practice, or
entered into any employment agreement, or any amendment to any
such existing agreement, with any officer, director or employer of
the Company;
(xi) incurred any obligation or liability to any of the
Company's officers, directors, stockholders or employees, or made
any loans or advances to any of the Company's officers, directors,
stockholders or employees, except normal compensation, advances
and expense allowances payable to officers or employees or
otherwise engaged in any transaction with affiliates other than
transactions with Jamaica Manufacturing (Canada) Ltd. in the
ordinary course of business;
(xii) made any payment or commitment to pay severance
or termination pay to any of its officers, directors, or executive
employees;
(xiii) purchased any capital asset for an amount in excess
of $25,000, or except for Tangible Property acquired in the
ordinary course of business in a manner consistent with past
practice, made any acquisition of all or any part of the assets,
properties, capital stock or business of any other Person;
(xiv) entered into any lease (as lessor or lessee), except
for immaterial equipment leases in the ordinary course of business
consistent with past practice; sold, abandoned or made any other
disposition of any of its assets or properties necessary in the
conduct of its business; granted or suffered any Lien on any of its
assets or properties, except in the ordinary course of its business;
entered into or amended any contract or other agreement to which
it is a party or by or to which it or its assets, properties or
businesses are bound or subject, except in the ordinary course of
business in a manner consistent with past practice, or pursuant to
which it agrees to indemnify any Person or to refrain from
competing with any Person;
(xv) entered into any other material transaction other
than transactions in the ordinary course of business including,
without limitation, entering into any agreement with Retail
Products Marketing Services or any of its principals, including
John A. Grieco; or
(xvi) agreed to do any of the foregoing.
Section 3.24. No Broker. No broker, finder, agent or similar
intermediary has acted for or on behalf of the Company or any of the
Sellers in connection with this Agreement or the transactions contemplated
hereby, and no broker, finder, agent or similar intermediary is entitled to
any broker's, finder's or similar fee or other commission in connection
therewith based on any contract or other agreement with the Company or
any of the Sellers or any action taken by the Company or any of the
Sellers; provided, however, that the Sellers have utilized the services of
TM Capital Corp. and will be solely responsible for the fees and expenses
of such firm.
Section 3.25. Banking Relations. All of the arrangements which the
Company has with any banking institution are described in Schedule 3.25,
indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the Person or Persons
authorized in respect thereof.
Section 3.26. Transactions with Interested Persons. Except as set forth
in Schedule 3.26, none of the Company, any Seller, or any officer or
director of the Company owns directly or indirectly on an individual or
joint basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor or supplier of the Company or
any organization which has a material contract or arrangement with the
Company.
Section 3.27. List of Certain Employees.
(a) Schedule 3.27 contains a true and complete list of all
current directors and officers of the Company and a list of all managers,
employees and consultants of the Company who, individually, have
received or are scheduled to receive from the Company for the fiscal year
of the Company ending December 31, 1994, an annual salary of $50,000
or more (excluding bonuses and other compensation). In each case
Schedule 3.27 includes the current job title and aggregate annual salary of
each such individual.
Section 3.28. Customers and Distributors. Schedule 3.28 contains a
true and complete list of any customer, representative or distributor
(whether pursuant to a commission, royalty or other arrangement) who
accounted for more than 2% of the sales of the Company for the twelve
months ended December 31, 1993 or the six months ended as of the
Balance Sheet Date (collectively, the "Customers and Distributors"). The
relationships of the Company with the Customers and the Distributors are
good commercial working relationships. Except as set forth in
Schedule 3.28, no Customer or Distributor has cancelled or otherwise
terminated its relationship with the Company, or has during the last
twelve months decreased materially its services, supplies or materials to
the Company or its usage or purchase of the services or products of the
Company. No Customer or Distributor has, to the best of the Principal
Sellers' Knowledge, any plan or intention to terminate, to cancel or
otherwise materially and adversely modify its relationship with the
Company or to decrease materially or limit its services, supplies or
materials to the Company or its usage, purchase or distribution of the
services or products of the Company.
Section 3.29. No Government Contracts. The Company is not a party
to any contract or subcontract with any agency of the United States
Government. The Company has not been suspended or debarred from
bidding on, or receiving contracts or subcontracts from, any agency of the
United States Government.
Section 3.30. Backlog. As of July 22, 1994, the Company has a
backlog of firm orders for the sale or lease of products or services, for
which revenues have not been recognized by the Company, as set forth in
Schedule 3.30.
Section 3.31. Warranty and Related Matters. There are no existing or,
to the best of the Principal Sellers' Knowledge, threatened product
liability, warranty or other similar claims against the Company for
products or services that are defective or fail to meet any product or
service warranties except as disclosed in Schedule 3.31 hereto. There are
no statements, citations, correspondence or decisions by any government
or political subdivision thereof, whether federal, state, local or foreign, or
any agency or instrumentality of any such government or political
subdivision, or any court or arbitrator (collectively, "Governmental
Bodies") stating that any product manufactured, marketed or distributed at
any time by the Company (the "Company Products") is defective or
unsafe or fails to meet any product warranty or any standards promulgated
by any such Governmental Body. Except as set forth on Schedule 3.31,
there have been no recalls ordered by any such Governmental Body with
respect to any Company Product. To the best of the Principal Sellers'
Knowledge, there exists (a) no fact relating to any Company Product that
may impose upon the Company a duty to recall any Company Product or
a duty to warn customers of a defect in any Company Product, (b) no
latent or overt design, manufacturing or other defect in any Company
Product, or (c) no material liability for warranty or other claims or returns
with respect to any Company Product except in the ordinary course of
business consistent with the past experience of the Company for such kind
of claims and liabilities. No claim has been asserted against the Company
for renegotiation of any business, including, without limitation, a price
redetermination in any material amount, and, to the best of the Principal
Sellers' Knowledge, there are no facts upon which any such claim could
be based.
Section 3.32. Disclosure. To the best of the Principal Sellers'
Knowledge, the representations and warranties contained in this
Agreement do not contain any untrue statement with respect to the
business heretofore conducted by the Company, and do not omit to state a
fact with respect to the business heretofore conducted by the Company
required to be stated therein or necessary in order to make such
representations and warranties not misleading in light of the circumstances
under which they were made, which misstatement or omission could
reasonably foreseeably result in a Material Adverse Effect (other than any
Material Adverse Effect resulting from conditions prevailing in the
economy or the U.S. plumbing products industry generally). There are
no facts known to the Principal Sellers which, insofar as can reasonably
be foreseen, may in the future have a Material Adverse Effect (other than
any Material Adverse Effect resulting from conditions prevailing in the
economy or the U.S. plumbing products industry generally) which have
not been specifically disclosed herein or in a Schedule furnished herewith.
Article IV
INDIVIDUAL REPRESENTATIONS AND WARRANTIES
OF EACH OF THE SELLERS
Each of the Sellers severally as to himself, herself or itself
represents and warrants to the Buyer as follows:
Section 4.1. Title to Shares. Such Seller is the direct record and
beneficial owner of the Shares set forth opposite such Seller's name on
Exhibit 1.1 hereto, free and clear of any Lien, and, upon delivery of and
payment for such Shares as herein provided, the Buyer will acquire good
and valid title thereto, free and clear of any Lien and without any
restrictive legend except with respect to applicable securities laws.
Section 4.2. Authority Relative to this Agreement. Such Seller has the
full legal right and power and all authority and approval required to enter
into, execute and deliver this Agreement and each other agreement or
instrument entered into or to be entered into in connection herewith to
which such Seller is a party, and to perform fully such Seller's obligations
hereunder and thereunder. The execution and delivery of this Agreement
and each such other instrument and the consummation of the transactions
contemplated hereby have been duly authorized by the trustees of Ilene's
Trust, Staci's Trust and Joshua's Trust (collectively, the "Trustees") and
no other proceedings on the part of the Trustees are necessary to authorize
the execution, delivery and performance of this Agreement and each such
other instrument and the consummation of the transactions contemplated
hereby and thereby. This Agreement and each such other instrument have
been duly executed and delivered by such Seller and this Agreement
constitutes the valid and binding obligation of each such Seller enforceable
against such Seller in accordance with its terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and rules and laws governing specific performance, injunctive
relief and other equitable remedies.
Section 4.3. Absence of Conflicts. The execution, delivery and
performance by such Seller of this Agreement and each such other
agreement, document and instrument: (i) does not and will not violate
any provision of such Seller's declaration of trust, if applicable; (ii) does
not and will not violate any statutes, laws, rules and regulations which are
applicable to such Seller or any of its respective assets, properties or
businesses, including such Seller's Shares, or violate any judgment,
ruling, order, writ, injunction, award, decree, statute, law, ordinance,
code, rule or regulation of any court or foreign, federal, state, county or
local government or any other governmental, regulatory or administrative
agency or authority which is applicable to such Seller or any of its
respective assets, properties or businesses, including such Seller's Shares;
and (iii) except as set forth on Schedule 4.3, does not and will not result
in a breach of, constitute a default under, accelerate any obligation under,
or give rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, Lien, lease,
permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Seller is a party or by
which the property of such Seller is bound or affected, or result in the
creation or imposition of any Lien on any of the assets of such Seller,
including such Seller's Shares.
Article V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as
follows:
Section 5.1. Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and lawful authority to
own, lease and operate its assets, properties and business and to carry on
its business as it is now being conducted.
Section 5.2. Authority Relative to this Agreement. The Buyer has full
corporate power and authority to enter into this Agreement and any
agreement, document and instrument executed and delivered or to be
executed and delivered by it pursuant to or as contemplated by this
Agreement and to comply with its obligations hereunder and thereunder.
The execution, delivery and performance by the Buyer of this Agreement
and each such other agreement, document and instrument have been duly
authorized by all necessary action of the Buyer and its stockholders and
no other action on the part of the Buyer or its stockholders is required in
connection therewith. This Agreement and each agreement, document
and instrument executed and delivered or to be executed and delivered by
the Buyer pursuant to or as contemplated by this Agreement constitutes or
will when executed and delivered constitute, a valid and binding
obligation of the Buyer, enforceable in accordance with its terms, subject
to the laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules and laws governing specific performance,
injunctive relief and other equitable remedies.
Section 5.3. Certificate of Incorporation and By-Laws. Copies of the
certificate of incorporation and by-laws of the Buyer and all amendments
to each have heretofore been delivered to the Sellers and such copies are
true, complete and accurate.
Section 5.4. Absence of Conflicts. The execution, delivery and
performance by the Buyer of this Agreement and each such other
agreement, document and instrument: (i) do not and will not violate any
provision of the certificate of incorporation or by-laws of the Buyer;
(ii) do not and will not violate any statutes, laws, rules and regulations
which are applicable to such Buyer or any of its assets, properties or
businesses or violate any judgment, ruling, order, writ, injunction, award,
decree, statute, law, ordinance, code, rule or regulation of any court or
foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority which is
applicable to such Buyer or any of its assets, properties or businesses; and
(iii) do not and will not result in a breach of, constitute a default under,
accelerate any obligation under, or give rise to a right of termination of
any indenture or loan or credit agreement or any other agreement,
contract, instrument, Lien, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award, whether written or
oral, to which the Buyer is a party or by which the property of the Buyer
is bound or affected, or result in the creation or imposition of any Lien on
any of the assets of the Buyer.
Section 5.5. No Broker. No broker, finder, agent or similar
intermediary has acted for or on behalf of the Buyer in connection with
this Agreement or the transactions contemplated hereby, and no broker,
finder, agent or similar intermediary is entitled to any broker's, finder's,
or similar fee or other commission in connection therewith based on any
contract or other agreement with the Buyer or any action taken by the
Buyer.
Section 5.6. Absence of Litigation. There is no litigation or
proceeding, in law or in equity, and there are no proceedings or
governmental investigations before any commission or other
administrative authority pending, or, to the best of Buyer's Knowledge,
threatened, against Buyer or the transactions contemplated hereby or
whereby timely performance by Buyer according to the terms of this
Agreement may be prohibited, prevented or delayed.
Section 5.7. Purchase for Investment. The Buyer acknowledges that
the Shares have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or under applicable state securities laws
and that the Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the
Securities Act and any applicable state securities laws, except pursuant to
an exception from such registration available under the Securities Act and
applicable state securities laws. The Buyer is purchasing the Shares solely
for investment with no present intention to distribute any of the Shares to
any Person.
Section 5.8. Governmental Approvals. Other than in connection, or in
compliance, with the provisions of the HSR Act or as set forth in
Schedule 5.8, no notice to, filing or registration with, or Permits of any
foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority are
necessary for the consummation of the transactions contemplated hereby.
Article VI
COVENANTS AND AGREEMENTS
Section 6.1. Insurance. From and after the Closing Date until the date
18 months thereafter and provided that such policies are commercially
available, the Buyer shall or shall cause the Company to maintain in full
force and effect liability insurance providing the Company with
substantially similar coverage as the liability policies specified on
Schedule 3.22 including with respect to products manufactured or sold by
the Company prior to the Closing. In the event that any such policy is not
commercially available, the Buyer shall promptly provide written notice to
the Representatives.
Section 6.2. Payment of Debt, etc.
(a) At the Closing, each Seller and any affiliate of each
Seller including, but not limited to, HM, shall pay to the Company any
amounts owed by such Person to the Company net of any amounts owed
to them by the Company. The Sellers have delivered to the Buyer on the
date hereof Schedule 6.2 setting forth all such amounts owed, which
Schedule they represent to be accurate and complete. Any amounts paid
hereunder shall be in immediately available funds.
(b) At the Closing, Harry, or his designee, may acquire
the Company's interest in Guardian Life Insurance policies 2583480 and
2650931 ("Harry's Policies") free and clear of any Liens upon payment to
the Company of the cash surrender value of Harry's Policies as of the
Closing Date. Upon such payment, the Company shall take whatever
action is necessary to assign all the rights in Harry's Policies to Harry, or
his designee, and deliver physical possession of Harry's Policies to Harry
or his designee.
(c) At the Closing, the Company shall pay $328,977.20 to
Innovative Computer in satisfaction of the net intercompany payables due
and owing between the Company and Innovative Computer.
(d) At the Closing, the Company shall pay all amounts, by
reducing the purchase price as provided in section 1.2(b), previously paid
by the Company with respect to the car provided by the Company to
Rosewitha Lipman, and any financing arrangements with respect to such
car shall be terminated or assigned to Harry or his designee, with all
amounts due and payable in connection therewith being paid by Harry.
(e) If any indebtedness of the Company described in
item 11 of Schedule 3.11 (the "Bank Indebtedness") shall become subject
to default solely as a result of the transactions contemplated hereunder
thereby resulting in acceleration thereof by the lenders, the Buyer shall
cause such Bank Indebtedness to be paid. Any such default or
acceleration shall not be deemed to constitute a breach of a representation,
warranty, covenant or agreement by any Seller hereunder, it being the
express intention of the parties hereto that obtaining the consent of either
The Chase Manhattan Bank, N.A. or National Bank Westminster U.S.A.
to continue such Bank Indebtedness following the Closing shall not be a
condition to any parties' obligations hereunder and that all responsibility
and liability for a default including repayment of such Bank Indebtedness
(including prepayment penalties, if any) in whole or in part shall be the
obligations of the Company and not of the Sellers.
Section 6.3. New York State Filings. The Representatives and the
Buyer shall timely and promptly make all filings that are necessary to
obtain from the New York State tax authorities a Form TP-582, Tentative
Assessment setting forth the amount, if any, of the New York State Real
Property Transfer Gains Tax liability due with respect to the sale of the
Shares by the Sellers.
Section 6.4. Further Assurances. In addition to the actions, contracts
and other agreements and documents and other papers specifically
required to be taken or delivered pursuant to this Agreement, each of the
parties hereto shall execute such contracts and other agreements and
documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
Section 6.5. No Section 338 Election. Buyer shall not make an
election pursuant to section 338 of the Code or corresponding provision of
state or local law with respect to the acquisition of the Shares.
Section 6.6. Arbitration. Any dispute arising out of or relating to this
Agreement that cannot be settled by good faith negotiation between the
parties shall be submitted by either party to ENDISPUTE (the
"Arbitrator") for final and binding arbitration in Boston, Massachusetts
pursuant to ENDISPUTE'S Arbitration Rules.
Section 6.7. Tax Refunds and Rebates. In the event that the Company
receives any refunds or rebates of Taxes relating to periods prior to the
Closing Date, the Company shall promptly remit such refunds and rebates
to the Representatives.
Section 6.8. Payment of Employee Bonuses. At the Closing, the
Company shall make a total payment of $312,500 to certain key
employees of the Company in accordance with the written instructions
provided to the Buyer by the Representatives. Such payment shall be
treated as additional compensation by the Company and the recipient
employees for Tax purposes. At the Closing, the Buyer shall provide to
the Representatives satisfactory evidence of such payments. The
Company shall deduct such payments in the tax period that begins on the
day after the Closing.
Section 6.9. Subsequent Tax Filings.
(a) In anticipation that, upon the acquisition of the Shares
by the Buyer, the Company will be included in the consolidated federal
income tax return filed by the Buyer affiliated group, Sellers shall, for
Federal income tax purposes, prepare and file a Federal income tax return
for the Company for the portion of the taxable year ending on the Closing
Date (hereinafter, the "Short Period Return"), together with any tax due.
Such return shall be prepared in a manner consistent with prior practice
and in accordance with applicable law. Buyer shall have the right to
review such tax return. Buyer shall be responsible for preparing and
filing all of the Company's federal tax returns, with respect to the period
commencing on the date after the Closing.
(b) Buyer shall, at its own expense, prepare all state and
local income Tax Returns for the taxable years which end after the
Closing Date, in accordance with applicable law. To the extent that such
income tax returns include and reflect a period prior to the day after the
Closing Date, the Principal Sellers shall be liable for any state and local
income Taxes to the extent of the "properly accrued" amount of such
liability with respect to the period ending on or before the Closing Date,
less any estimated Tax payments that were made prior to the Closing Date
and any amounts for state and local income Taxes that were properly
accrued or reflected on the Balance Sheet. The term "properly accrued"
for purposes of this section 6.9(b) means the amount of state or local
income Tax that is deemed to have accrued as of the Closing Date, and
shall be calculated by utilizing the income and deductions reflected on the
Short Period Return referred to in section 6.9(a), and modified only to the
extent required by state or local tax laws. The Principal Sellers shall have
the right to review such state and local Tax Returns.
Section 6.10. Establishment of Pension Plan.
(a) As soon as practicable after the Closing Date, the
Principal Sellers agree to cause Innovative Computer to establish an
employee pension plan (a "New Plan") for the benefit of those active and
former employees of Innovative Computer (the "Innovative Participants")
who on the Closing Date are entitled to benefits under the Jameco
Industries, Inc. Pension Plan (the "Pension Plan"). The New Plan shall
be substantially the same in all material respects as the Pension Plan as in
effect on the Closing Date, except to the extent that any changes are
required by the Internal Revenue Service in order to maintain the
qualification of such plan under Section 401(a) of the Code. The New
Plan shall grant credit to the Innovative Participants for all service and
compensation prior to the Closing Date to the extent credited under the
Pension Plan as of the Closing Date for purposes of determining
eligibility, vesting and benefit accrual. In consideration of the transfer of
assets described in (b) below, the New Plan shall assume and discharge all
liabilities and obligations of the Pension Plan for benefits in respect of the
Innovative Participants. The costs and expenses with respect to the
establishment of the New Plan shall be the sole responsibility of
Innovative Computer.
(b) As soon as practicable after the Closing Date and
after the expiration of 30 days following the filing of Internal Revenue
Service Form 5310-A, Buyer shall cause to be transferred form the trustee
or other funding medium of the Pension Plan to the trustee or other
funding medium of the New Plan a proportionate amount of each Pension
Plan asset, to the extent practicable, which in the aggregate shall be equal
in value on the date of transfer to the value of the Pension Plan assets that
has been determined by Sedgewick Noble Lowndes to be assets of the
Pension Plan allocable to the Innovative Participants consistent with the
manner in which such allocation has been made and reflected in the
Pension Plan's actuarial reports in prior years and which shall be
reviewed by and subject to the consent of The Wyatt Company, which
consent shall not be unreasonably withheld or delayed. The Principal
Sellers shall cause Innovative Computer to cooperate with Buyer in the
gathering of the necessary data to be used by The Wyatt Company for this
purpose. The amount so transferred, and the liabilities assumed by the
New Plan, shall be reduced by any distribution or other benefit payments
that are made under the Pension Plan with reference to any Innovative
Participant who retires, dies or otherwise terminates his service with
Sellers after the Closing Date and before the transfer of assets described in
this section 6.10. Buyer shall cause the benefit payments referred to in
the preceding sentence to be made from the Pension Plan until the transfer
of assets described in this section 6.10 shall occur.
(c) The Buyer and the Principal Sellers shall take or
cause to be taken all such action as may be necessary to effectuate the
transfer to the New Plan of Pension Plan assets as described in (b) above,
and to the extent required by applicable law, the Buyer and the Principal
Sellers shall file Internal Revenue Service Form 5310-A including the
appropriate actuarial certification provided by Sedgewick Noble Lowndes
in respect of such transfer and take any other actions as may be required
pursuant to section 414(l) of the Code.
Article VII
CONDITIONS PRECEDENT TO
THE OBLIGATION OF THE BUYER TO CLOSE
The obligation of the Buyer to enter into and complete the
Closing is subject, at its option, to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which may
be waived by it in its sole discretion:
Section 7.1. Representations and Covenants. The representations and
warranties of the Sellers contained in this Agreement shall be true,
complete and accurate on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Sellers
shall have performed and complied with all covenants and agreements
required by this Agreement to be performed or complied with by the
Sellers on or prior to the Closing Date. The Sellers shall have delivered
to the Buyer a certificate, dated the Closing Date and signed by the
Representative, to the foregoing effect and stating that all conditions to the
Buyer's obligations hereunder have been satisfied or waived.
Section 7.2. Good Standing Certificates. The Sellers shall have
delivered to the Buyer: (i) copies of the certificate of incorporation,
including all amendments thereto, of the Company, certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation of the Company and (ii) certificates from the Secretary of
State or other appropriate official of the jurisdiction of incorporation to
the effect that the Company is in good standing and subsisting in such
jurisdiction.
Section 7.3. Permits and Approvals. Any and all Permits and other
consents set forth on Schedule 7.3 shall have been obtained.
Section 7.4. Legislation. No legislation shall have been proposed or
enacted, and no statute, law, ordinance, code, rule or regulation shall
have been adopted, revised or interpreted, by any foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority, which would require, upon or as a
condition to the acquisition of the Shares by the Buyer, the divestiture or
cessation of the conduct of any business presently conducted by the
Company and no such divestiture or cessation shall have been required in
order to satisfy the condition to closing set forth in section 7.10.
Section 7.5. Legal Proceedings. No suit, action, claim, proceeding or
investigation shall have been instituted by or before any court or any
foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority seeking to
restrain, prohibit or invalidate the sale of the Shares to the Buyer
hereunder or the consummation of the transactions contemplated hereby or
to seek damages in connection with such transactions or which might
affect the right of the Buyer to own, operate or control, after the Closing,
the assets, properties and businesses of the Company.
Section 7.6. Stock Certificates. The Sellers shall have tendered to the
Buyer the stock certificate or certificates representing all of the Shares in
accordance with section 1.1 hereof, duly endorsed in blank or with duly
executed stock powers attached, in proper form for transfer and with
appropriate transfer stamps, if any, affixed.
Section 7.7. Opinion of Counsel to the Sellers and the Company. The
Buyer shall have received the favorable opinion of Salamon, Gruber,
Newman, Blaymore & Rothschild, P.C., counsel to the Company and the
Sellers, dated the Closing Date, addressed to the Buyer, in the form of
Exhibit 7.7 hereto.
Section 7.8. Resignation of Directors and Officers. The Buyer shall
have received the resignation, dated the Closing Date, of those officers
and members of the Board of Directors of the Company and JESC as shall
be designated by the Buyer.
Section 7.9. Employment Agreements. Each of Harry, Michael and
Sidney shall have executed and delivered to the Company employment
agreements in the form of Exhibits 7.9(a), 7.9(b) and 7.9(c) hereto,
respectively.
Section 7.10. Hart-Scott-Rodino. The waiting period specified in the
HSR Act, including any extensions thereof, shall have expired or
otherwise terminated, and neither the Buyer nor the Sellers shall be
subject to any injunction or temporary restraining order against
consummation of the transactions contemplated hereby.
Section 7.11. Real Property Contract. The transactions contemplated
by the Real Property Contract shall have been consummated.
Section 7.12. Escrow Agreement. The Escrow Agreement shall have
been executed and delivered by the Representatives, the Buyer and the
Escrow Agent.
Article VIII
CONDITIONS PRECEDENT TO
THE OBLIGATION OF THE SELLERS TO CLOSE
The obligation of the Sellers to enter into and complete the
Closing is subject, at the option of the Representatives, to the fulfillment
on or prior to the Closing Date of the following conditions, any one or
more of which may be waived by the Representatives in their sole
discretion:
Section 8.1. Representations and Covenants. The representations and
warranties of the Buyer contained in this Agreement shall be true,
complete and accurate on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Buyer shall
have performed and complied with all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to
the Closing Date. The Buyer shall have delivered to the Representatives a
certificate, dated the Closing Date and signed by an officer of the Buyer,
to the foregoing effect and stating that all conditions to the Sellers'
obligations hereunder have been satisfied or waived.
Section 8.2. Governmental Permits and Approvals. Any and all
Permits and other consents set forth on Schedule 8.2 shall have been
obtained.
Section 8.3. Legal Proceedings. No suit, action, claim, proceeding or
investigation shall have been instituted before any court or any foreign,
federal, state, county or local government or any other governmental,
regulatory or administrative agency or authority seeking to restrain,
prohibit or invalidate the sale of the Shares to the Buyer hereunder or the
consummation of the transactions contemplated hereby or to seek damages
in connection with such transactions.
Section 8.4. Closing Payment. At the Closing, the Buyer shall have
paid the Closing Payment to the Representatives as provided in section
1.2(c).
Section 8.5. Employment Agreements. The Company shall have
executed and delivered to each of Harry, Michael and Sidney employment
agreements in the form of Exhibits 7.9(a), 7.9(b) and 7.9(c) hereto,
respectively.
Section 8.6. Opinion of Counsel to the Buyer. The Seller shall have
received the favorable opinion of Goodwin, Procter & Hoar, counsel to
the Buyer, dated the Closing Date, addressed to the Representatives, in
the form of Exhibit 8.6 hereto.
Section 8.7. Hart-Scott-Rodino. The waiting period specified in the
HSR Act, including any extensions thereof, shall have expired or
otherwise terminated, and neither the Buyer nor the Sellers shall be
subject to any injunction or temporary restraining order against
consummation of the transactions contemplated hereby.
Section 8.8. Real Property Contract. The transactions contemplated
by the Real Property Contract shall have been consummated.
Section 8.9. Escrow Agreement. The Escrow Agreement shall have
been executed and delivered by the Representatives, the Buyer and the
Escrow Agent and the Buyer shall have made the Escrow Payment in
accordance with section 1.2(d).
Section 8.10. Good Standing Certificate. The Buyer shall have
delivered to the Representatives: (i) copies of the certificate of
incorporation, including all amendments thereto, of the Buyer, certified
by the Secretary of State or other appropriate official of its jurisdiction of
incorporation, and (ii) certificates from the Secretary of State or other
appropriate official of such jurisdiction of incorporation to the effect that
the Buyer is in good standing and subsisting in such jurisdiction.
Section 8.11. Harry's Policies. At the Closing, the Company shall have
assigned, if so elected by Harry, all its right, title and interest in and to
Harry's Policies free and clear of all Liens to Harry or his designee,
provided, however, that the Company shall be paid the cash surrender
value thereof as of the Closing Date.
Section 8.12. Guaranty Agreement. The Guaranty Agreement shall
have been executed and delivered by the Guarantor to the Sellers.
Article IX
INDEMNIFICATION
Section 9.1. Survival. The representations and warranties in Articles
III and IV as of the date hereof (in each case as qualified in the Schedules)
are the only representations and warranties made by the Sellers to the
Buyer with respect to the sale of the Shares. The representations and
warranties in Article V as of the date hereof (in each case as qualified in
the Schedules) are the only representations and warranties made by the
Buyer to the Sellers with respect to the purchase of the Shares. All
representations, warranties, agreements, covenants and obligations herein
shall survive the Closing until their respective expiration pursuant to
sections 9.3(c), 9.5(b), 9.6(c), 9.2(f) or 9.2(g) and shall not merge into
the performance of any obligation by any party hereto regardless of any
investigation except as provided in the last sentence of this section 9.1.
Anything contained herein to the contrary notwithstanding, no party
hereto may rely on any representation or warranty made by another party
herein or in any Schedule if such party had actual knowledge that such
representation or warranty was not true, complete and accurate in all
material respects on and as of the date hereof and no Buyer Indemnified
Party or Seller Indemnified Party shall have any right to indemnification
pursuant to this Article or otherwise with respect to any such
representation or warranty; provided, however, that nothing in this
section 9.1 shall limit or in any way affect the rights of Buyer Indemnified
Parties to indemnification or reimbursement for Tax, pension or
Environmental Claims as provided in sections 9.2(c), 9.2(f), 9.2(g) and
9.6, which shall be available in accordance with the terms hereof
regardless of any knowledge or investigation of any party hereto.
Section 9.2. Indemnification by the Principal Sellers. The Principal
Sellers severally in accordance with the percentages set forth on Schedule
9.2 hereto on behalf of themselves and their respective successors,
executors, administrators, estates, heirs, assigns and trusts funded with
the proceeds of the Shares shall, subject to sections 9.3 and 9.6,
indemnify and hold harmless subsequent to the Closing the Guarantor, the
Buyer and each of their direct or indirect Subsidiaries (including the
Company after the Closing) and their successors, assigns, officers,
directors, employees and agents (a "Buyer Indemnified Party") from and
against any and all losses, liabilities, claims, obligations, damages,
deficiencies, actions, suits, proceedings, demands, assessments, orders,
judgments, fines, penalties, costs and expenses (including without
limitation the reasonable fees, disbursements, and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or
not arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) other than
consequential damages (except as specifically provided for to the contrary
in section 9.6), which may be sustained or suffered by any such Buyer
Indemnified Party (a "Loss" or "Losses"), based upon, arising out of, by
reason of or otherwise in respect of:
(a) any breach of any representation or warranty made by
the Principal Sellers in Article III or by any Seller in Article IV of this
Agreement;
(b) any breach of any covenant or agreement made by any
Seller in this Agreement;
(c) Losses with respect to Taxes of the Company
(including any predecessor or affiliate thereof) which relate to periods
prior to the Closing Date, including, but not limited to, the failure of the
Company (i) to pay or adequately accrue for all Taxes for its fiscal year
ended December 31, 1993 and for the fiscal year which will end on the
Closing Date and (ii) to make all payments of estimated Taxes for its
fiscal year ended December 31, 1993 and for the fiscal year which will
end on the Closing Date which are required to be made before the Closing
Date to avoid any estimated Tax penalties or interest charges;
(d) liabilities (including, without limitation, (i) any and all
claims for injury (including death), claims for damage, or product liability
claims resulting from products sold or services provided by the Company
prior to the Closing Date, (ii) other personal injury or property damage
claims relating to events occurring prior to the Closing Date, (iii) amounts
due in connection with any Employee Program maintained or contributed
to by the Company prior to the Closing Date and (iv) Losses relating to
the failure of the Company to comply with applicable laws or regulations)
relating to activities of the Company or the conduct of its businesses prior
to the Closing Date except for liabilities (I) stated or adequately reserved
against on the Financials or reflected in the footnotes thereto, (II) reflected
in the Schedules to this Agreement or (III) incurred in the ordinary course
of the business of the Company subsequent to the Balance Sheet Date and
on a basis consistent with the terms of this Agreement;
(e) any fees or expenses (including legal fees and
accounting fees) relating primarily to this Agreement or any transactions
contemplated hereby incurred by the Company prior to the Closing,
provided that the Company may accrue non-transactional legal and
accounting expenses of the Company from the Balance Sheet Date through
the date hereof, provided that in the event of any payment or accrual of
any transactional fees and expenses, the Representatives shall make
prompt reimbursement thereof, which reimbursement shall not be made
from the Escrow Fund. The Buyer shall have the right to audit the legal
fees and accounting expenses of the Company to verify that they are non-
transaction related.
(f) any Losses or Taxes incurred on or prior to September
30, 1997 in connection with or arising out of or resulting from or incident
to (i) claims with respect to benefits under the Pension Plan (other than
claims for benefits in the ordinary course pursuant to the Pension Plan)
which relate to acts or omissions occurring prior to the Closing Date,
(ii) the submission by the Company of the Pension Plan to the Internal
Revenue Service requesting that the Internal Revenue Service issue a
favorable determination letter to the effect that the Pension Plan is a
qualified plan under Section 401(a) of the Code, (iii) any other
determination by the Internal Revenue Service that the Pension Plan was
not or, but for the payment of any such amounts, would not be deemed to
be a qualified plan under Section 401(a) of the Code as a result of the
terms or operation of the Pension Plan as of or prior to the Closing Date,
(iv) any other operational or compliance requirement with respect to the
Pension Plan prior to the Closing Date, and (v) a breach of section 6.10
hereof; provided, however, that the indemnification provided for under
(ii) and (iii) hereof with respect to any settlement agreed to with the
Internal Revenue Service shall be contingent on the Buyer Indemnified
Parties receiving the consent of the Representatives to such settlement
prior to its payment, which consent shall not be unreasonably withheld or
delayed; and
(g) any Losses or Taxes relating to any withdrawal liability
actually incurred by the Company on or prior to July 28, 1999 under
Title IV of ERISA with respect to the Local 888 Pension Fund identified
on Schedule 3.20; provided, however, that no Losses shall be payable
under this section 9.2(g) in excess of the amount of such withdrawal
liability if the Company had withdrawn from the plan on the Closing Date
as provided in writing to the Representatives and the Company by the
actuary for the plan as decreased 20% of the original amount thereof on
each anniversary of the Closing Date.
The Company shall control and conduct any proceeding
which may give rise to any indemnification pursuant to Section 9.2(f) or
9.2(g), provided that the Company shall consult with the Representatives
in connection therewith and shall use reasonable efforts in good faith to
present any reasonable positions of the Representatives in connection with
any such proceedings.
The rights of Buyer Indemnified Parties to recover
indemnification in respect of any occurrence referred to in clauses (b)
through (g) of this section 9.2 shall not be limited by the fact that such
occurrence may not constitute an inaccuracy in or breach of any
representation or warranty referred to in clause (a) of this section 9.2.
Section 9.3. Limitations on Indemnification by the Principal Sellers.
The rights of Buyer Indemnified Parties entitled to indemnification under
this Article IX shall be limited as follows:
(a) General Threshold. Subject to the exceptions set forth
in sections 9.3(d) and 9.6, the Principal Sellers shall not be obligated to
indemnify Buyer Indemnified Parties except to the extent the cumulative
amount of Losses exceeds Two Hundred Fifty Thousand Dollars
($250,000), whereupon the amount of all such Losses in excess of One
Hundred Twenty Five Thousand Dollars ($125,000) shall be recoverable
in accordance with the terms hereof.
(b) General Maximum Indemnification. Subject to the
exceptions set forth in section 9.3(d), the Principal Sellers shall not be
obligated to indemnify Buyer Indemnified Parties after the cumulative
amount of any Loss (including any Loss with respect to Environmental
Claims pursuant to section 9.6, but subject to section 9.3(d)(ii)) paid by
Seller Indemnified Parties to or on behalf of any Buyer Indemnified
Parties under this Agreement exceeds Six Million Seven Hundred Fifty
Thousand Dollars ($6,750,000).
(c) Time Limits for Claims. Except as provided in
section 9.6(c) relating to Environmental Claims and sections 9.2(f) and
9.2(g) relating to certain pension matters, no claim for indemnification
may be made by any Buyer Indemnified Party with respect to Losses
unless the written notice required by section 9.8 hereof in respect of such
Losses shall have been received by the Representatives on a date prior to
the date 18 months following the Closing Date; provided, however, that
the limitation of this paragraph (c) shall not apply to Losses described in
section 9.3(d), indemnification with respect to which shall expire upon the
termination of the applicable statute of limitations relating to the subject
matter covered by such section; and provided further, however, that
anything contained herein to the contrary notwithstanding, if prior to the
applicable date of expiration a specific state of facts shall have become
known which is reasonably likely to constitute or give rise to any Loss as
to which indemnity is reasonably likely to be payable and a Buyer
Indemnified Party shall have timely given written notice of such facts to
the Representatives, then the right to indemnification with respect thereto
shall remain in effect until such matter shall have been finally determined
and disposed of, and any indemnification due in respect thereof shall have
been paid.
(d) Dollar-for-Dollar Claims.
(i) Notwithstanding anything contained herein to
the contrary, Buyer Indemnified Parties shall not be subject to any
limitation, whether pursuant to this section 9.3 hereof or otherwise, and
shall be entitled to dollar-for-dollar recovery, in seeking indemnification
from the Principal Sellers with respect to the following:
(1) Losses arising from common law fraud or willful breach (but not as a
result of negligence, inadvertency or recklessness) on the part of any
Seller;
(2) Losses involving a breach by any Seller of any of the representations,
warranties and covenants contained in sections 3.3, 3.23(iv), 3.24 and
4.1.;
(3) Losses referred to in sections 9.2(c) or 9.2(e); and
(4) Losses for fines or penalties referred to in the last paragraph of
Section 9.6(b).
(ii) Indemnification pursuant to this section 9.3(d) shall not be counted
against the maximum amount set forth in section 9.3(b), except that the
first $1,500,000 of Losses referred to in section 9.2(c) shall be so
counted.
(iii)Indemnification pursuant to sections 9.2(f) and 9.2(g) shall not be
subject to section 9.3(a) but shall be subject to section 9.3(b).
Section 9.4. Indemnification by Buyer. The Buyer on behalf of itself
and its successors and assigns shall, subject to sections 9.5 and 9.6,
indemnify and hold harmless subsequent to the Closing each Seller and
each of their executors, administrators, estates, heirs, successors and
assigns, HM and each of its partners, officers and agents (a "Seller
Indemnified Party") from and against any and all losses, liabilities,
claims, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and
expenses (including without limitation the reasonable fees, disbursements,
and expenses of attorneys, accountants and consultants) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing), other than consequential damages, which may be sustained or
suffered by any such Seller Indemnified Party (a "Seller Loss" or "Seller
Losses"), based upon, arising out of, by reason of or otherwise in respect
of:
(a) any breach of any representation or warranty made by
the Buyer in Article V of this Agreement; and
(b) any breach or any covenant or agreement made by the
Buyer in this Agreement.
The rights of Seller Indemnified Parties to recover
indemnification in respect of any occurrence referred to in clause (b) of
this section 9.4 shall not be limited by the fact that such occurrence may
not constitute an inaccuracy in or breach of any representation or warranty
referred to in clause (a) of this section 9.4.
Section 9.5. Limitation on Indemnification by Buyer. The Rights of
Seller Indemnified Parties entitled to indemnification under this Article IX
shall be limited as follows:
(a) General Threshold. Subject to the exceptions set forth
in section 9.5(c), the Buyer shall not be obligated to indemnify Seller
Indemnified Parties except to the extent the cumulative amount of Seller
Losses exceeds Two Hundred Fifty Thousand Dollars ($250,000),
whereupon the amount of such Seller Losses in excess of One Hundred
Twenty Five Thousand Dollars ($125,000) shall be recoverable in
accordance with the terms hereof.
(b) Time Limits for Claims. Except as provided in section
9.6(c) as to Environmental Claims, no claim for indemnification may be
made by any Seller Indemnified Party with respect to Seller Losses unless
the written notice required by section 9.8 hereof in respect of such Seller
Losses shall have been received by the Buyer on a date prior to the date
18 months following the Closing Date; provided, however, that the
limitation of this paragraph (b) shall not apply to Seller Losses described
in section 9.5(c), indemnification with respect to which shall expire upon
the termination of the applicable statute of limitations relating to the
subject matter covered by such section; and provided further, however,
that, anything contained herein to the contrary notwithstanding, if prior to
the applicable date of expiration a specific state of facts shall have become
known which is reasonably likely to constitute or give rise to any Seller
Loss as to which indemnity is reasonably likely to be payable and a Seller
Indemnified Party shall have timely given written notice of such facts to
the Buyer, then the right to indemnification with respect thereto shall
remain in effect until such matter shall have been finally determined and
disposed of, and any indemnification due in respect thereof shall have
been paid.
(c) Dollar-for-Dollar Claims. Notwithstanding anything
herein to the contrary, Seller Indemnified Parties shall not be subject to
any limitation, whether pursuant to this section 9.5 or otherwise, and shall
be entitled to dollar-for-dollar recovery, in seeking indemnification from
the Buyer with respect to the following:
(i) Seller Losses arising from common law fraud or
willful breach (but not as a result of negligence, inadvertency or
recklessness) on the part of the Buyer; and
(ii) Seller Losses involving a breach by the Buyer
of any of its agreements and covenants contained in section 6.1.
Section 9.6. Responsibility for Environmental Claims.
(a) Environmental Claims; Limitations. Anything
contained herein to the contrary notwithstanding, it is the express
intention of the parties that the allocation of costs and expenses among the
parties with respect to Environmental Claims shall be governed
exclusively by the express provisions of this section 9.6. Without limiting
the foregoing sentence, no representation, warranty, covenant or
agreement in this Agreement other than the provisions of this section 9.6
shall be the basis for any Seller liability to any Buyer Indemnified Party
or for any Buyer liability to any Seller Indemnified Party in respect of any
Environmental Claim.
For the purposes of this section 9.6 only, the term "Loss"
or "Losses" shall include Losses and Seller Losses sustained or suffered
by any Buyer Indemnified Party or any Seller Indemnified Party. For the
purposes of this Agreement, an "Environmental Claim" shall mean any
claim for a Loss, including, for purposes of this section 9.6 only any
consequential damages, incurred, resulting or arising directly or indirectly
from the use, storage, discharge, presence or transportation, in each case
prior to the Closing Date, of any Hazardous Materials on, in, upon or
from any Property, including, without limitation, any such Loss resulting
from the transportation or shipping of Hazardous Materials from any
Property, or the migration from any Property at any time of any
Hazardous Materials deposited upon or released from any Property prior
to the Closing Date, or the violation prior to the Closing Date of any
Environmental Law (as in effect on or prior to the Closing Date).
Further, the term Loss from an Environmental Claim shall
be deemed to include (in addition to those items referred to as a Loss in
section 9.2 hereof or as a Seller Loss in section 9.4 hereof), but shall not
be limited to, remediation, fines and penalties, and any Buyer Indemnified
Party or Seller Indemnified Party may seek to recover costs associated
therewith under the provisions of this section 9.6. Notwithstanding the
foregoing provisions, any Losses paid or accruable prior to the Closing
Date (other than Losses referred to in the final paragraph of this section
9.6(a)) by the Company or the Sellers for any Environmental Claims shall
not be subject to reimbursement to the Seller Indemnified Parties pursuant
to this section 9.6. Losses for Environmental Claims shall not include
any costs and expenses relating to:
(i) the operation from and after the Closing Date of
the waste water treatment discharge system presently existing on the
Premises, including the various pipes, tanks and leaching pools used to
dispose of the Company's waste water, or improvements thereto not
required under Environmental Laws (as in effect as of the Closing Date),
provided, however, that if, as of the Closing Date, the waste water
treatment discharge system and the effluent therefrom are not in
compliance with applicable laws, including Environmental Laws, or,
independent of such compliance, the operation or the structural integrity
of this system in the ordinary course is causing the release of any
contamination onto, upon or from the Premises, the parties hereby agree
that any costs or expenses sustained or incurred to achieve such
compliance or address any such release shall be shared on the basis of
section 9.6(b); or
(ii) the fulfillment from and after the Closing Date
of the Company's obligations and responsibilities under the Maintenance
Plan only with respect to the monitoring and testing of ground water at
those monitoring wells as presently in existence on the Premises and the
supplying of testing results from such monitoring wells to the NYSDEC,
provided, however, that the foregoing exclusions in this paragraph are not
intended to exclude (from the definition of an Environmental Claim) a
Loss, including, but not limited to, remediation, fines or penalties,
incurred, resulting, or arising from a condition, event or omission
occurring prior to the Closing Date pursuant to the Maintenance Plan or
otherwise.
With respect to the exclusions set forth in subsections (i) and (ii) above,
where the cause of any such Loss cannot be reasonably directly attributed
to the post-Closing Date operation or fulfillment, respectively, then for
purposes of this section 9.6, the parties shall assume that the event
occurred prior to the Closing Date.
If and to the extent that an Environmental Claim involves
remediation, wherever reasonably practicable under the circumstances, the
Buyer shall give the Representatives the reasonable opportunity to review
and comment upon any agreement proposed to be entered into by any
Buyer Indemnified Party in connection with any remediation; provided,
however, that the foregoing shall not limit any Buyer Indemnified Party's
right to take any action that it deems reasonable or the fact that any such
amounts shall constitute Losses for the purposes of this section 9.6. For
purposes of this section 9.6, the reasonableness of any Buyer Indemnified
Party's actions shall be judged from the perspective of a reasonable owner
of a business who intends to own and operate the business for the
indefinite foreseeable future and not from the perspective of an indemnitor
who may not be responsible for Losses incurred after 30 months from the
Closing Date.
Notwithstanding any of the foregoing provisions of this
section 9.6, the parties hereby agree to remediate those portions of the
Premises described in an agreed upon preliminary plan of remediation and
further agree to the terms of such plan as well as acknowledge that the
costs of such remediation, together with any modifications or additions to
the plan of remediation (which shall be reviewed with the Representatives
as set forth in the immediately preceding paragraph) hereafter deemed
reasonable by any Buyer Indemnified Party, are subject to indemnification
under the terms of this section 9.6, including the limitations set forth in
section 9.6(b) hereof.
(b) Subject to section 9.6(a) hereof, the Principal Sellers,
on the one hand, and the Buyer and the Company, on the other hand, shall
be responsible for Losses incurred by any Buyer Indemnified Party or
Seller Indemnified Party based upon, arising out of or by reason of other
otherwise in respect of any Environmental Claims in the following
amounts: (i) the first $2,400,00 of such Losses shall be payable 50%
jointly and severally by the Buyer and the Company and 50% by the
Principal Sellers; (ii) the next $2,600,000 of such Losses shall be payable
62.5% jointly and severally by the Buyer and the Company and 37.5% by
the Principal Sellers; (iii) the next Losses until the cumulative amount of
any such Losses paid by the Principal Sellers (and not otherwise
reimbursed by Buyer Indemnified Parties hereunder) under this
Agreement equals $6,750,000 (as reduced by Losses previously paid by
the Principal Sellers pursuant to this Article IX, subject to section 9.3(d)
hereof) shall be payable 75% jointly and severally by the Buyer and the
Company and 25% by the Principal Sellers; and (iv) the Principal Sellers
shall have no indemnification or other reimbursement obligations under
this section 9.6 for any additional Losses from Environmental Claims
incurred by any Buyer Indemnified Party and any further Seller Losses
from any Environmental Claims shall not be subject to reimbursement
under the terms of this section 9.6 and each party shall bear its own
Losses in such cases.
The Buyer or the Company, jointly and severally, on the
one hand, and the Principal Sellers, on the other hand, as applicable, shall
promptly reimburse each other for any Losses incurred by any Buyer
Indemnified Party or any Seller Indemnified Party resulting from any
Environmental Claims to the extent necessary to give full effect to the
provisions of section 9.6(b)(i), (ii) and (iii), as further contemplated by
sections 9.8 and 9.11 hereof. Anything contained herein to the contrary
notwithstanding, any amounts payable by the Principal Sellers with
respect to any Losses related to Environmental Claims shall be expressly
subject to the limits contained in section 9.3(b) but shall not be subject the
limits contained in section 9.3(a) and shall be paid on a several basis as
contemplated in section 9.2.
The parties agree that the costs of any remediation after the
Closing Date within the parameters of this Agreement, including, but not
limited, to remediation mandated by the government or regulatory agency
thereof, shall be addressed by the indemnification and reimbursement
provisions of this section 9.6 and not by the dollar for dollar
indemnification under section 9.3(d)(i)(4) hereof. Notwithstanding the
foregoing, the parties further agree that the Principal Sellers shall pay any
penalties or fines assessed by any government or regulatory agency
thereof for non-compliance with, or the lack of timeliness of complying
with, the reporting, disclosure or any other requirements of the
Maintenance Plan or applicable laws or regulations, including
Environmental Laws, in connection with any activity, including, without
limitation, investigation or remediation, conducted prior the Closing Date
regarding the Property and such fines and penalties shall not be
considered to be Losses under this section 9.6. To the extent that any
such fines or penalties are assessed against any Buyer Indemnified Party,
including the Company, the Buyer Indemnified Party shall be entitled to
recover such costs dollar for dollar from the Principal Sellers pursuant to
section 9.3(d)(i)(4) hereof and such Losses shall not be counted against
the formula set forth in this section 9.6(b) and shall not be subject to the
limits contained in section 9.3(a), 9.3(b) and 9.6(c) hereof.
(c) Time Limits for Claims. No claim for
indemnification or reimbursement may be made by any Buyer Indemnified
Party or Seller Indemnified Party with respect to Losses for
Environmental Claims unless the written notice required by section 9.8
hereof in respect of such Losses shall have been received by the
Representatives or the Buyer (as the case may be) on a date prior to the
date 30 months following the Closing Date; provided, however, that
notwithstanding anything contained herein to the contrary, if prior to the
applicable date of expiration an Environmental Claim shall have been
made or if a specific set of facts shall have become known which is
reasonably likely to constitute or give rise to any Loss as to which
indemnity or reimbursement is reasonably likely to be payable under this
section 9.6 and a Buyer Indemnified Party or Seller Indemnified Party
shall have given written notice of such Environmental Claims or facts to
the Representatives or the Buyer (as the case may be), then the mutual
right to indemnification or reimbursement with respect thereto shall
remain in full force and effect until said matter shall have been finally
determined and disposed of, and any indemnification or reimbursement
due in respect thereof shall have been paid.
(d) Covenant not to Sue, etc. The Buyer shall not and
shall use reasonable efforts to cause each Buyer Indemnified Party
(including the Company) not to commence any action against any Seller
Indemnified Party or interplead or implead any Seller Indemnified Party
into any action with respect to any Environmental Claim. The Sellers
shall not and shall use reasonable efforts to cause each Seller Indemnified
Party not to commence any action against any Buyer Indemnified Party
(including the Company) or interplead or implead any Buyer Indemnified
Party (including the Company) into any action with respect to any
Environmental Claim. Nothing herein shall limit any party's right to
enforce its rights under this section 9.6 and any such action shall proceed
separately from any proceeding relating to any Environmental Claim.
(e) Agreement Controls. The allocation of Losses
among the parties with respect to Environmental Claims contained in
section 9.6(b) hereof shall be governed exclusively by such provision
notwithstanding any allocation of such costs and expenses among the
parties that might be made pursuant to common law, any other
Environmental Law or otherwise in the absence of the express agreement
contained in this section 9.6(b).
(f) Environmental Claims above the Cost Sharing
Formula. Each party shall bear its own Losses resulting from any
Environmental Claims incurred by any Buyer Indemnified Party or Seller
Indemnified Party in excess of the amounts referred to in sections
9.6(b)(i), (ii) and (iii).
Section 9.7. Escrow Fund.
(a) In the event of any Loss, a Buyer
Indemnified Party shall be required to seek indemnification or
reimbursement from the Escrow Fund prior to obtaining recovery from
any Principal Seller directly, but shall have recourse to the Principal
Sellers to the extent contemplated herein if and to the extent the Escrow
Fund is insufficient fully to provide for such claims. The Representatives
and Buyer shall agree to give prompt direction to the Escrow Agent
directing the release of funds to satisfy indemnification or reimbursement
obligations arising out of this Article IX.
(b) At such time as the federal and New York State Tax
audits described in Schedule 9.7 are finally resolved at the administrative
level, the Buyer and the Representatives shall provide prompt notice to the
Escrow Agent in the form of Exhibit 1 to the Escrow Agreement
directing the Escrow Agent to distribute to the Representatives the
positive difference, if any, between up to $1,500,000 of the then existing
balance of the Escrow Fund and the sum of (i) the Losses paid, if any, to
resolve the specified Tax audits and (ii) the amounts necessary to cover
any pending claims for indemnification made by any Buyer Indemnified
Party pursuant to this Article IX. At such time as the Buyer Indemnified
Parties' right to indemnification or reimbursement for Environmental
Claims has expired pursuant to section 9.6(c), the Buyer and the
Representatives shall provide prompt notice to the Escrow Agent in the
form of Exhibit 1 to the Escrow Agreement directing the Escrow Agent
to distribute to the Representatives the remaining balance, if any, of the
Escrow Fund, less the amounts necessary to cover any pending claims of
indemnification made by any Buyer Indemnified Party pursuant to this
Article IX, including any amounts sufficient to cover any pending Tax
audit matters not yet resolved. The monies finally distributed to the
Representatives hereunder shall include any interest or other amounts
earned on the Escrow Fund.
Section 9.8. Notice; Defense of Claims. (a) A Buyer Indemnified
Party or a Seller Indemnified Party is referred to herein as an
"Indemnified Party." The party providing indemnification to an
Indemnified Party is referred to herein as an "Indemnifying Party." An
Indemnified Party shall give written notice to the Indemnifying Party (and
the Escrow Agent, if indemnification is being claimed from the Escrow
Fund) promptly, and in any event not later than 60 Business Days after
assertion of any written claim by any third party or the discovery of any
facts upon which an Indemnified Party intends to base a claim for
indemnification or reimbursement pursuant to this Article IX, specifying
in reasonable detail the amount, nature and source of the claim, and
including therewith copies of any notices or other documents received
from third parties with respect to such claim; provided, however, that
failure to give such notice shall not limit the right of an Indemnified Party
to recover indemnity or reimbursement except to the extent that the
Indemnifying Party suffers any material damages as a result of such
failure. The Indemnified Party shall also provide the Indemnifying Party
with such further information concerning any such claims as the
Indemnifying Party may reasonably request by written notice.
(b) Within 30 days after receiving notice of a claim for
indemnification or reimbursement, the Indemnifying Party shall, by
written notice to the Indemnified Party (and the Escrow Agent, if
indemnification is being claimed from the Escrow Fund), either (1)
concede or deny liability for the claim in whole or in part, or (2) in the
case of a claim asserted by a third party, advise that the matters set forth
in the notice are, or will be, subject to contest or legal proceedings not yet
finally resolved. If the Indemnifying Party concedes liability in whole or
in part, it shall, within 15 days of such concession, (i) pay the amount of
the claim to the Indemnified Party to the extent of the liability conceded
and/or (ii) if indemnification or reimbursement is being claimed from the
Escrow Fund, provide joint notice with the Indemnified Party to the
Escrow Agent that a payment should be made to the Indemnified Party
from the Escrow Fund indicating the amount of such distribution. Any
such payment shall be made in immediately available funds equal to the
amount of such claim so payable. If the Indemnifying Party denies
liability in whole or in part or advises that the matters set forth in the
notice are, or will be, subject to contest or legal proceedings not yet
finally resolved, then the Indemnifying Party or the Escrow Agent (as the
case may be) shall make no distribution (except for the amount of any
conceded liability payable as set forth above) until the matter is resolved
in accordance with this Agreement.
(c) In the event an indemnification claim relates to any
suit, action or proceeding brought by any third party against an
Indemnified Party, the Indemnifying Party and the Indemnified Party shall
have the right, at Indemnifying Party's expense, with counsel to the
mutual satisfaction of such parties, to jointly control the defense of any
such suit, action or proceeding. The Indemnifying Party shall have no
liability for the Indemnified Parties' legal fees and expenses other than
those with respect to the counsel retained to the mutual satisfaction of
such parties. The Indemnifying Party and the Indemnified Party shall
consult and cooperate in good faith with each other with respect to all
significant aspects of any such defense. Such cooperation shall include
but not be limited to keeping the other party informed of all material
developments with regard to the defense and providing the other party
with copies of all pleadings and other material correspondence with
respect to any such defense. No settlement of any action for which
indemnification may be payable hereunder shall be made without the prior
written consent of the Indemnified Party and the Indemnifying Party,
which consent will not be unreasonably withheld or delayed; provided,
however, that if any Indemnified Party refuses or fails to consent to a
proposed settlement and the matter is thereafter disposed of at a greater
cost than would have resulted if such settlement had been consented to,
the Indemnifying Party shall not be responsible for such incremental cost.
The provisions of this section 9.8(c) shall not apply to: (i) Tax matters,
for which the provisions of section 9.8(d) shall apply, (ii) Environmental
Claims referred to in section 9.8(e), and (iii) certain pension matters
subject to sections 9.2(f) and 9.2(g).
(d) In the case of any proposed or actual assessment of Tax
liabilities for which any Buyer Indemnified Party is entitled to
indemnification from the Principal Sellers as provided herein, in addition
to the provisions set forth above in sections 9.8(a) and 9.8(b), the
Representatives (at the Principal Sellers' expense) may request that the
Company contest such proposed or actual assessment in the manner
directed by the Representatives (in consultation with the Buyer) through
the administrative review or appeal procedures available under the
relevant Tax laws and regulations. If the pursuit of such administrative
remedies by the Company is unsuccessful, the Buyer shall be entitled to
cause the Company to pay the Tax (and any penalties and interest) and be
entitled to indemnification from the Principal Sellers; provided, however,
that if within ten (10) days of receipt from the Buyer of notice of its
intention to do so, the Representatives shall notify the Buyer of its desire
to contest the proposed or assessed Tax deficiency in the courts, the
Principal Sellers shall be entitled to do so at the Principal Sellers'
expense, provided (i) there is, in the opinion of the Principal Sellers'
counsel acceptable to the Buyer (exercised in good faith), a reasonable
likelihood of prevailing on the merits of such proposed or assessed Tax
deficiency, (ii) the Representatives in good faith diligently contest such
proposed or assessed Tax deficiency and (iii) the Principal Sellers pay
(subject to their entitlement to a refund if their efforts are successful) the
deficiency and any penalties and interest, provided, however, that if the
Principal Sellers elect to litigate the Tax controversy in a court in which
litigation of the Tax controversy prior to the payment of the asserted Tax
liability is possible, then the Principal Sellers shall not be obligated to pay
such Tax until ten (10) days after the filing with the court of the papers
necessary to confer jurisdiction on the court. The Buyer shall cause the
Company to cooperate with the Representatives for such purposes. The
Buyer shall be entitled to prompt reimbursement for any out-of-pocket
expenses incurred from time to time by the Buyer or the Company
pursuant to this section 9.8(d).
(e) The Company shall control and conduct any proceeding
which may give rise to any indemnification pursuant to section 9.6,
subject to the provisions of section 9.6.
Section 9.9. Characterization of Indemnity Payments. The Buyer and
the Sellers agree to treat any payment made by the Principal Sellers under
this Article IX as an adjustment to the Purchase Price.
Section 9.10. Recoveries. The amount of any Losses suffered,
sustained, incurred or required to be paid by any Indemnified Person shall
be reduced by the amount of any insurance proceeds and other amounts
paid to the Indemnified Person by any Person not a party to this
Agreement. In calculating any Losses for which indemnification is
provided under this Article IX or for which the allocation and
reimbursement of Losses is provided under section 9.6, the amount of any
such Losses shall be made on an after-tax basis as defined in section 9.12.
Section 9.11. Payment of Losses. The Indemnifying Person shall pay to
the Indemnified Person in immediately available funds the amount of any
Loss to which the Indemnified Person may become entitled by reason of
the provisions of this Article IX, such payment to be made within fifteen
(15) days after such Losses are finally determined either by mutual
agreement of the parties hereto or the Arbitrator.
Section 9.12. Meaning of After-Tax Basis
(a) For purposes of this Article IX, all indemnification
payments shall be made on an "after-tax" basis to a Buyer Indemnified
Party. For the purpose of this agreement on an "after-tax basis" shall be
made net of Tax Benefits, which the Buyer Indemnified Party has received
or will receive in the taxable year in which the Loss is paid or incurred in
respect of the Loss giving rise to such payment. As used herein, the term
"Tax Benefit" shall mean the Federal, state and local tax savings that have
resulted or will result from any tax deduction or tax credit that (i) the
Buyer Indemnified Party has claimed or will claim (as described in sec-
tion 9.12(b)) on a Federal, state or local income tax return filed for the
tax year of the Company in which the Loss is paid or incurred and (ii) is
directly attributable to such Loss. The term "Tax Benefit" shall not
include any tax savings attributable to a depreciation, amortization or
similar deduction attributable to the required capitalization of a Loss. It
shall be assumed that the Buyer Indemnified Party is subject to the
maximum marginal Federal, state and local tax rates for a corporation
doing business in New York, unless the Buyer Indemnified Party's
independent certified public accountant certifies that such Buyer
Indemnified Party is subject to a different rate, in which case such
different rate shall apply.
(b) Each Buyer Indemnified Party agrees that it will, in
good faith, claim on a current basis all deductions to which it is legally
entitled as a result of a Loss. As used herein "good faith" shall mean the
obligation to claim, for Federal, state and local income tax purposes, all
tax deductions and tax credits to which the Buyer Indemnified Party is
entitled, and would otherwise reflect on an income tax return in a manner
that is consistent with prior practice and in accordance with applicable
law, without regard to the entitlement of such Buyer Indemnified Party to
any indemnification payment pursuant to the terms of Article IX. In the
event that the Representatives assert that the Buyer Indemnified Party has
breached its good faith obligation, in accordance with this good faith
standard, by failing to claim all tax deductions and tax credits that are
available to the Company, the determination of whether the Buyer
Indemnified Party has breached its good faith obligation shall be made by
the Arbitrator.
Article X
MISCELLANEOUS
Section 10.1. Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings unless the context
otherwise requires:
(a) "Agreement" means this Stock Purchase Agreement.
(b) "Arbitrator" shall have the meaning set forth in section 6.6 hereof.
(c) "Balance Sheet Date" shall have the meaning set forth in section 3.6
hereof.
(d) "Balance Sheet" shall have the meaning set forth in section 3.6 hereof.
(e) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day in which banking institutions in Nassau
County, New York, are authorized or obligated by law or executive
order to close. Any event the scheduled occurrence of which would
fall on a day which is not a Business Day shall be deferred until the
next succeeding Business Day.
(f) "Buyer Indemnified Party" shall have the meaning set forth in section
9.2 hereof.
(g) "Buyer" means Jameco Acquisition Corporation, a Delaware corporation.
(h) "Closing Date" means the date upon which the Closing occurs.
(i) "Closing Payment" shall have the meaning set forth in section 1.2(b)
hereof.
(j) "Closing" shall mean the closing referred to in section 2.2 hereof.
(k) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(l) "Company" means Jameco Industries, Inc., a New York corporation.
(m) "David" means David Chasin, an individual.
(n) "Employee Program" shall have the meaning set forth in section 3.20
hereof.
(o) "Environment" shall have the meaning set forth in section 3.21 hereof.
(p) "Environmental Claim" shall have the meaning set forth in section
9.6(a) hereof.
(q) "Environmental Laws" shall have the meaning set forth in section 3.21
hereof.
(r) "Escrow Agent" shall have the meaning set forth in section 1.2(d) hereof.
(s) "Escrow Agreement" shall have the meaning set forth in section 1.2(d)
hereof.
(t) "Escrow Fund" shall have the meaning set forth in section 1.2(d) hereof.
(u) "Escrow Payment" shall have the meaning set forth in section 1.2(b)
hereof.
(v) "Ethel" means Ethel S. Lipman, an individual.
(w) "Financials" shall have the meaning set forth in section 3.6 hereof.
(x) "Guarantor" shall mean Watts Industries, Inc., a Delaware corporation.
(y) "Guaranty Agreement" shall mean the guaranty agreement of the Guarantor
in the form of Exhibit 10.1 hereof.
(z) "Gloria" means Gloria Lipman, an individual.
(aa) "Harry's Policies" shall have the meaning set forth in section 6.2(b)
hereof.
(ab) "Harry" means Harry Lipman, an individual.
(ac) "Hazardous Material" shall have the meaning set forth in section 3.21
hereof.
(ad) "HM" shall mean H.M. Realty Co.
(ae) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended; and the rules and regulations promulgated thereunder.
(af) "Ilene Trust" means the Walter Lipman Trust for the benefit of Ilene
Burstein, an individual.
(ag) "IRS" shall mean the Internal Revenue Service.
(ah) "JESC" shall mean Jameco Export Sales Corporation, a U.S. Virgin
Islands corporation.
(ai) "Joshua Trust" means the Walter Lipman Trust for
the benefit of Joshua Burstein, an individual.
(aj) "Innovative Computer" means Innovative Computer Concepts, Inc.
(ak) "Innovative Systems" means Innovative Computer Systems, Inc.
(al) "Kenneth" means Kenneth S. Lipman, an individual.
(am) "Knowledge" means, (a) with respect to the Principal Sellers, actual
knowledge of any Principal Seller after completion of a reasonable
investigation including, but not limited to, discussion and review of
this Agreement with Sidney, Joel Sandberg, William Caufield and
John A. Grieco, (b) with respect to any Seller, actual knowledge of
such Seller and, (c) with respect to the Buyer, actual knowledge of
the Buyer or any director or officer of the Buyer after completion of
a reasonable investigation.
(an) "Lien" means and includes any lien, security interest, pledge, charge,
option, right of first refusal, claim, mortgage, lease, easement or any
other encumbrance or charge of any nature whatsoever.
(ao) "Loss" or "Losses" shall have the meanings set
forth in section 9.2 hereof as modified by sections 9.6 and 9.10.
(ap) "Maintenance Plan" shall have the meaning set forth in
section 3.21 hereof.
(aq) "Material Adverse Effect" means, with respect to the Company, any
change which, individually or in the aggregate, would have an adverse
effect material to the businesses, assets, properties, operations,
results of operations or condition (financial or otherwise) or
prospects of the Company taken as a whole.
(ar) "Michael" means Michael Lipman, an individual.
(as) "NYSDEC" means New York State Department of Environmental Conservation.
(at) "Permits" shall have the meaning set forth in section 3.5 hereof.
(au) "Person" means any individual, corporation, general or limited
partnership, firm, joint venture, association, enterprise, joint stock
company, trust, unincorporated organization or other entity.
(av) "Peter" means Peter A. Lipman, an individual.
(aw) "Pension Plan" shall have the meaning set forth in section 6.10 hereof.
(ax) "Premises" shall have meaning set forth in section 3.21(a)(i) hereof.
(ay) "Principal Sellers" means Harry, Michael and Walter.
(az) "Property" shall have the meaning set forth in section 3.21 hereof.
(ba) "Purchase Price" shall mean the purchase price of $29,503,030 for the
sale of the Shares.
(bb) "Real Property Contract" shall have the meaning set forth in section
10.15 hereof.
(bc) "Representatives" shall have the meaning set forth in section 2.1
hereof.
(bd) "Securities Act" means the Securities Act of 1933, as amended.
(be) "Seller Indemnified Party" shall have the meaning
set forth in section 9.4 hereof.
(bf) "Seller Loss" or "Seller Losses" shall have the meanings set forth
in section 9.4 hereof as modified by section 9.6.
(bg) "Sellers" means Harry, Michael, Walter, Sidney, David, Kenneth, Peter,
Ethel, Gloria, the Ilene Trust, the Staci Trust and the Joshua Trust.
(bh) "Shares" shall mean all of the issued and outstanding shares of
capital stock of the Company owned by the Sellers.
(bi) "Sidney" means Sidney Greenberg, an individual.
(bj) "Staci Trust" means the Walter Lipman Trust for
the benefit of Staci Burstein, an individual.
(bk) "Subsidiary" shall have the meaning set forth in section 3.2 hereof.
(bl) "Tangible Property" means machinery, equipment,
furniture, leasehold improvements, fixtures, vehicles, structures,
any related capital items and other tangible property and which is
treated by the Company as depreciable or amortizable property.
(bm) "Tax Return" means all returns, reports, forms or
other information required to be filed with, or supplied to, any
taxing authority (federal, state, local, foreign or otherwise) with
respect to any Taxes.
(bn) "Tax" or "Taxes" means all taxes, estimated taxes,
charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use,
rental, ad valorem, value added, transfer, transfer gains, franchise,
profits, alternative minimum, license, withholding, employment,
payroll, disability, excise, estimated, severance, stamp,
occupation, property or other taxes, customs, duties, fees,
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority (domestic or foreign).
(bo) "Tax Benefit" shall have the meaning set forth in
section 9.12 hereof.
(bp) "Walter" means Walter Lipman, an individual.
Section 10.2. Fees and Expenses. Each of the parties hereto shall pay
its own fees and expenses incident to the negotiation, preparation and
execution of this Agreement, including the fees and expenses of any
attorneys and accountants retained by such party in connection with the
transactions contemplated hereby, except that the Company may bear any
of the foregoing expenses of the Buyer if the transactions contemplated
hereby are consummated and of the Sellers if the transaction contemplated
hereby are not consummated.
Section 10.3. Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telecopied, or sent by certified, registered, or overnight
courier, postage prepaid, to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice, and
shall be deemed given when so delivered personally, telecopied, or if
mailed, two days after the date of mailing, as follows:
(i) If to the Buyer, to it at:
Jameco Acquisition Corp.
815 Chestnut Street
North Andover, MA 01845
Attention: President
with a copy to:
Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Attention: Corporate Counsel
with a copy to:
John R. LeClaire, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
(ii) If to the Representatives, to them at:
Harry Lipman
c/o Jameco Industries, Inc.
248 Wyandanch Avenue
Wyandanch, New York 11798
Michael Lipman
c/o Jameco Industries, Inc.
248 Wyandanch Avenue
Wyandanch, New York 11798
with a copy to:
Salamon, Gruber, Newman, Blaymore & Rothschild, P.C.
97 Powerhouse Road, Suite 102
Roslyn Heights, NY 11577
Attention: David Gruber, Esq.
and a copy to:
Battle Fowler
Park Avenue Tower
75 E. 55th Street
New York, NY 10022
Attention: Thomas E. Kruger
Section 10.4. Entire Agreement. This Agreement (including the
Exhibits and Schedules hereto and the documents referred to herein and
therein), the Escrow Agreement, the Guaranty Agreement and the Real
Property Contract contain the entire agreements among the parties with
respect to the purchase of the Shares and supersede all prior contracts and
other agreements, written or oral, with respect thereto.
Section 10.5. Waivers and Amendments. This Agreement may be
amended, modified, superseded, canceled, renewed or extended, and the
terms and conditions hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by the party
waiving compliance. The parties agree that the Representatives shall have
the authority to act on behalf of the Sellers for the purpose of executing
amendments and waivers to this Agreement. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party of any
right, power or privilege hereunder, nor any single or partial exercise of
any right, power or privilege hereunder, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies of any party arising out of or
otherwise in respect of any inaccuracy in or breach of any representation
or warranty, or any failure to perform or comply with any covenant or
agreement, contained in this Agreement shall in no way be limited by the
fact that the act, omission, occurrence or other state of facts upon which
any claim of any such inaccuracy, breach or failure is based may also be
the subject matter of any other representation, warranty, covenant or
agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy, breach or failure.
Section 10.6. Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with and subject to, the laws of
the State of New York applicable to agreements made and to be performed
entirely within such State.
Section 10.7. Binding Effect; Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, executors, administrators, estates, heirs
and trusts. Nothing in this Agreement, expressed or implied, is intended
to confer on any Person other than the parties hereto and any Indemnified
Person or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 10.8. No Assignment. This Agreement is not assignable except
by operation of law.
Section 10.9. Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person or persons may require.
Section 10.10. 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 10.11. Exhibits and Schedules. The Exhibits and Schedules to
this Agreement are a part of this Agreement as if set forth in full herein.
Any reference to this Agreement or any provision hereof shall be deemed
to include a reference to the Schedules and Exhibits hereto. The
information included in each Schedule is hereby incorporated by reference
into each other Schedule hereto, so that each representation and warranty
contained herein shall be deemed to refer to and incorporate the
information contained in all Schedules.
Section 10.12. Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 10.13. Severability. If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction or any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative
agency or authority to be invalid, void, unenforceable, or against public
policy for any reason, the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
Section 10.14. Access to Books and Records After the Closing Date.
Until the seventh (7th) anniversary of the Closing Date, Buyer shall give
to Sellers during normal business hours reasonable access to the books,
files and records of the Company relating solely to their respective
operations prior to the Closing as Sellers shall from time to time
reasonably request, but any access pursuant to this section 10.14 shall be
conducted in such manner as not to interfere unreasonably with the
operations of the Company after the Closing Date. Until the seventh (7th)
anniversary of the Closing Date, prior to destroying or disposing of such
books, files or records, Buyer shall give thirty (30) days notice to Sellers
of the intended destruction or disposition, and Sellers shall have the right
to take possession of the same or make copies of the same at their
expense. Until the seventh (7th) anniversary of the Closing Date,
promptly following Buyer's request upon reasonable notice, Sellers will
use reasonable efforts to cause the independent certified public
accountants regularly retained by the Company to make available to Buyer
for inspection and copying, copies of all working papers and other
materials in the possession of such accountants with respect to the
Company, used in preparing the Financials and Sellers will make available
to Buyer for such purposes all of such papers and other materials within
Sellers' control.
Section 10.15. Real Property Contract. Simultaneously herewith, the
Buyer has entered into a contract to purchase certain real property ("Real
Property Contract") from HM. A default by either party pursuant to the
terms of the Real Property Contract shall be deemed to be a default by
such party under the terms of this Agreement giving to the non-defaulting
party those rights and remedies set forth in this Agreement. Each Seller
hereby acknowledges that pursuant to the Real Property Contract, the
Buyer is purchasing real property from HM, the partners of which are
Harry and Michael, for a cash payment of $5.3 million.
Section 10.16. Certain Remedies. If Buyer or any Seller should default
in the performance of its obligations hereunder, the parties hereto
acknowledge that their remedies at law would be inadequate and the Buyer
or the Sellers, as applicable, shall, in addition to any other of its rights
and remedies hereunder or otherwise, be entitled to the remedy of specific
performance, and each of the parties hereto expressly waives the defense
that a remedy in damages will be adequate.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
Jameco Acquisition Corp.
By:
Name: David A. Bloss, Sr.
Title: Executive Vice President
Harry Lipman, individually
and as a Representative
Michael Lipman, individually
and as a Representative
Walter Lipman
Sidney Greenberg
David Chasin
Kenneth S. Lipman
Peter A. Lipman
Ethel S. Lipman
Gloria Lipman
Walter Lipman Trust
for the benefit of Ilene Burstein
By:
Walter Lipman Trust
for the benefit of Staci Burstein
By:
Walter Lipman Trust
for the benefit of Joshua Burstein
By:
Exhibit 1.1
Portion of Portion of
Closing Payment Purchase Price Total Amount
to be Paid to be Paid to to be Paid
Number to Seller Seller Placed to Seller
Seller of Shares in Escrow
- - ------------- ------------ -------------- --------------- ------------
Harry Lipman 154,324.00 * $12,491,838.15 $1,858,577.39* $14,350,415.54
Michael Lipman 70,638.50 5,842,325.02 850,723.92 6,693,048.94
Walter Lipman 37,576.75 3,107,874.41 452,549.82 3,560,424.23
Ethel S. Lipman 15,000.00 1,240,610.65 180,650.20 1,421,260.85
Sidney Greenberg 10,945.00 905,232.23 131,814.43 1,037,046.66
David Chasin 6,332.00 523,703.11 76,258.47 599,961.58
Kenneth S. Lipman 5,000.00 413,536.88 60,216.73 473,753.61
Peter Lipman 5,000.00 413,536.88 60,216.73 473,753.61
Gloria Lipman 5,000.00 413,536.88 60,216.73 473,753.61
W. Lipman Trust
F/B/O I. Burstein 567.00 46,895.08 6,828.58 53,723.66
W. Lipman Trust
F/B/O S. Burstein 567.00 46,895.08 6,828.58 53,723.66
W. Lipman Trust
F/B/O J. Burstein 425.00 35,150.63 5,118.42 40,269.05
---------- ------------- ------------- -------------
311,375.25 $25,481,135.00 $3,750,000.00 $29,231,135.00
* Net amount following deductions of $271,895 for amounts owed by
Harry pursuant to sections 6.2(b) and 6.2(d)
Exhibit 1.2(c)
Payment Instructions
Exhibit 1.2(d)
Escrow Agreement
Exhibit 7.7
Opinion of Salamon, Gruber, Newman, Blaymore & Rothschild, P.C.
Exhibit 7.9(a)
Employment Agreement
Exhibit 7.9(b)
Employment Agreement
Exhibit 7.9(c)
Employment Agreement
Exhibit 8.6
Opinion of Goodwin, Procter & Hoar
Exhibit 10.1
Guaranty Agreement
ESCROW AGREEMENT
This ESCROW AGREEMENT made as of the 28th day of July,
1994 by and among The First National Bank of Boston (the "Escrow
Agent"), Jameco Acquisition Corporation, a Delaware corporation
("Buyer"), and Harry Lipman ("Harry") and Michael Lipman
("Michael"), as Representatives of the Sellers (the "Representatives").
WHEREAS, pursuant to a Stock Purchase Agreement dated as
of even date herewith (the "Purchase Agreement") by and among
Harry, Michael, Walter Lipman, Sidney Greenberg, David Chasin,
Kenneth S. Lipman, Peter A. Lipman, Ethel S. Lipman, Gloria
Lipman, Walter Lipman Trust for the benefit of Ilene Burstein, Walter
Lipman Trust for the benefit of Staci Burstein, and Walter Lipman
Trust for the benefit of Joshua Burstein (individually, a "Seller" and
collectively, the "Sellers"), and Buyer, each Seller is selling to Buyer
all of such Seller's shares of capital stock of Jameco Industries, Inc.,
a New York corporation;
WHEREAS, the Purchase Agreement provides for the
indemnification of Buyer Indemnified Parties in respect of the matters
set forth in Article IX thereof, subject to certain limitations; and
WHEREAS, in order to secure payment of a portion of any such
indemnification, the Purchase Agreement provides for a portion of the
Purchase Price payable under the Purchase Agreement to be
deposited and held in escrow as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and
agreements of the parties contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by each party hereto, the parties agree as
follows:
1. Definitions. All capitalized terms used herein which are
not otherwise expressly defined herein shall have the respective
meanings set forth in the Purchase Agreement.
2. Establishment of Escrow. Buyer has herewith deposited
with the Escrow Agent, and the Escrow Agent hereby acknowledges
receipt of, the Escrow Payment required under Section 1.2(d) of the
Purchase Agreement. Such amounts and any securities, cash or
other property delivered to or held by the Escrow Agent under the
terms hereof, any interest and dividends thereon, less amounts
distributed from time to time in accordance with Section 6 hereof,
shall be referred to herein as the "Escrow Fund." The percentage
beneficial interests of the Sellers (the "Interests") in the Escrow Fund
are as indicated in Schedule A attached hereto. The Escrow Fund
shall be segregated from the other assets of the Escrow Agent and
held in trust for the benefit of the Sellers pursuant hereto.
3. Investments. The Escrow Agent shall invest cash held in
the Escrow Fund as directed in writing by Buyer in taxable and
tax-free obligations unconditionally guaranteed as to principal and
interest, if any, by the United States Government or any agency
thereof, bank certificates of deposit or repurchase agreements fully
collateralized by such obligations or certificates of deposit, in each
case having maturity dates that permit payments to be made from
the Escrow Fund in accordance with the terms hereof and the Escrow
Agent shall not be responsible for any loss incurred upon any such
investment made in good faith and under circumstances not
constituting gross negligence or willful misconduct. Any registered
securities from time to time held in the Escrow Fund shall be
registered in the name of the Escrow Agent (in its capacity as such)
or its nominee. All interest, dividends and other income with respect
to the Escrow Fund and any securities or other property issued with
respect to, or in exchange for any securities held in the Escrow Fund
shall become a part of the Escrow Fund and shall be held hereunder
upon the same terms as the cash, securities or other property with
respect to or in exchange for which such interest, dividends, income
or securities shall have been received.
4. Representatives of Sellers. Each Seller has appointed the
Representatives to act jointly as such Seller's representative for
purposes of this Agreement, and any matters related thereto,
pursuant to the terms of Section 2.1 of the Purchase Agreement, the
contents of which are hereby incorporated by reference. Each of the
Escrow Agent and the Buyer hereby acknowledges that the
Representatives have been duly authorized to act on behalf of the
Sellers with respect to all matters contained in this Agreement and
the Escrow Fund pursuant to the terms of Section 2.1 of the
Purchase Agreement.
5. Interest Income. For income tax purposes, the interest
or other amounts earned on the Escrow Fund, if any, shall be
reported as income by the Buyer in the taxable year that such
amounts are earned.
6. Distributions. The Escrow Agent shall promptly make
distributions from the Escrow Fund to the persons and in the
amounts directed upon receipt from time to time of:
(a) a written notice executed and delivered by both
Buyer and the Representatives substantially in the form of
Exhibit I hereto; or
(b) a written order from the Arbitrator.
7. Escrow Ledger. The Escrow Agent shall maintain, and
make available to the Representatives and the Buyer upon request, a
ledger setting forth (a) the amount of the Escrow Fund attributable to
the deposited cash, (b) the amount of le Escrow Fund attributable to
capital appreciation, if any, of the securities in which the Escrow
Fund is invested, (c) the amount of the Escrow Fund attributable to
interest and other income accumulation in respect to the Escrow
Fund, (d) the amount of each Seller's total Interest in the Escrow
Fund, and (e) the amount of each distribution made by the Escrow
Agent pursuant to Section 6 hereof and the person(s) or entity(ices) to
whom each such distribution was made.
8. Fair Market Value of Escrow Fund. For the purposes of
this Agreement, the fair market value of the property held in the
Escrow Fund shall be conclusively determined by the Escrow Agent
at the time of each payment or distribution to be made out of the
Escrow Fund and at the time of setting aside of a portion of the
Escrow Fund for such payments.
9. Termination. This Agreement shall terminate when all
the Escrow Fund has been distributed by the Escrow Agent pursuant
to Section 6 hereof.
10. Duties and Responsibilities of Escrow Agent.
(a) Buyer and the Representatives acknowledge and
agree that the Escrow Agent (i) shall not be responsible for any other
agreement referred to herein but shall be obligated only for the
performance of such duties as are specifically set forth in the
Agreement; (ii) shall not be obligated to take any legal or other action
hereunder which might in its good faith judgment involve any
expense or liability unless it shall have been furnished with
indemnification reasonably satisfactory to it; (iii) may rely on and
shall be protected in acting or refraining from acting upon any
written notice, instruction, instrument, statement, request or
document furnished to it hereunder and believed by it in good faith to
be genuine and to have been signed or presented by the proper
person; and (iv) may consult counsel satisfactory to it and the written
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereafter in good faith and in accordance with such advice.
(b) Neither the Escrow Agent nor any of its directors,
officers or employees shall be liable to anyone for any action taken or
omitted to be taken by it or any of its directors, officers or employees
hereafter except in the case of gross negligence or willful misconduct.
Buyer covenants and agrees to indemnify the Escrow Agent and hold
it harmless from and against any loss, liability or expense incurred
by the Escrow Agent arising out of or in connection with this
Agreement or with the administration of its duties hereunder unless
such loss, liability or expense shall be caused by the Escrow Agent's
willful misconduct or gross negligence.
(c) Buyer agrees to pay or reimburse the Escrow Agent
for the Escrow Agent's reasonable compensation for its normal
services hereunder in accordance with the fee schedule attached
hereto as Schedule B.
The provisions of the foregoing paragraphs (b) and (c) shall
survive the termination of this Agreement.
11. Resignation and Removal of Escrow Agent.
(a) The Escrow Agent may at any time resign as
Escrow Agent hereunder by giving ninety (90) days' prior written
notice of resignation to Buyer and the Representatives. Prior to the
effective date of the resignation as specified in such notice, Buyer and
the Representatives will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrow Fund to a bank or
trust company that they mutually select. If no successor Escrow
Agent is named by Buyer and the Representatives as provided in the
preceding sentence, the Escrow Agent may apply to a court of
competent jurisdiction for appointment of a successor Escrow Agent.
(b) Buyer and the Representatives together shall have
the right to remove the Escrow Agent hereunder by giving notice in
writing to the Escrow Agent, specifying the date upon which such
removal shall take effect. Prior to such removal, Buyer and the
Representatives shall have jointly appointed a successor Escrow
Agent.
(c) The Escrow Agent hereby agrees that, upon any
termination of its services as Escrow Agent it shall turn over and
deliver to the successor Escrow Agent appointed in accordance with
the terms hereof all of the Escrow Fund and other amounts held by it
pursuant to this Agreement and render the accounting required by
Section 13.
12. Successor Escrow Agent. Upon receipt of the Escrow
Fund and any other amounts held by the Escrow Agent pursuant to
this Agreement, the successor Escrow Agent shall thereupon be
bound by all of the provisions hereof and the term "Escrow Agent" as
used herein shall mean such successor Escrow Agent.
13. Accounting. In the event of the resignation or removal of
the Escrow Agent or the termination of this Agreement pursuant to
Section 9 or otherwise, the Escrow Agent shall render to Buyer and
the Representatives, and to the successor Escrow Agent, if any, an
accounting in writing of the property constituting the Escrow Fund
and all distributions therefrom.
14. Notices. Any notice permitted or required hereunder
shall be deemed to have been duly given if delivered personally or if
sent by certified or registered mail or overnight courier, postage
prepaid, to the parties at their respective addresses set forth below or
to such other address as any party may hereafter designate.
If to Buyer:
Jameco Acquisition Corporation
c/o Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Attention: President
with a copy to:
Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Attention: Corporate Counsel
and with a copy to:
John R. LeClaire, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
if to a Representative:
Harry Lipman and Michael Lipman
c/o Jameco Industries, Inc.
248 Wyandanch Avenue
Wyandanch, New York 11797
with a copy to:
Salmon, Grubber, Newman, Blamer & Rothschild, P.C.
97 Powerhouse Road, Suite 102
Roslyn Heights, NY 11577
Attention: David Grubber, Esq.
and a copy to:
Battle Fowler
280 Park Avenue
New York, NY 10017
Attention: Thomas E. Kruger
or if after July 31, 1994
Park Avenue Tower
75 East 55th Street
New York, NY 10022
If to the Escrow Agent:
The First National Bank of Boston
Corporate Trust Administration
150 Royall Street
Mail Stop - 450245
Canton, MA 02011
Reference: Jameco Acquisition Escrow Agreement
15. Modifications. This Agreement may not be altered or
modified without the express written consent of the parties hereto.
No course of conduct shall constitute a waiver of any of the terms
and conditions of this Agreement, unless such waiver is specified in
writing, and then only to the extent so specified. A waiver of any of
the terms and conditions of this Agreement on one occasion shall not
constitute a waiver of the other terms of this Agreement, or of such
terms and conditions on any other occasion.
16. Assignment. No assignment of any rights or delegation of
any obligations provided for herein may be made by any party hereto
without the express written consent of the other parties hereto,
except for the provisions hereof respecting successor Escrow Agents
and the death, incapacitation or resignation of a Representative (as
incorporated by reference from Section 2.1 of the Purchase
Agreement). This Escrow Agreement shall inure to the benefit of and
be binding upon the successors, heirs, estates, administrators,
personal representatives and permitted assigns of the parties hereto.
17. Section Headings. The section headings contained in
this Agreement are inserted for purposes of convenience of reference
only to shall not affect the meaning or interpretation hereof.
18. Miscellaneous. This Agreement shall become binding
and effective upon consummation of the Closing, and shall be
construed under and governed by the laws of New York. This
Agreement may be executed in any number of counterparts, each of
which shall deemed an original but all of which shall constitute one
agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement or caused the same to be so executed by their duly
authorized representatives as of the date first set forth above.
JAMECO ACQUISITION
CORPORATION
By: /s/ David A. Bloss
Title: Executive Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/
Title: Account Administrator
/s/ Harry Lipman
Harry Lipman, as a
Representative of the Sellers
/s/ Michael Lipman
Michael Lipman as a
Representative of the Sellers
Schedule A
Interests of Sellers
Portion of Escrow Percentage of Escrow
Payment Attributable Fund Attributable
Seller To Each Seller To Each Seller
Harry Lipman $1,858,577.39 49.5620638
Michael Lipman 850,723.92 22.6859714
Walter Lipman 452,549.82 12.0679951
Ethel S. Lipman 180,650.20 4.8173386
Sidney Greenberg 131,814.43 3.5150514
David Chasin 76,258.47 2.0335592
Kenneth S. Lipman 60,216.73 1.6057795
Peter Lipman 60,216.73 1.6057795
Gloria Lipman 60,216.73 1.6057795
W. Lipman Trust
F/B/O I. Burstein 6,828.58 .1820954
W. Lipman Trust
F/B/O S. Burstein 6,828.58 .1820954
W. Lipman Trust
F/B/O J. Burstein 5,118.42 .1364913
Schedule B
Acceptance fee $ 1,000
(one-time charge)
Administration Fee $ 2,500
Per Investment $ 35
Per Wire $ 20
Per Check $ 5
Legal Fees Waived
Out-of-Pocket Expenses Billed as Incurred
Exhibit 1
The First National Bank of Boston
Attention:
Dear Sirs:
Reference is made to the Escrow Agreement made as of ____
day of July, 1994 (the "Escrow Agreement") by and among The First
National Bank of Boston (the "Escrow Agent"), Jameco Acquisition
Corporation, a Delaware corporation ("Buyer") and Harry Lipman and
Michael Lipman, as Representatives of the Sellers (the
"Representatives"). All capitalized terms used herein which are not
otherwise expressly defined herein shall have the respective
meanings set forth in the Escrow Agreement.
Pursuant to Section 6(a) of the Escrow Agreement, the Escrow
Agent is hereby directed to distribute the sum of [$_____] to [ ] in
immediately available to the following account [ ].
Jameco Acquisition Corporation
By:
Title:
[President or Chairman of
Board of Directors
Michael Lipman, as
Representative
Harry Lipman, as Representative
ASSET PURCHASE AGREEMENT
by and between
CIRCLE SEAL CONTROLS, INC.,
as Buyer
and
SAES PURE GAS, INC.,
as Seller
August 4, 1994
TABLE OF CONTENTS
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets
1.2 Liabilities
1.3 Purchase Price and Payment
1.4 Place of Closing; Closing Date
1.5 Transfer of Subject Assets
1.6 Delivery of Records and Contracts
1.7 Further Assurances
1.8 Allocation of Purchase Price
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
2.1 Making of Representations and Warranties
2.2 Organization and Qualifications of Seller
2.3 Authority
2.4 Title to Properties; Liens; Condition of Properties
2.5 Location of Subject Assets
2.6 Undisclosed Liabilities
2.7 Inventories
2.8 Patents, Trade Names, Trademarks and Copyrights
2.9 Trade Secrets and Customer Lists
2.10 Financial Statements
2.11 Litigation
2.12 Compliance with Laws
2.13 Insurance
2.14 Finder's Fee
2.15 Permits; Governmental Consents
2.16 Material Adverse Change
2.17 Government Contracts
2.18 Products
2.19 Suppliers, Customers and Distributors
2.20 Disclosure
2.21 Backlog
2.22 Contracts.
SECTION 3. COVENANTS OF SELLER
3.1 Making of Covenants and Agreements
3.2 Breach of Representations and Warranties
3.3 Expenses
3.4 Notification
3.5 Non-Use of Trade Names, etc
3.6 Access and Cooperation of Seller
3.7 Non-Competition
3.8 Sales Orders
3.9 Notification of Foundries, Printers, Etc
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Making of Representations and Warranties
4.2 Organization of Buyer
4.3 Authority of Buyer
4.4 Litigation
4.5 Finder's Fees
4.6 Reliance
SECTION 5. COVENANTS OF BUYER
5.1 Making of Covenants and Agreements
5.2 Accounts Receivable
5.3 Inventory
5.4 Insurance
5.5 Confidentiality
5.6 Notification
5.7 Acquired Sales Orders
SECTION 6. SURVIVAL OF WARRANTIES.
6.1 Survival of Warranties
SECTION 7. INDEMNIFICATION
7.1 Indemnification by Seller
7.2 Indemnification by Buyer
7.3 Notice; Defense of Claims
7.4 Satisfaction of Indemnification Obligations
7.5 Unsalable Inventory
SECTION 8. MISCELLANEOUS.
8.1 Law Governing
8.2 Notices
8.3 Prior Agreements Superseded
8.4 Assignability
8.5 Captions and Gender
8.6 Certain Definitions
8.7 Execution in Counterparts
8.8 Amendments; Waivers
8.9 Severability
8.10 Bulk Sales Law
8.11 Publicity and Disclosures
8.12 Consent to Jurisdiction and Service
SCHEDULES
Schedules
Schedule 1.1(a)(i) - Inventory
Schedule 1.1(a)(iii) - Equipment
Schedule 1.1(a)(iv) - Intellectual Property
Schedule 1.1(b) - Certain Excluded Assets
Schedule 1.2(b)(i) - Acquired Sales Orders
Schedule 1.8 - Allocation of Purchase Price
Schedule 2.8 - Intangible Rights
Schedule 2.10 - Income Statements
Schedule 2.11 - Litigation
Schedule 2.13 - Insurance
Schedule 2.15 - Permits; Government Consents
Schedule 2.16 - Exceptions to No Material Adverse Changes
Schedule 2.19 - Suppliers, Customers Distributors, Etc.
Schedule 2.21 - Backlog
Schedule 2.22 - Contracts
ASSET PURCHASE AGREEMENT dated as of August 4, 1994
by and between Circle Seal Controls, Inc., a Delaware corporation
("Buyer") and SAES Pure Gas, Inc., a California corporation ("Seller").
WHEREAS, subject to the terms and conditions set forth
herein, Buyer desires to purchase from Seller, and Seller desires to
sell, transfer and assign to Buyer, substantially all of the properties
and assets comprising the business which manufactures and sells
the Cryolab product line of the Seller (the "Cryolab Business").
NOW, THEREFORE, in order to consummate said purchase
and sale and in consideration of the mutual agreements set forth
herein, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets.
(a) Subject to the provisions of this Agreement, at the
Closing (as defined in Section 1.4 hereof) Seller shall sell, transfer
and assign to Buyer and Buyer shall acquire all right, title and
interest in and to all of the properties, assets and business of the
Cryolab Business (except as hereinafter provided in Section 1.1(b)) of
every kind and description, tangible and intangible, real, personal or
mixed, and wherever located, including without limitation, the
following:
(i) all inventory, stock in trade, work-in-progress,
finished goods and raw materials of or relating to the Cryolab
Business (collectively, the "Inventory"), including without
limitation as set forth on Schedule 1.1(a)(i) attached hereto;
(ii) all patterns, drawings, toolings and dies owned by
Seller or in which Seller has any rights or interest which are
used in the Cryolab Business, it being understood by the
parties hereto that at the Closing Seller shall provide Buyer
with written information as to the name, address and telephone
number of each foundry where patterns are located as well as
information identifying each pattern located at each such
foundry (the "Pattern Information");
(iii) machinery and the equipment listed on Schedule
1.1(a)(iii) attached hereto,all tools, spare parts, fixtures,
castings, and other tangible assets related to or used in
connection with such scheduled machinery and equipment and
all other tools, spare parts, fixtures and other tangible assets
used in the Cryolab Business (collectively, the "Equipment");
(iv) all goodwill and intellectual property rights,
including trade secrets, proprietary information, designs,
styles, technologies, inventions, know-how, formulae,
processes, procedures, research records, test information,
software and software documentation, market surveys,
marketing know-how and manufacturing, research and
technical information, trade names, copyrights and copyright
registrations, service marks and trademarks (including
applications and registrations therefor), patents and patent
applications (including without limitation the trade names,
copyrights and copyright registrations, service mark and
trademark registrations and applications and patents and
patent applications described in Schedule 1.1(a)(iv) attached
hereto), the "Cryolab" name and all related and associated
logos and trademarks, and all licenses to or from third parties
with respect to the foregoing or rights related thereto, in each
case relating primarily to or otherwise necessary to the
operation of the Cryolab Business; and
(v) all other assets and properties of every nature
whatsoever tangible and intangible, and wherever located, used
or held for use primarily in connection with the Cryolab
Business or otherwise necessary to the operation of the Cryolab
Business, including without limitation rights under contracts
or agreements with representatives marketing and selling the
products of the Cryolab Business, copies of customer lists,
customer records and histories, customer invoices (for last
three (3) years), lists of suppliers and vendors and all records
relating thereto, all records with respect to the repair business
of the Cryolab Business, engineering drawings, records with
respect to production, engineering, product development, costs,
advertising matter, catalogues, photographs, sales materials,
purchasing materials, media materials, manufacturing and
quality control records and procedures, research and
development, files, data and laboratory books, media materials
and plates and other records used primarily in connection with
the Cryolab Business or otherwise necessary to the operation of
the Cryolab Business.
The assets, property and business of Seller being sold to and
purchased by Buyer under this Section 1.1(a) are hereinafter
sometimes referred to as "Subject Assets."
(b) Notwithstanding the foregoing, there shall be
excluded from such purchase and sale the following property and
assets of Seller:
(i) the assets listed on Schedule 1.1(b) attached
hereto;
(ii) cash, bank deposits and bank accounts of
Seller;
(iii) all accounts receivable of Seller, including
without limitation intercompany receivables; and
(iv) all assets of Seller not used or held for use
primarily in connection with the Cryolab Business or
otherwise necessary to the operation of the Cryolab
Business.
The assets, property and business of Seller which are excluded
from the Subject Assets under this Section 1.1(b) are hereinafter
sometimes referred to as "Excluded Assets."
1.2 Liabilities. Except for the Sales Order Liabilities (as
defined below), Buyer shall not assume or be bound by any
obligations or liabilities of Seller or any affiliate of Seller of any kind
or nature, known, unknown, accrued, absolute, contingent or
otherwise, whether now existing or hereafter arising whatsoever.
Seller shall be responsible for and pay any and all losses, damages,
obligations, liens, assessments, judgments, fines, disposal and other
costs and expenses, liabilities and claims, including, without
limitation, interest, penalties and reasonable fees of counsel,
engineers and experts, as the same are incurred, of every kind or
nature whatsoever (all the foregoing being a "Claim" or the "Claims"),
made by or owed to any person to the extent any of the foregoing
relates to (a) Seller's operations and assets other than the operations
and assets of the Cryolab Business, (b) the Excluded Assets or (c) the
operations and assets of the Cryolab Business and arises in
connection with or on the basis of events, acts, omissions, conditions
or any other state of facts occurring or existing prior to or on the
Closing Date (including, in each case, without limitation, any Claim
relating to or associated with product liability matters, warranty
claims, tax matters, pension and benefits matters, any failure to
comply with applicable laws and/or permitting or licensing
requirements, personal injury and property damage matters and
environmental and worker health and safety matters). Buyer shall be
responsible for and pay any and all Claims to the extent they relate to
(x) the Sales Order Liabilities or (y) the operation by Buyer of the
Subject Assets after the Closing Date and arise in connection with or
on the basis of events, acts, omissions, conditions or any other state
of facts occurring or existing after the Closing Date (including, in
each case, without limitation, any Claim relating to or associated
with product liability matters, warranty claims, tax matters, pension
and benefit matters, any failure to comply with applicable laws
and/or permitting or licensing requirements, personal injury and
property damage matters and environmental and worker health and
safety matters). Any Claim, other than for the payment of liabilities,
relating to operations and assets of the Seller and arising in
connection with or on the basis of events, acts, omissions, conditions
or any other state of facts occurring or existing both before and after
the Closing Date will be apportioned between Seller and Buyer
according to their relative degrees of causation as may be reasonably
determined by Seller and Buyer under the circumstances; provided,
however, that Buyer will not be considered to have caused the
relevant problem to any extent for purposes of this Agreement if it
takes all reasonable actions to address such problem after first
obtaining actual knowledge thereof notwithstanding the fact that the
relevant problem may have continued to exist for a period of time
after the Closing Date. Pursuant to the foregoing, Seller agrees with
Buyer that Seller shall be solely responsible for any and all warranty
claims or claims for injury (including death) or claims for damage,
direct or consequential, resulting from or connected with products or
services of the Cryolab Business sold or provided on or prior to the
Closing Date, and Buyer shall have no liability for such claims.
Buyer agrees with Seller that Buyer shall be solely responsible for
any and all warranty claims or claims for injury (including death) or
claims for damage, direct or consequential, resulting from or
connected with products or services sold or provided by Buyer after
the Closing Date, and, subject to Seller's indemnification obligations
under Section 6 hereof, Seller shall have no liability for such claims.
(b) Upon the sale and purchase of the Subject Assets, Buyer
agrees to perform in accordance with their terms only the obligations
of Seller under the unfilled portions of those sale orders from
customers of the Cryolab Business as set forth on Schedule 1.2(b)(i)
(the "Acquired Sales Orders"). The liabilities to be assumed by Buyer
pursuant to the preceding sentence are hereinafter sometimes
referred to as the "Sales Order Liabilities." The assumption of the
Sales Order Liabilities by Buyer hereunder shall not enlarge any
rights of third parties under contracts or arrangements with Buyer or
Seller or any of their respective affiliates or subsidiaries.
Notwithstanding anything contained in this Section 1.2 to the
contrary, the only liabilities and obligations of Seller existing on or
prior to the Closing Date (including, without limitation, contractual
liabilities and obligations) to be assumed by Buyer under this
Agreement are the Sales Order Liabilities.
1.3 Purchase Price and Payment. In consideration of the
sale by Seller to Buyer of the Subject Assets, subject to the
assumption by Buyer of the Sales Order Liabilities, Buyer shall pay to
Seller on the Closing Date by federal funds wire transfer in
immediately available funds to an account designated by Buyer, the
sum of $886,122.03 (the "Purchase Price").
1.4 Place of Closing; Closing Date. The closing of the
purchase and sale provided for in this Agreement (herein called the
"Closing") shall be held at the offices of Goodwin, Procter & Hoar,
Exchange Place, Boston, Massachusetts 02109, on August 1, 1994,
or at such other place or earlier or later date as may be fixed by
mutual agreement of Buyer and Seller (the "Closing Date").
1.5 Transfer of Subject Assets. At the Closing, Seller shall
deliver or cause to be delivered to Buyer good and sufficient
instruments of transfer transferring to Buyer title to all of the Subject
Assets. Such instruments of transfer (a) shall be in the form which is
usual and customary for transferring the type of property involved
under the laws of the jurisdictions applicable to such transfers,
(b) shall be in form and substance satisfactory to Buyer and its
counsel, (c) shall effectively vest in Buyer good and marketable title to
all of the Subject Assets free and clear of all liens, restrictions and
encumbrances, and (d) where applicable, shall be accompanied by
evidence of the discharge of all liens and encumbrances against the
Subject Assets.
1.6 Delivery of Records and Contracts. At the Closing, Seller
shall deliver or cause to be delivered to Buyer all of the Acquired
Sales Orders. Seller shall also deliver to Buyer at the Closing, or
substantially concurrently with the removal by Buyer of the Subject
Assets, all of Seller's business records, books and other data relating
to the assets, business and operations of the Cryolab Business, to
the extent the same constitute part of the Subject Assets. Seller at
the Closing shall also provide Buyer with written information as to
the name, address and telephone number of each printer where
literature plates are located as well as information identifying each
literature plate located at each such printer (the "Literature Plate
Information").
1.7 Further Assurances. Seller from time to time after the
Closing at the request of Buyer and without further consideration
shall (a) execute and deliver further instruments of transfer and
assignment (in addition to those delivered under Section 1.6) and
take such other actions as Buyer may reasonably require to more
effectively transfer and assign to, and vest in, Buyer each of the
Subject Assets and (b) cooperate with and provide assistance to
Buyer in removing the Subject Assets from Seller's premises (or
wherever located) as more fully described in Section 3.6 hereof.
1.8 Allocation of Purchase Price. The purchase price payable
by Buyer pursuant to Section 1.3 and the amount of the Sales Order
Liabilities assumed by Buyer shall represent payment for the Subject
Assets and the covenants set forth in Section 3.7 hereof in the
amounts set forth on Schedule 1.8 hereto. The amounts reflected in
said Schedule shall represent the fair market values of the Subject
Assets at the Closing, to the best of the knowledge and belief of the
parties hereto. At or as soon as practicable after the Closing, Buyer
and Seller shall execute an IRS Form 8594 in accordance with the
allocation set forth in said Schedule and in compliance with Section
1060 of the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder. All tax returns and reports filed by
Buyer and Seller with respect to the transactions contemplated by
this Agreement shall be consistent with such Schedule.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
2.1 Making of Representations and Warranties. Seller
hereby makes the representations and warranties contained in this
Section 2. For the purposes of this Section 2, references to the
"knowledge" or "best knowledge" of Seller shall be deemed to include
such knowledge as any executive officer of Seller actually has or
reasonably ought to have in the prudent exercise of his or her duties.
2.2 Organization and Qualifications of Seller. Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California with full power and authority
to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased
or such business is conducted by it.
2.3 Authority. The Seller has full corporate power and
authority to execute, deliver and perform this Agreement and each
other agreement or instrument contemplated hereby and the
execution and delivery of this Agreement and each other agreement
or instrument contemplated hereby and the performance of all
obligations hereunder and thereunder have been duly authorized by
all necessary action of Seller. This Agreement and each other
agreement, document and instrument executed by Seller pursuant to
or in connection with this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of Seller,
enforceable in accordance with their respective terms. The execution,
delivery and performance by the Seller of this Agreement and each
other agreement, document and instrument executed and delivered
by the Seller pursuant to this Agreement and the execution, delivery
and performance by the Seller of any agreements, documents and
instruments required to be executed and delivered by it pursuant to
this Agreement:
(i) do not and will not violate any provision of the
Articles of Incorporation or By-laws of Seller, each as amended
or restated to date;
(ii) do not and will not violate any law or regulation
applicable to Seller or require Seller to obtain any approval,
authorization, declaration, consent or waiver of, or make any
filing with or give notice to, any person, entity or public or
governmental authority that has not been obtained, made or
given; and
(iii) do not and will not result in a breach of, constitute
a default under, accelerate any obligation under, require a
consent under or give rise to a right of termination of any
indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, license,
authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Seller is a
party or by which Seller or the property of Seller is bound or
affected, or result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or
encumbrance on any property or asset owned by Seller or on
any of the Subject Assets.
2.4 Title to Properties; Liens; Condition of Properties.
(a) The Subject Assets do not include any real property or
leases. Seller owns all of the Subject Assets and Seller has and is
conveying to Buyer hereunder good and marketable title to all of its
personal property, tangible and intangible, included in the Subject
Assets. None of such property or assets of Seller tangible or
intangible, is subject to any mortgage, pledge, lien, conditional sale
agreement, security interest, encumbrance or other charge or
restraint on transfer (collectively "Liens"). No financing statement
under the Uniform Commercial Code with respect to any of the
Subject Assets has been filed in any jurisdiction, and Seller has not
signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing
statement. The Subject Assets and Excluded Assets listed on
Schedule 1.1(b) are all of the assets necessary for the operation of the
business of the Cryolab Business as the same has been operated
prior to the date hereof. The Subject Assets (including the
Equipment) (i) are in working order (reasonable wear and tear
excepted, and in each case taking into account age), (ii) have been
and shall through the Closing be maintained in a manner consistent
with the past maintenance practices of Seller, (iii) are suitable for the
manufacture of parts in accordance with the engineering
specifications for Cryolab Products and (iv) to the best knowledge of
Seller, conform with all applicable California and federal statutes,
ordinances, regulations and laws.
(b) Upon delivery to Buyer of the instruments of transfer
referred to in Section 1.6 hereof, Buyer will receive good, marketable
and valid title to all of the Subject Assets, free and clear of all liens,
encumbrances, charges, equities and claims of every kind.
2.5 Location of Subject Assets. The tangible Subject Assets
are located at Seller's facility at 4175 Santa Fe Road, San Luis
Obispo, California (the "Facility"), with the exception of (a) patterns
(which are located as set forth in the Pattern Information provided
pursuant to Section 1.1(a)(ii)) and (b) literature plates (which are
located as set forth in the Literature Plate Information provided
pursuant to Section 1.6).
2.6 Undisclosed Liabilities. Except as set forth on Schedule
2.6, Seller has no material liabilities of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or
unknown, which relate primarily to the Cryolab Business.
2.7 Inventories. All of the Inventory is in existence on the
date hereof. The Inventory complies with the descriptions and
specifications set forth on Schedule 1.1(a)(i) and the Inventory
consisting of component parts is of a quality sufficient to permit
Buyer to manufacture products of the Cryolab Business in a manner
consistent with all of such descriptions and specifications. On the
date hereof, the Inventory is of the types, quantities and quality
necessary to conduct the business of the Cryolab Business in a
manner consistent with past practices. All of the items included in
the Inventory are of a quality and quantity salable in the ordinary
course of business of Seller. The values of the Inventory items as set
forth on Schedule 1.1(a)(i) are true and correct and reflect valuations
not in excess of the net realizable values of such items in the
ordinary course of business.
2.8 Patents, Trade Names, Trademarks and Copyrights. All
patents, patent applications, trade names, trademarks, trademark
applications and registrations, copyrights or other proprietary rights
owned by or licensed to Seller and used or to be used by or in
connection with the Cryolab Business (the "Intangible Rights") are
listed on Schedule 2.8 attached hereto. Except as set forth on said
Schedule, all of the registered patents, trademarks and copyrights
constituting Proprietary Rights have been duly registered in, filed in
or issued by the United States Patent and Trademark Office, the
United States Register of Copyrights or the corresponding offices of
other countries identified on said Schedule, and have been properly
maintained and renewed in accordance with all applicable provisions
of law and administrative regulations in the United States and each
such country. Except as set forth in said Schedule, the Intangible
Rights are freely transferable and Seller has exclusive ownership or
exclusive license to use all of the Intangible Rights free and clear of
any attachments, liens, encumbrances or adverse claims. Except as
set forth on said Schedule, (a) no other person has a license to use,
or the right to license others to use, and, to the best knowledge of
Seller, no person has an interest in or right to, any of the Intangible
Rights, (b) there are no claims or demands of any other person or
entity pertaining thereto and no proceedings have been instituted, or
are pending or to the best knowledge of Seller, threatened, which
challenge the rights of Seller in respect thereof, (c) none of the
Intangible Rights is subject to any outstanding order, decree,
judgment or stipulation or, to the best knowledge of Seller, is being
infringed by others, (d) no proceeding charging Seller with
infringement of any patent, trade name, trademark or copyright that
is used by or in connection with the Cryolab Business has been filed
or, to the best knowledge of Seller, is threatened to be filed and
(e) there does not exist (i) any unexpired patent with claims relating
to products of the Cryolab Business or to apparatus, methods or
designs employed by the Cryolab Business in manufacturing its
products or (ii) to the best knowledge of Seller, any invention, patent
or application therefor which could reasonably be expected to
adversely affect any such product, apparatus, method or design of
the Cryolab Business.
2.9 Trade Secrets and Customer Lists. Seller has the right to
use, free and clear to the best knowledge of Seller of any claims or
rights of others, all trade secrets, customer lists, manufacturing and
secret processes required for or incident to the manufacture or
marketing of (a) all products formerly or presently produced by the
Cryolab Business and (b) all products currently under development
by the Cryolab Business, including products licensed from others
(hereinafter collectively referred to as the "Proprietary Information").
The Cryolab Business is not using or in any way making use of any
confidential information or trade secrets of any third party in
violation of such third party's rights, including without limitation,
any former employer of any present or past employee of Seller or any
person or entity affiliated with any of them.
2.10 Financial Statements. Seller has delivered to Buyer
unaudited statements of income for the Cryolab Business for each of
the twelve-month periods ended December 31, 1991, 1992 and 1993,
and for the six-month period ended June 30, 1994, certified by
Seller's Chief Financial Officer, copies of which are attached hereto as
Schedule 2.10 (the "Income Statements"). The Income Statements
(except for the six-month period ended June 30, 1994) were prepared
by Seller based on the audited statements of income of Seller for the
periods covered thereby, as certified by Seller's independent public
accountants (the "Audited Income Statements"). The Income
Statements (i) have been prepared in accordance with generally
accepted accounting principles applied consistently during the
periods covered thereby (except for the absence of accompanying
footnotes), (ii) have been prepared on a basis consistent with the
Audited Income Statements, (iii) are complete and correct in all
material respects, (iv) present fairly the results of operations of the
Cryolab Business for the periods covered thereby and (v) contain no
omission of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
2.11 Litigation. Except as set forth on Schedule 2.11, there is
no litigation, claim or governmental, arbitration or other proceeding,
investigation, order or decree pending or in effect or, to the best
knowledge of Seller, threatened against Seller relating to or affecting
any of the Subject Assets or the Cryolab Business. All of the matters
set forth on Schedule 2.11 are subject to and are being defended by
Seller's insurance carrier.
2.12 Compliance with Laws. To the best knowledge of Seller,
the Cryolab Business and the Subject Assets have been and as of the
date hereof are in compliance with all applicable laws, rules,
regulations, codes, ordinances, requirements and orders of
governments or governmental bodies, and Seller has received no
notice asserting any noncompliance therewith. In addition, all
engineering drawings included in the Subject Assets are in full
compliance with all applicable industry standards, guidelines and
regulations, including without limitation industry standard ANSI
Y14.5, to the extent applicable to the Cryolab Business.
2.13 Insurance. Schedule 2.13 identifies all policies of
insurance in effect as of the date of this Agreement covering the
assets, properties and business of the Cryolab Business. Said
insurance policies are in full force and effect and all premiums with
respect thereto are currently paid. Seller's product liability insurance
provides for occurrence based coverage. Except as set forth on
Schedule 2.13, there have been no material losses, claims or
settlements during the last three fiscal years.
2.14 Finder's Fee. Seller has not incurred or become liable for
any broker's commission or finder's fee relating to or in connection
with the transactions contemplated by this Agreement.
2.15 Permits; Governmental Consents. To the best knowledge
of Seller, Seller has obtained and is operating in compliance with all
franchises, licenses, permits, registrations, applications,
certifications, code approvals and other approvals (collectively the
"Permits") which are required primarily to permit it to conduct the
business of the Cryolab Business and each such Permit is valid and
in full force and effect. As of the Closing Date, to the extent Seller is
allowed to do so, Seller is conveying and assigning to Buyer each
Permit, other than those Permits required to operate the Facility.
Seller is not subject to or bound by any agreement, judgment, decree
or order which may materially and adversely affect any of the Subject
Assets or the business, prospects or condition (financial or otherwise)
of the Cryolab Business. No consent, approval, or authorization of,
or declaration, filing or registration with, any United States federal,
foreign or state governmental or regulatory authority is required to be
made or obtained by Seller in connection with the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement.
2.16 Material Adverse Change. Except as specifically
disclosed on Schedule 2.16 to this Agreement, since December 31,
1993:
(a) there has not been any material adverse change in
the business, results of operations, condition (financial or
otherwise), properties, assets, liabilities or obligations of the
Cryolab Business;
(b) there has not been any damage, destruction or loss
(whether or not covered by insurance), materially and adversely
affecting the business, prospects, results of operations,
condition (financial or otherwise) assets or properties of the
Cryolab Business;
(c) there has not been any change in the relationships
of Seller with respect to its suppliers, distributors, licensees,
licensors, customers or others with whom it has business
relationships which would have a material adverse effect on the
Cryolab Business, and Seller does not have knowledge of any
fact or contemplated event which may cause any such material
adverse change;
(d) the business conducted by the Cryolab Business
has been conducted and carried on only in the ordinary and
regular course; and
(e) there has not been any alteration or change in the
methods of operation employed by the Cryolab Business.
2.17 Government Contracts. Seller has no pending or
proposed contracts or subcontracts with any agency of the United
States Government relating to the Cryolab Business.
2.18 Products. Except as set forth on Schedule 2.13, there
are no existing or, to the best knowledge of Seller, threatened product
liability, warranty or other similar claims, or, to the best knowledge of
Seller, any facts upon which a claim of such nature could be based,
against Seller for products or services of the Cryolab Business which
are defective or fail to meet any product or service warranties. There
are no statements, citations or decisions by any government or
political subdivision thereof, whether federal, state, local or foreign,
or any agency or instrumentality of any such government or political
subdivision, or any court or arbitrator (collectively, "Governmental
Bodies") stating that any product manufactured, marketed or
distributed by the Cryolab Business at any time on or prior to the
Closing Date ("Cryolab Products") is defective or unsafe or fails to
meet any product warranty or any standards promulgated by any
such Governmental Body. There have been no recalls ordered by any
such Governmental Body with respect to any Cryolab Product. Seller
does not know and has no reason to know of (a) any fact relating to
any Cryolab Product that may impose upon Seller a duty to recall any
Cryolab Product or a duty to warn customers of a defect in any
Cryolab Product, (b) any latent or overt design, manufacturing or
other defect in any Cryolab Product, or (c) any material liability for
warranty or other claims or returns with respect to any Cryolab
Product. The sales and advertising brochures and literature relating
to the Cryolab Products do not contain any material omission or
misstatement.
2.19 Suppliers, Customers and Distributors. Schedule 2.19
sets forth all of the suppliers, customers and distributors (inclusive of
sales representatives and agents) of Seller with respect to the Cryolab
Business. The relationships of Seller with such suppliers, customers
and distributors are good commercial working relationships and
(a) no person or entity listed on Schedule 2.19 within the last 12
months has threatened in writing to cancel or otherwise terminate, or
to the best knowledge of Seller intends to cancel or otherwise
terminate, the relationship of such person with Seller, (b) no such
person or entity has during the last twelve months modified
materially, and Seller has no knowledge that such persons or entities
intend to materially modify their relationship in such a way as to
cause a materially adverse effect on the Cryolab Business.
2.20 Disclosure. The representations, warranties and
statements made or contained in this Agreement, in the documents,
certificates, filings, Schedules and Exhibits given or delivered by
Seller in connection with and pursuant to this Agreement and in any
other written materials relating to the Cryolab Business provided by
Seller to Buyer or any of its affiliates, do not either individually or
when taken together, contain any untrue statement of a material fact,
and do not omit to state a material fact required to be stated therein
or necessary in order to make such representations, warranties and
statements not misleading in light of the circumstances in which they
were made or delivered. Other than as specifically disclosed herein
or in the Schedules hereto, Seller is unaware of any facts which could
reasonably be expected to result in a material adverse impact on the
Subject Assets or on the business, properties, prospects, operations
or condition (financial or otherwise) of the Cryolab Business.
2.21 Backlog. As of the date hereof, the Cryolab Business has
a backlog of firm written non-contingent orders for the sale of
products for which revenues have not been fully recognized by Seller,
as set forth in Schedule 2.21 hereto (the "Backlog") and the amount
of the Backlog reflected on such Schedule is true and correct.
2.22 Contracts. Except for contracts, commitments, plans,
agreements and licenses listed in Schedule 2.22 attached hereto (true
and complete copies (or, in the case of oral agreements, written
descriptions) of which have been delivered to Buyer), Seller is not a
party to or subject to any of the following contracts or agreements, in
each case which relates primarily to, or is necessary in connection
with the operation of, the Cryolab Business:
(a) any contract or agreement for the purchase of any
commodity, material or equipment, except purchase orders in the
ordinary course of the Cryolab Business;
(b) any other contracts or agreements creating any
obligation of Seller of $10,000 or more with respect to any such
contract or $50,000 in the aggregate with respect to all such
contracts, except purchase orders in the ordinary course of the
Cryolab Business;
(c) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a particular
product from a supplier;
(d) any contract or agreement which by its terms does
not terminate or is not terminable without penalty by Seller or any
successor or assign within one year after the date hereof;
(e) any contract or agreement for the sale or lease of
its products, except sales orders in the ordinary course of the Cryolab
Business;
(f) any contract with any sales agent or distributor of
products of Seller;
(g) any contract containing covenants limiting the
freedom of Seller to compete in any line of business or with any
person or entity;
(h) any contract or agreement for the purchase of any
fixed asset for a price in excess of $2,500 whether or not such
purchase is in the ordinary course of business;
(i) any license agreement (as licensor or licensee);
(j) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the
borrowing of money and any related security agreement;
(k) any contract or agreement with any officer,
employee, director or stockholder of Seller or with any persons or
organizations controlled by or affiliated with any of them; or
(l) any oral contract, agreement, arrangement or
understanding involving (individually or in the aggregate) more than
$10,000 which pertains to the suppliers or customers of the Cryolab
Business.
All contracts, agreements, leases and instruments to which
Seller is a party or by which the Seller is obligated, in each case
which relate primarily to the Cryolab Business, including without
limitation any relating to continuing warranty or service obligations
(collectively, the "Cryolab Contracts"), are valid and are in full force
and effect and constitute legal, valid and binding obligations of Seller
enforceable in accordance with their respective terms. To the best
knowledge of Seller, each Cryolab Contract constitutes the legal, valid
and binding obligation of each party thereto other than Seller
enforceable in accordance with its terms. Neither Seller nor, to the
best knowledge of Seller, any other party to any Cryolab Contract is
in material default in complying with any provisions thereof, and no
condition or event or facts exist which, with notice, lapse of time or
both would constitute a material default thereof on the part of Seller
or, to the best knowledge of Seller, on the part of any other party
thereto.
SECTION 3. COVENANTS OF SELLER.
3.1 Making of Covenants and Agreements. Seller hereby
covenants and agrees as set forth in this Section 3.
3.2 Breach of Representations and Warranties. Promptly
upon the occurrence of, or promptly upon becoming aware of the
impending or threatened occurrence of any event which would cause
or constitute a breach, or would with the giving of notice, the passage
of time or both constitute a breach of (a) any of the representations
and warranties of Seller contained in or referred to in this Agreement
or in any Schedule referred to in this Agreement, (b) any other
provision of this Agreement, or (c) any other agreement executed and
delivered in connection with this Agreement, Seller shall give detailed
written notice thereof to Buyer and shall use its best efforts to
prevent or promptly remedy the same.
3.3 Expenses. All expenses of Seller in connection with the
negotiation and performance of this Agreement and the transactions
contemplated hereby and all transfer, excise or other taxes payable
by any party to this Agreement to any jurisdiction by reason of the
sale and transfer of the Subject Assets pursuant to this Agreement, if
any (excluding any such taxes arising solely from the identity or
location of Buyer or any affiliate of Buyer), shall be paid by Seller out
of the proceeds of the sale of the Subject Assets or otherwise, and, no
such expenses shall be payable by Buyer or any affiliate of Buyer.
3.4 Notification. Until the third anniversary of the Closing
Date, Seller hereby agrees to give Buyer written notice of any change
of Seller's address within five days after such change, specifying such
new address.
3.5 Non-Use of Trade Names, etc. After the Closing Date,
neither Seller, nor any person controlling, controlled by or under
common control with Seller will for any reason, directly or indirectly,
for itself or any other person, (a) use any Intangible Rights
transferred pursuant to this Agreement, or (b) use or disclose any
trade secrets, confidential information, know-how, proprietary
information or other intellectual property described in
Section 1.1(a)(iv) hereof and transferred pursuant to this Agreement,
except (i) Seller may disclose such information to Buyer in connection
with the operation of the Cryolab Business by Buyer after the Closing
Date and (ii) Seller may, for a period of 180 days after the Closing
Date, continue to use the name "Cryolab" to the extent it is contained
in product literature which relates both to Cryolab Products and
other products of Seller which do not compete with Cryolab Products.
3.6 Access and Cooperation of Seller. In connection with the
relocation of the Subject Assets from the Facility (or wherever located)
to Buyer's premises (the "Relocation"), Seller shall cooperate with and
assist Buyer and comply with all reasonable requests of Buyer at the
Facility. Seller shall use its best efforts to provide Buyer with access
to Seller's premises at all times during normal working hours until
the Relocation has been completed. In addition, Seller shall provide
Buyer with use of forklifts, trucks and other materials handling
equipment, as well as sufficient labor to accomplish the Relocation.
Buyer shall reimburse Seller, subject to reasonable substantiation
and documentation, for actual out-of-pocket expenses incurred by
Seller after the date of this Agreement in connection with the
Relocation. Any labor costs incurred by Seller for Seller's employees
assisting with the Relocation shall be reimbursed by Buyer at hourly
rates agreed upon in advance without any payments by Buyer on
account of or with respect to the cost of any benefits (health,
retirement, etc.) incurred by Seller with respect to such employees.
Buyer agrees to defend, indemnify and hold Seller harmless from and
against any and all claims for property damage arising out of the
Relocation which are caused by negligent acts of Buyer or its
employees or agents. Buyer agrees not to cross claim against Seller
in the event that any action is brought against Buyer for personal
injury arising out of the Relocation which is caused by a negligent act
of Buyer or its employees or agents.
3.7 Non-Competition. Seller, in order to induce Buyer to
enter into this Agreement, expressly covenants and agrees that
neither Seller nor any of its affiliates will, directly or indirectly, (a) for
a period of ten (10) years following the Closing Date disclose or
furnish to any person, other than Buyer, any proprietary information
of, or confidential information concerning, the Cryolab Business
except as required by law; and (b) for a period of two (2) years
following the Closing Date anywhere in the United States or in any
foreign country, own, manage, operate, join, control, or participate in
or be connected with any business, individual, partnership, firm or
corporation, which is at the time engaged, wholly or partly, in the
design, manufacture, development, distribution, marketing or sale of
any valves designed for and/or used in any Cryogenic application.
For purposes of this Agreement, the term "Cryogenic" means any gas
or liquid exhibiting a temperature of -100 F (minus one hundred
degrees Fahrenheit) or lower. Seller agrees that this provision is
reasonable in view of the nature of the business being transferred
and the relevant market for the Seller's products and services and
that any breach hereof would result in continuing and irreparable
harm to Buyer and would adversely affect the value to Buyer of the
Subject Assets and related goodwill being transferred under this
Agreement. The Seller expressly covenants and agrees that the
remedy at law for any breach of this Section 3.7 will be inadequate
and that, in addition to any other remedies Buyer may have, Buyer
shall be entitled to temporary and permanent injunctive relief without
the necessity of proving actual damage. To the extent that any part
of this provision may be invalid, illegal or unenforceable for any
reason, it is intended that such part shall be enforceable to the extent
that a court of competent jurisdiction shall determine that such part
if more limited in scope would have been enforceable and such part
shall be deemed to have been so written and the remaining parts
shall as written be effective and enforceable in all events.
3.8 Sales Orders. Seller will not send any invoices to, or
request payment in any other manner from, customers of the Cryolab
Business for sales orders unfulfilled as of the Closing Date. Any and
all amounts received by Seller from any such customer in respect of
any such unfulfilled sales order shall be promptly remitted to Buyer.
3.9 Notification of Foundries, Printers, Etc. Seller agrees
from time to time, as often as is reasonably requested by Buyer, that
Seller shall contact the foundries, printers, and other entities,
respectively, where the patterns and literature plates acquired by
Buyer pursuant to this Agreement are located, and notify them that
Buyer has acquired such patterns and literature plates and that
Buyer is the lawful owner thereof and Seller shall otherwise cooperate
as requested by Buyer to effect the transfer to Buyer of such patterns
and literature plates.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Making of Representations and Warranties. As a
material inducement to Seller to enter into this Agreement and
consummate the transactions contemplated hereby, Buyer hereby
makes the representations and warranties to the Seller contained in
this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is
conducted by it.
4.3 Authority of Buyer. Buyer has full corporate power and
authority to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by Buyer
pursuant to this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by
Buyer of this Agreement and each such other agreement, document
and instrument have been duly authorized by all necessary action of
Buyer and no other action on the part of Buyer is required in
connection therewith. This Agreement and each other agreement,
document and instrument executed and delivered by Buyer pursuant
to this Agreement constitute valid and binding obligations of Buyer
enforceable in accordance with their terms. The execution, delivery
and performance by Buyer of this Agreement and each such
agreement, document and instrument:
(i) do not and will not violate any provision of the certificate
of incorporation or by-laws of Buyer;
(ii) do not and will not violate any laws of the United States,
or any state or other jurisdiction applicable to Buyer or
require Buyer to obtain any approval, consent or waiver
of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained
or made; and
(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or
credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which
Buyer is bound or affected.
4.4 Litigation. There is no litigation pending or, to the best
knowledge of Buyer, threatened against Buyer which would prevent
or hinder the consummation of the transactions contemplated by this
Agreement.
4.5 Finder's Fees. Except for the fees of Penrose Associates,
which shall be paid solely by Buyer, Buyer has not incurred or
become liable for any broker's commission or finder's fee relating to
or in connection with the transactions contemplated by this
Agreement.
4.6 Reliance. Buyer is relying on each of the representations
and warranties of Seller contained in this Agreement.
SECTION 5. COVENANTS OF BUYER.
5.1 Making of Covenants and Agreements. Buyer hereby
covenants and agrees as set forth in this Section 5.
5.2 Accounts Receivable. Buyer agrees to promptly remit to
Seller any amounts received by Buyer with respect to Seller's
accounts receivable. Buyer agrees to cooperate with Seller to inform
customers of the Cryolab Business with outstanding accounts
receivable due to Seller as of the Closing Date that payments should
be directed to Seller and not to Buyer.
5.3 Inventory. Buyer agrees to use commercially reasonable
efforts in the ordinary course of business to sell the Inventory, except
the parties recognize a reserve of $104,000 for obsolete or scrap
inventory items for which Buyer shall have no such obligation.
5.4 Insurance. Buyer (or its affiliates) shall continue to
maintain for a period of five years after the Closing, product liability
insurance in the amount of at least $2,000,000 (and on such other
terms and conditions as are customarily contained in such policies of
Buyer and its affiliates) and such insurance shall apply to products
sold or provided by Buyer after the Closing Date.
5.5 Confidentiality. In the event that Buyer should acquire
any proprietary or confidential information of or concerning SAES
and/or the business of SAES in connection with or as a result of the
transactions contemplated by this Agreement, Buyer agrees not to
disclose and to maintain the confidentiality of such information,
except Buyer may disclose any such information (i) to the extent
required by law and (ii) which relates to the operation of the Cryolab
Business.
5.6 Notification. Until the third anniversary of the Closing
Date, Buyer hereby agrees to provide to Seller written notice of any
change of Buyer's address within five days after such change,
specifying such new address.
5.7 Acquired Sales Orders. Upon the sale and purchase of
the Subject Assets, Buyer agrees to pay, perform and discharge in
accordance with their terms only the Sales Order Liabilities.
SECTION 6. SURVIVAL OF WARRANTIES.
6.1 Survival of Warranties. All representations, warranties,
agreements, covenants and obligations herein or in any schedule,
exhibit, certificate or financial statement delivered by any party
incident to the transactions contemplated hereby are material, shall
be deemed to have been relied upon by the parties receiving the same
and shall survive the Closing (subject to Section 7.1 hereof)
regardless of any investigation and shall not merge into the
performance of any obligation by any party hereto.
SECTION 7. INDEMNIFICATION.
7.1 Indemnification by Seller. Seller (subject to the following
paragraph of this Section 7.1), agrees to defend, indemnify and hold
Buyer, its parent and its and their respective subsidiaries and
affiliates and persons serving as officers, directors, partners or
employees thereof (individually a "Buyer Indemnified Party" and
collectively the "Buyer Indemnified Parties") harmless from and
against any and all Claims (as defined in Section 1.2 hereof),
whether or not arising out of third-party claims, without regard to
any investigation by any of the Buyer Indemnified Parties and
including all reasonable amounts paid in investigation, defense or
settlement of the foregoing, which may be sustained or suffered by
any of them based upon, arising out of, by reason of or otherwise in
respect of or in connection with (a) any inaccuracy in or breach of
any representation or warranty made by Seller in this Agreement or
in any Schedule, exhibit, certificate, agreement or other document
delivered hereunder or in connection with this Agreement, or any
claim, action or proceeding asserted or instituted or arising out of
any matter or thing covered by such representations or warranties
(collectively, "Buyer Representation and Warranty Claims"); (b) any
breach of any covenant or agreement made by Seller in this
Agreement or in any Schedule, exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or
any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such covenant or agreement;
(c) any Claim relating to the business or operations of Seller other
than the Cryolab Business; (d) any Claim relating to the operations
and assets of the Cryolab Business which arises in connection with
or on the basis of events, acts, omissions, conditions or any other
state of facts occurring or existing prior to or on the Closing Date
(including, in each case, without limitation, any Claim relating to or
associated with the litigation set forth on Schedule 2.11, warranty
claims or claims for injury (including death) or claims for damage,
direct or consequential, resulting from or connected with products or
services of the Cryolab Business sold or provided on or prior to the
Closing Date, product liability matters, warranty claims, tax matters,
pension and benefits matters, any failure to comply with applicable
laws and/or permitting or licensing requirements, personal injury
and property damage matters and environmental and worker health
and safety matters); or (e) any Claim relating to the Unsalable
Inventory Amount (as defined in Section 7.5) (collectively, "Inventory
Claims"). The rights of Buyer Indemnified Parties to recover
indemnification in respect of any occurrence referred to in clause (b),
(c), (d) or (e) of this Section 7.1 shall not be limited by the fact that
such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section
7.1.
The right of Buyer Indemnified Parties to recover
indemnification under this Section 7.1 shall be subject to the
following limitations:
(i) No indemnification shall be payable by Seller
with respect to Buyer Representation and Warranty Claims and
Inventory Claims unless the total of all amounts payable
pursuant to this Section 7.1 shall exceed $25,000 in the
aggregate, whereupon the total amount of such Claims shall be
recoverable in accordance with the terms thereof, provided that
such $25,000 limitation shall not apply with respect to Claims
involving intentional misrepresentation or intentional
concealment.
(ii) All rights to indemnification under
Sections 7.1(a) and 7.2(a) with respect to Buyer Representation
and Warranty Claims and Seller Representation and Warranty
Claims, respectively, shall expire on the Second Anniversary
Date, except that Buyer Representation and Warranty Claims
and Seller Representation and Warranty Claims relating to or
involving intentional misrepresentation or intentional
concealment shall survive until and shall expire on the date
three months after the termination of the applicable statute of
limitations relating thereto. Notwithstanding the preceding
sentence, if on or prior to the second anniversary of the Closing
Date (the "Second Anniversary Date") a specific state of facts
shall have become known which may give rise to a claim for
indemnification under Section 7.1(a) or 7.2(a), as the case may
be, and an Indemnified Party shall have given written notice of
such facts known by such Indemnified Party at such time to
Seller in the case of a Buyer Indemnified Party, or to Buyer in
the case of a Seller Indemnified Party, then the right to
indemnification with respect thereto shall remain in effect
without regard to when such matter shall be finally determined
and disposed of. All rights with respect to indemnification with
respect to Inventory Claims shall expire on the day after the
third anniversary of the Closing Date (the "Third Anniversary
Date"). All rights to indemnification under Sections 7.1(a) and
7.2(a) with respect to claims other than Buyer Representation
and Warranty Claims, Seller Representation and Warranty
Claims and Inventory Claims shall, except as they may
otherwise be extended, survive until and shall expire on the
date three months after the termination of the applicable
statute of limitations relating thereto. The limitations herein
with respect to Buyer Representation and Warranty Claims and
Seller Representation and Warranty Claims shall not limit the
rights of any Indemnified Party with respect to any other
claims.
(iii) Notwithstanding anything contained in this
Section 7 to the contrary, Seller shall not be required to
indemnify Buyer Indemnified Parties with respect to (A) Buyer
Representation and Warranty Claims and Inventory Claims in
an aggregate amount in excess of $500,000, except with
respect to claims relating to or involving intentional
misrepresentation or intentional concealment, as to which no
such limit shall apply, and (B) Inventory Claims in an aggregate
amount in excess of $250,000, except with respect to claims
relating to or involving intentional misrepresentation or
intentional concealment, as to which no such limit shall apply.
(iv) No indemnification shall be payable with
respect to Inventory Claims until after the Second
Anniversary Date, at which time such indemnification, if any,
shall be payable, but Seller shall not (subject to the following
sentence) be required to pay an amount in excess of an
aggregate amount (the "Initial Inventory Claims Amount") equal
to the lesser of (A) $125,000 or (B) 50% of the Inventory
Claims. The amount of any Inventory Claims remaining
unpaid following payment of the Initial Inventory Claims
Amount (the "Unpaid Inventory Claims Amount") shall (subject
to the limitation set forth in Section 7.1(iii)(B) hereof) be paid by
Seller to the relevant Buyer Indemnified Party on the Third
Anniversary Date; provided, however, that if following the
Second Anniversary Date and prior to the Third Anniversary
Date items of Inventory with respect to which Inventory Claims
were made are sold, the Unpaid Inventory Claims Amount shall
be reduced by an amount (the "Inventory Sales Amount") equal
to the lesser of (X) the aggregate amount of Inventory Claims
represented by such sold Inventory items or (Y) the actual
aggregate net sales proceeds to Buyer in respect of such sold
Inventory items; provided further, however, that if the
Inventory Sales Amount exceeds the Unpaid Inventory Claims
Amount, Buyer shall pay to Seller on the Third Anniversary
Date the amount of such excess.
7.2 Indemnification by Buyer. Buyer agrees to defend,
indemnify and hold Seller, its parent and its and their respective
subsidiaries and affiliates and persons serving as officers, directors,
partners or employees thereof (individually a "Seller Indemnified
Party" and collectively the "Seller Indemnified Parties") harmless from
and against any and all Claims (as defined in Section 1.2 hereof),
whether or not arising out of third-party claims and including all
reasonable amounts paid in investigation, defense or settlement of
the foregoing, which may be sustained or suffered by any of them
based upon, arising out of, by reason of or otherwise in respect of or
in connection with (a) any inaccuracy in or breach of any
representation or warranty made by Buyer in this Agreement or in
any Schedule, exhibit, certificate, agreement, or other document
delivered hereunder or in connection with this Agreement, or any
claim, action or proceeding asserted or instituted or arising out of
any matter or thing covered by such representations or warranties
("Seller Representation and Warranty Claims"); (b) any breach of any
covenant or agreement made by Buyer in this Agreement or in any
Schedule, exhibit, certificate, agreement or other instrument
delivered under or in connection with this Agreement, or any claim,
action or proceeding asserted or instituted arising out of any matter
or thing covered by any such covenant or agreement; (c) any Claim
relating to the operation by Buyer of the Subject Assets after the
Closing Date which arises in connection with or on the basis of
events, acts, omissions, conditions or any other state of facts
occurring or existing after the Closing Date (including, in each case,
without limitation, any Claim relating to or associated with warranty
claims or claims for injury (including death) or claims for damage,
direct or consequential, resulting from or connected with products or
services sold or provided by Buyer after the Closing Date, product
liability matters, warranty claims, tax matters, pension and benefit
matters, any failure to comply with applicable laws and/or permitting
or licensing requirements, personal injury and property damage
matters and environmental and worker health and safety matters);
and (d) the non-performance of the Sales Order Liabilities to the
extent assumed by Buyer hereunder as they become due, in
accordance with their respective terms.
The rights of Seller Indemnified Parties to recover
indemnification under this Section 7.2 shall be subject to the
following limitations:
(i) No indemnification shall be payable by Buyer with
respect to Seller Representation and Warranty Claims unless the
total of all amounts payable pursuant to this Section 7.2 shall exceed
$25,000 in the aggregate, whereupon the total amount of such
Claims shall be recoverable in accordance with the terms thereof,
provided that such $25,000 limitation shall not apply with respect to
Claims involving intentional misrepresentation or intentional
concealment.
(ii) Notwithstanding anything contained in this
Section 7 to the contrary, Buyer shall not be required to indemnify
Seller Indemnified Parties with respect to Seller Representation and
Warranty Claims in an aggregate amount in excess of $500,000,
except with respect to claims relating to or involving intentional
misrepresentation or intentional concealment, as to which no such
limit shall apply.
7.3 Notice; Defense of Claims. Promptly after receipt by an
indemnified party of notice of claims of third parties or litigation filed
with respect to, or the commencement of any governmental
proceeding or investigation relating to, any claim, liability or expense
to which the indemnification obligations hereunder would apply, the
indemnified party shall give notice thereof in writing to the
indemnifying party, but the omission to so notify the indemnifying
party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have
been prejudiced as a result of the failure or delay in giving such
notice. Such notice shall state in reasonable detail the information
then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of
this Agreement under which the liability or obligation is asserted. If
within 20 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that it disputes
and intends to defend against such claim, liability or expense at its
own cost and expense, then counsel for the defense shall be selected
by the indemnifying party (subject to the consent of the indemnified
party which consent shall not be unreasonably withheld) and the
indemnified party shall make no payment on such claim, liability or
expense as long as the indemnifying party is conducting a good faith
and diligent defense. Notwithstanding anything herein stated, the
indemnified party shall at all times have the right fully to participate
in such defense at its own expense directly or through counsel and
shall have the right to consent to any settlement proposed by the
indemnifying party, which consent shall not be unreasonably
withheld; provided, however, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct,
the expense of separate counsel for the indemnified party shall be
paid by the indemnifying party. If no such notice of intent to dispute
and defend is given by the indemnifying party, or if such diligent good
faith defense is not being or ceases to be conducted, the indemnified
party shall, at the expense of the indemnifying party, undertake the
defense of (with counsel selected by the indemnified party), and shall
have the right to compromise or settle (exercising reasonable
business judgment) such claim, liability or expense. The indemnified
party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with
the indemnifying party in such defense.
7.4 Satisfaction of Indemnification Obligations. Any
indemnity payable pursuant to this Section 7 shall be paid within the
later of (a) ten (10) days after the indemnified party's request therefor
(in the case of claims not involving a third party) or (b) ten (10) days
prior to the date on which the loss upon which the indemnity is
based is required to be satisfied by the indemnified party. In order
to satisfy any indemnification obligations of Seller, Buyer shall have
the right (in addition to collecting directly from Seller in whole or in
part, at its option) to set off the amount of any indemnification owed
to it or its affiliates under Section 7.1 against any amounts otherwise
due from Buyer or its affiliates to Seller (including without limitation
any amounts due under Section 7.1(iv) hereof).
7.5 Unsalable Inventory. For purposes of this Agreement,
the term "Unsalable Inventory Amount" means the amount, if any, by
which (a) the aggregate value of any Inventory set forth on Schedule
2.11 which is not sold on or prior to the Second Anniversary Date
exceeds (b) the amount of the reserve for obsolete or scrap inventory
set forth on Schedule 1.1(a)(i). For purposes of determining the value
of any Inventory remaining unsold, the value of such Inventory shall
be as reflected on Schedule 1.1(a)(i). For purposes of determining
whether an Inventory item has been sold, all parts included in
products manufactured and sold by Buyer after the Closing (or which
would have been included in such products but for the fact that
Buyer modified such product after the Closing Date, unless such
modification was made by Buyer as a result of facts which would
result in a breach of any of the representations or warranties
contained in Section 2 of this Agreement) which are the same as
parts which are included in the Inventory, shall be deemed to have
been sold whether or not such parts were in fact included in the
Inventory or whether Buyer purchased or manufactured such parts
after the Closing.
SECTION 8. MISCELLANEOUS.
8.1 Law Governing. This Agreement shall be construed
under and governed by the laws of the Commonwealth of
Massachusetts without regard to the conflicts of laws provisions
thereof.
8.2 Notices. All communications, notices and consents
provided for herein shall be in writing and be given in person or by
means of telex, facsimile or other means of wire transmission (with
request for assurance of receipt in a manner typical with respect to
communications of that type) or by mail, and shall become effective
(x) on delivery if given in person, (y) on the date of transmission if
sent by telex, facsimile or other means of wire transmission, or
(z) four business days after being deposited in the United States
mails, with proper postage, for first-class registered or certified mail,
prepaid.
Notices shall be addressed as follows:
If to Buyer, to:
c/o Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Attn: President
Facsimile Number: 508-688-5841
With a copy to:
c/o Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Attn: Suzanne M. Zabitchuk, Esq.
Facsimile Number: 508-688-5841
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Attn: John R. LeClaire, P.C.
Facsimile Number: 617-523-1231
If to Seller:
SAES Pure Gas, Inc.
4175 Santa Fe Road
San Luis Obispo, CA 93401
Attn: President
Facsimile Number: 805-541-9399
With a copy to:
Martin J. Tangeman, Esq.
Sinsheimer, Schiebelhut & Baggett
1010 Peach Street
P.O. Box 31
San Luis Obispo, CA 93406-0031
Facsimile Number: 805-541-2802
provided, however, that if any party shall have designated a different
address by notice to the others in accordance with this Section 8.2,
then to the last address so designated.
8.3 Prior Agreements Superseded. This Agreement
supersedes all prior understandings and agreements among the
parties relating to the subject matter hereof.
8.4 Assignability. This Agreement shall not be assignable by
any party, except by Buyer to an affiliate of Buyer (which assignment
shall not relieve Buyer of any of its obligations hereunder), without
the prior written consent of the other parties hereto. This Agreement
(including without limitation the provisions of Section 7) shall be
binding upon and enforceable by, and shall inure to the benefit of,
the parties hereto and their respective successors, heirs, executors,
administrators and permitted assigns.
8.5 Captions and Gender. The captions in this Agreement
are for convenience only and shall not affect the construction or
interpretation of any term or provision hereof. The use in this
Agreement of the masculine pronoun in reference to a party hereto
shall be deemed to include the feminine or neuter pronoun, as the
context may require.
8.6 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person shall mean a person that
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the
first mentioned person;
(b) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly
or indirectly or as trustee or executor, of the power to direct or
cause the direction of the management policies of a person,
whether through the ownership of stock, as trustee, partner or
executor, by contract or credit arrangement or otherwise;
(c) "person" means an individual, corporation,
partnership, association, trust or any unincorporated
organization; and
(d) "subsidiary" of a person means any corporation
more than 50 percent of whose outstanding voting securities,
or any partnership, joint venture or other entity more than 50
percent of whose total equity interest, is directly or indirectly
owned by such person.
8.7 Execution in Counterparts. For the convenience of the
parties and to facilitate execution, this Agreement may be executed in
two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same document.
8.8 Amendments; Waivers. This Agreement may not be
amended or modified except by a writing duly and validly executed by
each party hereto. Compliance with any condition or covenant set
forth herein may not be waived except by a writing duly and validly
executed by the party or parties to be bound. No delay on the part of
any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any
party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or
privilege.
8.9 Severability. Each of the provisions contained in this
Agreement shall be severable and the unenforceability of one shall
not affect the enforceability of any other provision or the remainder of
this Agreement.
8.10 Bulk Sales Law. Buyer waives compliance by Seller with
the provisions of any applicable bulk sales, fraudulent conveyance or
other law for the protection of creditors, and Seller agrees (in addition
to and independent of Seller's indemnification obligations contained
in Section 7) to indemnify and hold Buyer harmless from, and
reimburse Buyer for, any loss, cost, expense, liability or damage
(including reasonable counsel fees and disbursements and expenses)
which Buyer may suffer or incur by virtue of the non-compliance by
Seller with such laws.
8.11 Publicity and Disclosures. Buyer and its affiliates and
Seller shall be permitted to make such press releases and disclosures
of the transactions contemplated by this Agreement as they desire,
provided however, (i) the Purchase Price shall not be publicly
disclosed, unless in the reasonable opinion of the disclosing party
such disclosure is required to comply with the laws, rules or
regulations now applicable to it or which in the future become
applicable to it and (ii) neither Seller nor its affiliates in any such
press release shall refer to Buyer, Watts Industries, Inc. or any
affiliate of either one, except solely to disclose the name Circle Seal
Controls, Inc. as the Buyer hereunder.
8.12 Consent to Jurisdiction and Service. Each of the parties
hereto consents to personal jurisdiction, service of process and venue
in the federal or state courts of Massachusetts with respect to any
and all claims or disputes between the parties, arising directly or
indirectly in connection with this Agreement and the related
agreements and schedules, including but not limited to any and all
claims for indemnification and other rights established by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above by their
duly authorized representatives.
BUYER:
CIRCLE SEAL CONTROLS, INC.
By:/s/Rick L Needham
Rick L. Needham
President
SELLER:
SAES PURE GAS, INC.
By:
Francesco della Porta
Chief Executive Officer
STOCK PURCHASE AGREEMENT
This agreement is made and entered into in Amsterdam on
November 18, 1994 by and between:
WATTS INDUSTRIES EUROPE BV ("Watts Europe"),
incorporated as a besloten vennootschap met beperkte
aansprakelijkheid under the laws of The Netherlands, having its
registered office at Kollergang 14, 6961 LZ Eerbeek, The Netherlands,
represented by Mr. Johan van Kouterik, acting pursuant to the Power
of Attorney, a copy of which is attached hereto as Annex 1,
KF INDUSTRIES EUROPE BV ("KF"), incorporated as a besloten
vennootschap met beperkte aansprakelijkheid under the laws of The
Netherlands, having its registered office at Kollergang 14, 6961 LZ
Eerbeek, The Netherlands, represented by Mr. Michael O. Fifer,
acting pursuant to the Power of Attorney, a copy of which is attached
hereto as Annex 2, of the one part,
PHILABEL INTERNATIONAL NV ("Philabel International"), a
Netherlands Antilles company with principal offices at 22
Julianaplein, Curacao, Netherlands Antilles, a share capital of 100
thousand Dutch Guilders, represented by Mr. J.W.E. Moret, acting
pursuant to the Power of Attorney, a copy of which is attached hereto
as Annex 3 (Philabel International being hereinafter sometimes
referred to also as "Seller"),
Mr. Antonio Vienna ("A. Vienna") , an Italian citizen domiciled
in Milano, Via Archimede, 57, fiscal code no. VNN NNG 4lMl9 B045V,
and
G.I.V.A. SpA ("GIVA"), an Italian company with principal offices
at Via Risorgimento, 63, Mazzo di Rho (Milano), a share capital of
14,600,000,000 Italian lire, enrolled in the Register of Companies
with the Tribunal of Brescia, no. 36646, tax and VAT code no.
02917180172, represented by the sole director A. Vienna, duly
empowered as attested by the certificate issued on September 12,
1994 by the Tribunal of Brescia, copy of which is attached hereto as
Annex 4 (A. Vienna and GIVA being hereinafter referred to as
"Guarantors") ___________ of the other part.
WHEREAS:
A. Seller owns all the shares representing the entire
outstanding share capital of Philabel NV (the "Holding Company"), a
Dutch company with principal offices at 504 Herengracht, 1017, CB
Amsterdam, the Netherlands, a share capital of 3,651,000 Dutch
Guilders, divided into 36,500 ordinary and 10 preference bearer
shares of 100 Dutch Guilders each (the "Shares");
B. Seller represents and warrants that the Holding
Company is the beneficial owner of a shareholding participation
consisting of 100% (one hundred per cent) of the shares of Pibiviesse
SpA (the "Company) an Italian company with principal offices at Via
Di Vittorio 43, Mazzo di Rho (Milano), Italy, a share capital of
2,000,000,000 (two billion) Italian Lire, divided into 20,000 (twenty
thousand) ordinary shares of 100,000 (one hundred thousand) Italian
Lire each, enrolled in the register of Companies with the Tribunal of
Milano, no. 245162/6485/12, tax and VAT code no. 07798890153;
C. the Company in turn owns a quota having a par value of
32,000,000(thirty-two million) Italian Lire constituting 80% (eighty
per cent) of the entire share capital of De Martin Giuseppe e Figli Srl
(the "Quota"), an Italian Company with registered office at Via Fratelli
Bandiera, 47, Robecco sul Naviglio, Milano, Italy, a share capital of
40,000,000 (forty million) Italian Lire, enrolled in the Register of
Companies of Milano no. 239552/6393/2, tax and VAT code no.
00000450155 ("De Martin"), the remaining 20% (twenty per cent) of
the share capital of De Martin being owned as to 10% (ten per cent)
by Mr. Mario Oreste De Martin and as to 10% (ten per cent) by Mr.
Enzo Corbella (collectively, the "Minority Shareholders of De Martin");
D. prior to the date hereof, the Company had the following
further participations:
(a) 231,300 (two hundred thirty-one thousand three
hundred) shares of 10,000 (ten thousand) Italian Lire each
representing 70.09% (seventy point zero nine per cent) of the entire
share capital of Forgiatura A. Vienna SpA ("Forgiatura Vienna") ;
(b) 3,200 (three thousand two hundred) shares of
10,000 (ten thousand) Italian Lire each representing 16% (sixteen per
cent) of the entire share capital of La Valvomeccanica SpA
("Valvomeccanica"); and
(c) 4,050,000 (four million fifty thousand) shares of
1,000 (one thousand) Italian Lire each representing 32.4% (thirty-two
point four per cent) of the entire share capital of Nuova Breda Fucine
SpA ("Nuova Breda") ;
E. Seller represents that, pursuant to prior understandings
reached with Watts Industries, Inc., a U.S. corporation directly or
indirectly controlling Watts Europe and KF ("Watts"), it procured the
following actions and transactions to be taken and accomplished on
or before the date hereof:
(a) all outstanding options or other rights to acquire
Shares (as hereinafter defined) have been cancelled or waived;
(b) the Company has sold and transferred to GIVA or a
company designated by GIVA, which acquired and became transferee
of, all the shares of Forgiatura Vienna, Valvomeccanica and Nuova
Breda (the "Sale and Purchase of Certain Participations") , and the
Company received the following amounts in consideration of said
sales of shares:
(i) 6,260,000,000 (six billion two hundred sixty
million) Italian Lire for the shares of Forgiatura Vienna;
(ii) 402,000,000 (four hundred two million)
Italian Lire for the shares of Valvomeccanica; and
(iii) 100,000 (one hundred thousand) Italian Lire
for the shares of Nuova Breda, while the Company retained its
participation in De Martin;
(c) all intercompany accounts between any and all
companies directly or indirectly controlled by GIVA including
Forgiatura Vienna, Valvomeccanica and Nuova Breda (collectively,
the "GIVA Group"), of the one part, and the Company, De Martin
(sometimes collectively referred to as the "Operating Companies") and
the Holding Company, of the other part, have been offset against
each other and the net balance of the offset has been paid by the
debtor party to the creditor party, except that trade debts of the
Operating Companies to companies of the GIVA Group have been
excluded from said offset, with the understanding that they will be
paid in accordance with their respective terms; and
(d) all intercompany agreements, contracts,
undertakings and arrangements in existence between all the
companies of the GIVA Group, as well as any other company in which
A. Vienna has a participation (with the only exception of the existing
rent agreements between the Company and Immobiliare Danubio Srl
("Immobiliare Danubio") and La Valvomeccanica), of the one part, and
the Holding Company, the Company and De Martin, of the other part,
have been terminated by mutual agreement of the relevant parties
thereto and neither party thereto has any further claim or action
against the others; and
F. the parties desire to set out herein the definitive terms
and conditions for the sale and purchase of the Shares and of the
Quota,
now, therefore, in consideration of the mutual understandings and
covenants contained herein Watts Europe, KF and the Designated
Company (as hereinafter defined), collectively referred to as "Buyers",
Seller and Guarantors agree as follows.
ARTICLE 1 - RECITALS AND ANNEXES
The recitals set out above and the Annexes attached hereto
form an integral and substantive part of this stock purchase
agreement (the "Agreement").
ARTICLE 2 - SALE AND PURCHASE OF THE QUOTA AND OF THE
SHARES
Subject to the terms and conditions set out herein:
(a) the Company sells and transfers to the company
designated by Watts Europe prior to the date hereof (the "Designated
Company"), which acquires and becomes transferee of, the Quota (the
"Sale and Purchase of the Quota");
(b) promptly after the Sale and Purchase of the Quota,
Seller sells and transfers to KF and Watts Europe, which accept and
become transferee of, the Shares (the "Sale and Purchase of the
Shares") as follows:
(i) no. 36,135 (thirty-six thousand one hundred
thirty-five) ordinary Shares and no. 10 preference Shares,
corresponding to 99% (ninety-nine per cent) of the entire share
capital of the Holding Company to KF; and
(ii) no. 365 (three hundred sixty-five) Shares,
corresponding to 1% (one per cent) of the entire share capital of the
Holding Company to Watts Europe.
ARTICLE 3 - PRICES
3.1 The price for the Quota has been jointly determined in
the amount of 510 (five hundred ten) million Italian Lire (the "Price
for the Quota").
The Price for the Quota is fixed and not subject to adjustment,
without prejudice however to the representations and warranties of
Seller concerning De Martin set out in the Agreement.
3.2 Using the method of calculation previously agreed, the
price for the Shares has been jointly determined as follows:
(a) the total amount of 29,827, 193,801 (twenty-nine
billion eight hundred twenty-seven million one hundred ninety-three
thousand eight hundred one) Italian Lire (the "Provisional Portion of
the Price"), which has been calculated based on the balance sheet of
the Company as of September 30, 1994 attached hereto as Annex 5
(the "Reference Balance Sheet") , it being specified that:
(i) the Reference Balance Sheet; and
(ii) the Provisional Portion of the Price have been
prepared in accordance with the criteria agreed between the parties
set out in the schedule attached hereto as Annex 6 (the "Agreed
Criteria"); plus
(b) deferred and conditional amounts (the "Deferred
Portion of the Price") equal to:
(i) 11.25% (eleven point twenty-five per cent) of
the portion of Net Product Revenues of the Company (as hereinafter
defined) exceeding 60 (sixty) billion Italian Lire per annum, limited to
a three-year period starting from January 1, 1995 and up to a total
aggregate amount of 4,500 (four thousand five hundred) million
Italian lire, with the understanding that each amount possibly due by
Buyers hereunder shall be paid within 75 (seventy-five) days from the
end of each of the calendar years 1995, 1996, 1997; and
(ii) 15% (fifteen per cent) of the portion of Net
Product Revenues obtained in the aggregate by the Company in the
calendar years 1995, 1996 and 1997 which exceeds 220 (two
hundred twenty) billion Italian lire up to a total amount of 1,500 (one
thousand five hundred) million Italian lire, with the understanding
that the amount possibly due by Buyers hereunder shall be paid
within March 15, 1998.
For the above purposes, "Net Product Revenues" means gross
revenues obtained by the Company from sales of products less
indirect taxes on sales, duties, transport and insurance costs,
discounts, allowances or returns.
In the event that, on or before the date on which a Deferred
Portion of the Price is due by Buyers hereunder, an award is
rendered in favour of Buyers pursuant to the arbitration provisions
set out hereinafter, and any amounts due by Seller in accordance
with such arbitration award have not been paid by Seller to Buyers,
then said unpaid amount shall be deducted from the Deferred Portion
of the Price.
3.3 Buyer shall refrain from doing or procuring the Company
to do any actions or omissions mainly intended to circumvent or limit
the effects of the provisions set out in the preceding sub-paragraph
3.2 (b) .
3.4 The Provisional Portion of the Price is subject to
adjustment (the "Price Adjustment") in accordance with the
provisions set out hereinafter.
3.5 The obligation of Buyers to pay to Seller the Price
Adjustment, if any, is assisted by a bank guarantee issued by Credit
Lyonnais Bank Nederland NV, Rotterdam, in favour of Seller for an
amount equal to 15% (fifteen per cent) of the Provisional Portion of
the Price, conforming to the text attached hereto as Annex 7 (the
"Buyers I First Bank Guarantee").
3.6 The obligation of Buyers to pay to Seller the Deferred
Portion of the Price is also assisted by a bank guarantee issued by
Credit Lyonnais Bank Nederland NV, Rotterdam, in favour of Seller
for an amount up to 6, 000, 000, 000 (six billion) Italian Lire (the
"Buyers I Second Bank Guarantee") , conforming to the text attached
hereto as Annex 8.
ARTICLE 4 - CLOSING
4.1 on the date hereof (the "Closing Date"), immediately after
the execution of the Agreement, the following actions and
transactions are taken and accomplished:
(a) in Milano, at the offices of Mr. Giuseppe
Gasparrini, Notary Public, Via Manzoni, 20, Milano, at 11, 30 a.m.,
the Sale and Purchase of the Quota is made by means of execution
by the Company and the Designated Company of a deed of sale
drawn up by notary in accordance with Italian law;
(b) in Amsterdam, at the offices of Clifford Chance,
Apollolaan, 171, 1077 Amsterdam, at 11:45 a.m., the Sale and
Purchase of the Shares is made by due delivery of the share
certificates in respect of the Shares from Seller to Buyers in
accordance with Dutch law;
(c) Buyers (pro-quota between them) pay to Seller 90%
(ninety per cent) of the Provisional Portion of the Price (the "Amount
Paid at Closing") by bank wire transfer to the bank accounts
indicated by the selling party;
(d) Buyers deliver to Seller the Buyers' First Bank
Guarantee and the Buyers' Second Bank Guarantee;
(e) Seller delivers to KF a bank guarantee issued by
ABN-Amro Bank Nederland NV, in favour of KF, conforming to the
text attached hereto as Annex 9 (the "Seller's Bank Guarantee") , for
an amount equal to 15% (f if teen per cent) of the Amount Paid at
Closing (subject to a possible reduction as per separate written
understandings), to guarantee payment of indemnifications, if any,
due by Seller to Buyers in accordance with the provisions set out
hereinafter, with the understanding that the rights of Buyers under
the Seller's Bank Guarantee shall be without prejudice to, and not in
limitation of, the rights of Buyers deriving from the Agreement;
(f) having all the directors and statutory auditors, if
any, of the Holding Company, the Company and De Martin,
submitted their written resignations effective as of the Closing Date,
without costs for the Holding Company, the Company and De Martin,
the Shareholders Meetings of the Holding Company, the Company
and De Martin appoint new directors and statutory auditors, where
necessary, to replace the resigning directors and statutory auditors in
accordance with the written instructions given by Buyer prior to the
date hereof; and
(g) the following additional agreements, contracts or
undertakings (the "Additional Agreements") are executed by all the
relevant parties thereto:
(i) non-competition and non-disclosure
undertakings by A. Longhi to the Company;
(ii) employment contract between a company
controlled by Watts Europe and R. Bartolena and a letter relating
thereto;
(iii) letter-agreement between the Company and
BM International Srl ("BMI"), providing inter alia for termination by
mutual consent of the existing Agency Agreement, three-years
noncompetition and ten-years non-disclosure undertakings by BMI;
and
(iv) letter-agreement between Forgiatura Vienna
and the Company, concerning supplies of forgings by Forgiatura
Vienna to the Company.
4.2 Within 7 (seven) days from the Closing Date Buyers shall
procure that the Designated Company pays to the Company the Price
for the Quota.
ARTICLE 5 - OUTSTANDING BANK GUARANTEES
5.1 Starting from the Closing Date, Buyers shall indemnify
and keep Seller and/or the other companies of the GIVA Group
harmless from any damages, costs or expense deriving from or
connected with the enforcement by creditors of the Company or
De Martin of any outstanding guarantees or similar undertakings
issued or procured by Seller and/or other companies of the GIVA
Group in the interest of either the Company or De Martin and in
favour of creditors of the same as listed in the schedule attached
hereto as Annex 10 (the "Outstanding Guarantees in Favour of
Creditors of the Operating Companies").
Buyers also undertakes to endeavour to obtain, in co-operation
with Seller and as soon as practicable after the Closing Date, the full
release of Seller and/or other companies of the GIVA Group having
issued or procured Guarantees in Favour of Creditors of the
Company or De Martin from any obligations deriving to them from
said Outstanding Guarantees in Favour of Creditors of the Operating
Companies.
5.2 Starting from the Closing Date, Seller shall indemnify
and keep Buyers, the Holding Company and the Operating
Companies harmless from any damage, cost or expense deriving from
or connected with the enforcement by creditors of companies of the
GIVA Group of any outstanding guarantees or similar undertakings
issued or procured by the Company in favour of creditors of any
company of the GIVA Group as listed in the schedule attached hereto
as Annex 11 (the "Outstanding Guarantees issued by the Company in
Favour of Creditors of Companies of the GIVA Group").
Seller also undertakes to endeavour to obtain, as soon as
practicable after the Closing Date, the full release of the Company
from any obligations deriving to from the Outstanding Guarantees
issued by the Company in Favour of Creditors of Operating
Companies of the GIVA Group.
ARTICLE 6 - ADJUSTMENT OF THE PROVISIONAL PORTION OF THE PRICE AND
DEFERRED PORTION OF THE PRICE
6.1 Within 75 (seventy-five) days from the Closing Date (the
"Term"):
(a) for the purpose of the Price Adjustment Seller
shall, in cooperation with Buyers and the company and with the
assistance of Deloitte & Touche s.n.c., Milano, designated by Buyers
and of a public accountant designated by Seller, draw up the balance
sheet of the Company as of the Closing Date (the "Closing Balance
Sheet") using the Agreed Criteria; and
(b) the adjusted price for the Shares (the "Adjusted
Price") shall be calculated based on the Closing Balance Sheet always
using the Agreed Criteria.
6.2 The amount equal to the difference between the Amount
Paid at Closing and the Adjusted Price (the "Adjustment") shall be
due by Buyers (proquota) to Seller or by Seller to Buyers (always
pro-quota), as the case may be, and payable as provided for
hereinafter.
6.3 In the event that, within the Term, Seller and Buyers do
not agree on the Closing Balance Sheet or on whether or not the
Adjustment is due or on the amount thereof, the matter will be
promptly submitted by Seller or Buyers to Reconta Ernst & Young
s.a.s., Milano (the "Expert") .
6.4 The Expert will be required to communicate its
determination within 20 (twenty) business days in writing at the
same time to Seller and Buyers. The determination of the Expert
shall be final and binding.
6.5 If the Adjustment is agreed between Seller and Buyers or
determined and communicated by the Expert as provided for above,
then Seller or Buyers, as the case may be, shall make payment
within 7 (seven) working days from the date of the agreement between
Seller and Buyers or from receipt of the communication by the Expert
as the case may be, by bank wire transfer to the bank account to be
indicated in a timely manner by the relevant party.
6.6 Buyers shall procure that the Company as soon as
practicable after the end of the calendar years 1995, 1996 and 1997
communicates the data required to calculate the Deferred Portion of
the Price and shall make payment of the relevant amounts due to
Seller, if any, in accordance with the provisions of paragraph 3.2
above.
6.7 In the event that, within the date on which a payment, if
any, of a Deferred Portion of the Price is due, Seller and Buyers do
not agree on whether or not a payment of Deferred Portion of the
Price is due by Buyers to Seller or on the amount thereof, the matter
will be promptly submitted by Buyers or Seller to the Expert for final
determination applying the provisions of paragraphs 6.4 and 6.5
above.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES
7.1 Seller and Guarantors hereby jointly and severally
represent and warrant each of the statements set out in Annex 12
and in the schedules annexed thereto (the "Representations and
Warranties") , with the understanding that the Representations and
Warranties will survive the transfer of the Quota and the transfer of
the Shares in accordance with the provisions set out hereinafter.
7.2 Any due diligence investigations made by Buyer or
disclosures made by Seller or Guarantors to Buyers prior to the date
hereof do not limit the Representations and Warranties or affect the
rights of Buyers under the Agreement in any manner whatsoever.
ARTICLE 8 - INDEMNIFICATION
8.1 Seller and Guarantors shall be jointly and severally liable
to indemnify and hold Buyers, the Company and De Martin harmless
from and against any liability, claim or damage arising from or
otherwise connected with any material breach of this Agreement, and
in particular of the Representations and Warranties, or any
contingent liability arising from or otherwise connected with facts,
acts or omissions of Seller, the Holding Company or the Operating
Companies occurred before the Closing Date, except only for:
(a) liabilities of the Company:
(i) reflected in the Reference Balance Sheet; or
(ii) incurred in the ordinary course of business
since the date of the Reference Balance Sheet until the Closing Date;
or
(iii) already taken into account for the purpose of
the Price Adjustment; or
(b) liabilities of De Martin reflected in its December 31,
1993 balance sheet or incurred in the ordinary course of business
since that date and until the Closing Date.
8.2 Any indemnification by Seller and/or Guarantors
pursuant to the preceding paragraph (the "Indemnification") shall be
deemed a reduction of the Adjusted Price.
8.3 Without prejudice to other provisions of the Agreement,
in the event that Buyers become aware of facts that could give rise to
a claim to Seller concerning environmental matters, Buyers shall
inform Seller and Guarantors as soon as possible with a view to
permit Seller to carry out remedial actions to minimize damage.
ARTICLE 9 - THIRD PARTY IS CLAIMS
9.1 Buyers shall give promptly notice to Seller of any third
party Is claim against the Holding Company or the Operating
Companies (the "Third Party's Claim") which may result in a claim by
Buyers pursuant to the Agreement.
9.2 Within 30 (thirty) days from the above communication of
the Buyers, Seller shall communicate to Buyers its decision whether
it intends to defend such Third Party Is Claim or not.
9.3 If Seller decides to defend the Third Party's Claim:
(a) Buyers shall permit Seller to defend such Third
Party' s Claim in the name of the Holding Company, the Company or
De Martin, as the case may be, through counsel selected and paid by
Seller and acceptable to Buyers; and
(b) Seller shall request its counsel to consult and fully
cooperate at all times in such defence with counsel designated and
paid by Buyers or the Holding Company, the Company or De Martin.
9.4 If Seller decides not to defend the Third Party's Claim or
if Seller fails to communicate its decision pursuant to paragraph 9.2
above, Buyers and the Holding Company, the Company or De Martin,
as the case may be, shall be free to defend, settle or compromise, in
whole or in part, such Third Party's Claim, it being understood and
agreed that all expenses connected therewith shall be part of the
relevant Buyers claim.
9.5 In all cases Seller and Buyers shall cooperate in good
faith in the defence or settlement of the Third Party's Claims, taking
into account their respective interests as well as those of the Holding
Company, the Company or De Martin.
ARTICLE 10 - LIMITATIONS
10.1 In order for a claim under the Agreement (a "Claim") to
be validly made, Buyers shall have to give notice in writing to Seller
and Guarantors:
(a) with respect to any Claim concerning taxes, duties,
labour, social security or environmental matters before the expiration
of a period of 6 (six) years from the Closing Date; or
(b) with respect to any Claim concerning matters other
than those referred to under (a) above, before the expiration of a
period of 3 (three) years from the Closing Date.
10.2 The Indemnification possibly due by Seller or Guarantors
in accordance herewith shall be limited to a maximum amount equal
to the amount of the Adjusted Price plus any amount paid by Buyers
as Deferred Portion of the Price.
ARTICLE 11 - BOARD OF DIRECTORS OF THE COMPANY
11.1 Seller and Buyers shall procure that, in the years 1995,
1996 and 1997, A. Vienna (or another person designated by Seller) is
at all times a member of the Board of Directors of the Company, the
other being persons appointed upon designation by Watts Europe.
11.2 During the above mentioned three-year period:
(a) Watts and Buyers undertake not to interfere in the
sales policy of the Company as established by its Board of Directors;
(b) the Board of Directors shall not delegate to
A. Vienna operating powers; and
(c) the Board of Directors will convene at least three times per year.
ARTICLE 12 - LEASE CONTRACTS
12.1 Seller and Guarantors warrant that, until August 31,
1995, the Company shall have the right to continue to use the plants
and offices presently used at Mazzo di Rho and Nerviano, under the
lease contracts currently in force (the "Existing Lease Contracts")
upon their respective contractual terms and conditions, except that
the Existing Lease Contracts shall, as of the Closing Date, be
amended to provide that:
(a) ordinary maintenance will be for the account of the
Company, while extra-ordinary maintenance will be for the account
of the owner; and
(b) costs for insurance against fire shall be for the
account of the Company.
12.2 Guarantors further undertake to provide to the
Company, and Buyers shall cause the Company to enter into, a new
lease contract and an option (the "Option") to obtain lease of an
additional industrial building (collectively, the Lease Contracts") in
accordance with the following agreed scheme:
(a) Guarantors shall procure that the owner of the
New Plant and Offices (as hereinafter defined) gives the Buyer 90
(ninety) days prior written notice that the same are available for lease
to the Company and Buyer shall procure that, within 30 (thirty) days
from receipt of said notice, the Company provides to the owner the
lay-out of the production facilities to be installed at the care and
expense of the Company at the New Plant, including a detailed
description of the location of main equipment, electric and other
connections and any other data as required to permit the normal
operation of the New Plant as of the effective date of the relevant lease
contract (the "First New Lease Contract");
(b) the object of the New First Lease Contract will be:
(i) a new 12,000 (twelve thousand) square
meters plant in finished conditions and ancillary land at Nerviano
(the "New Plant") ;
(ii) the 1,588 (one thousand five hundred
eighty-eight) square meters of existing offices and ancillary services at
Nerviano (the "Offices") ; and
(iii) 2,800 (two thousand eight hundred) square
meters of existing industrial buildings at Mazzo di Rho, all as better
described in the schedule attached hereto as Annex 13;
(c) the rent to be provided for in the New First Lease
Contract shall be 1.3 (one point three) billion Italian Lire in the
aggregate;
(d) the New Plant and Offices at Nerviano shall be
available by August 31, 1995, so that the First Lease Contract may
be effective from September 1, 1995 at the latest, with the
understanding that should the First New Lease Contract not be
effective, for any reason, by September 1, 1995, the Company shall
be entitled to continue to use the plants and offices object of the
Existing Lease Contract at the same terms and conditions until the
First Lease Contract becomes effective, without prejudice to any other
right or remedy of Buyers hereunder;
(e) the Option will be exercisable by the Company
within one year from the Closing Date and if it is exercised:
(i) Guarantors shall procure that an additional
3,000 (three thousand) square meters industrial building conforming
to the specifications set out in the schedule attached hereto as Annex
14 (the "Expansion") is constructed at Nerviano adjacent to the New
Plant; and
(ii) the Expansion shall be leased to the
Company within I (one) year from the date of exercise of the Option
pursuant to a lease contract (the "Second New Lease Contract")
providing for a rent of 400 (four hundred million) Italian Lire per year;
(f) the Lease Contracts shall inter alia provide that:
(i) ordinary maintenance shall be for the
account of the Company;
(ii) extraordinary maintenance for the account of
the owner;
(iii) the Company shall at its expense insure the
real estate leased against fire for a value of 15 (fifteen) billion Italian
Lire, subject to yearly revision at the request of the Company,
designating the owner as beneficiary;
(iv) taxes shall be paid by the party responsible
for such tax under applicable provisions of law and, if no provision
exists, then by Immobiliare Danubio;
(g) the Lease Contracts shall have a term of 6 plus 6
years, as per law, provided that the owner and the Company shall be
entitled to terminate them not before the expiry of the first six-year
period or, in case of renewal, not before the expiry of the second
six-year period, with the understanding that, if the Company
exercises the Option and does not renew the First New Lease
Contract having decided to relocate its industrial activity and related
offices, the relevant parties shall terminate by mutual agreement the
Second New Lease Contract effective as of the same date of
termination of the First New Lease Contract.
12.3 The Guarantors further warrant that:
(a) all existing polychlorinated biphenols ("PCB")
transformers will at the care and expense of the owner thereof be
removed from the New Plant, in accordance with applicable
environmental laws and regulations, as a condition precedent for the
First Lease Contract to enter into force, with the understanding that
replacement with non-PCB trans formers will be at the care and
expense of the Company;
(b) at the execution of the First New Lease Contract,
the owner of the plants and offices presently used by the Company at
Mazzo di Rho will accept termination of the Existing Lease Contracts,
without any burden upon the Company; and
(c) Buyers will have the first refusal right to purchase,
directly or through the Company or another designee, the New Plant,
Offices and the Expansion, if any, in the event any third party makes
an offer to buy the same during the term (or renewal thereof) of the
Lease Contracts; in such event, Seller shall give written notice to
Buyers and they will have a period of 30 (thirty) days to indicate
whether or not they intend to exercise such first refusal right.
12.4 Watts guarantees payments by the Company under the
Existing Lease Contracts, the First New Lease Contract and the
Second New Lease Contract, if any, in accordance with the terms set
out in a separate letter delivered at the Closing Date to Immobiliare
Danubio.
ARTICLE 13 - NON-COMPETITION AND NON-DISCLOSURE
13.1 GIVA, acting also in the name and on behalf of all other
companies of the GIVA Group and A. Vienna acting also in the name
and on behalf of all companies directly or indirectly controlled by
him, hereby undertake not to compete directly or indirectly for a
period of 3 (three) years from the Closing Date with the Company, the
Buyers, Watts or other Watts affiliates in the design, manufacture,
development, distribution, marketing or sales of any product or data
related to ball and gate valves for the oil and gas market in the
countries listed in the schedule attached hereto as Annex 15, without
the express written consent of Watts, which shall be in its sole
discretion, exception made for the production of plug valves ("valvole
a maschio") manufactured by La Valvomeccanica.
13.2 GIVA, acting also in the name and on behalf of all other
companies of the GIVA Group and A. Vienna, acting also in the
name and on behalf of all companies directly or indirectly controlled
by him, further undertake for a period of 10 (ten) years from the
Closing Date to keep strictly secret, not to disclose to third parties
and not to use, directly or indirectly, any and all confidential data
and information, including confidential data and information of
commercial nature, relating to the Company, Buyers, Watts or other
Watts affiliates or their respective activities.
ARTICLE 14 - TAXES AND EXPENSES
14.1 No broker's or finder's fee is to be paid in connection with
the transactions contemplated herein.
14.2 The costs, including notarial fees and taxes, for the Sale
and Purchase of the Quota shall be for the account of the Designated
Company and the costs, including notarial fees and taxes for the Sale
and Purchase of the Shares shall be for the account of Seller.
14.3 The costs connected with the intervention of the Expert,
if any, shall be equally shared between Seller, of the one part, and
Buyers, of the other part.
14.4 Seller and Buyers shall each bear all their costs and
expense in connection with the negotiation and consummation of the
transactions contemplated herein, including fees due to their own
financial and other advisors and consultants and costs and expense
connected with instrumental activities or transactions undertaken
with a view to enter into the transactions contemplated herein, and
shall indemnify the other against any claim by third parties relating
to such costs, fees and expense.
ARTICLE 15 - ENTIRE AGREEMENT - AMENDMENTS
15.1 The Agreement and the Additional Agreements merge and
supersede any prior written or verbal understandings between the
parties in connection with the subject matters thereof.
15.2 The Agreement prevails over any deed or form executed
in accordance herewith to effect the Sale and Purchase of the Quota
and the Sale and Purchase of the Shares.
15.3 Any amendments or supplements to the Agreement or
the Additional Agreements shall only be valid and effective if in
writing and duly executed by all parties thereto.
ARTICLE 16- SEVERABILITY
Should one or more provisions contained herein be invalid or
unenforceable under the applicable provisions of law, such provisions
shall be severed from the Agreement and the parties shall in good
faith negotiate and agree to replace such provisions with other(s)
having the same economic effect to the maximum extent as permitted
by the law.
ARTICLE 17- CONFIDENTIALITY
17.1 Each party shall keep the contents of the Agreement
strictly confidential, except for disclosures to legal consultants and
auditors or disclosures required by provisions of laws or regulations
applicable to each of the parties.
17.2 The originals pertaining to Buyers, Watts and the
Company shall be kept in their files at the European or U.S.
headquarters and photocopies will be made and delivered only in
accordance with the provisions of the preceding paragraph 17.1.
ARTICLE 18 - GUARANTORS
18.1 Guarantors execute the Agreement to guarantee
to Buyers the full and faithful performance of all the obligations
assumed herein by Seller, the Holding Company and BMI.
18.2 Watts, represented by Mr. Michael 0. Fifer duly
empowered by the Board resolution copy of which is attached hereto
as Annex 16, executes the Agreement in so far as it is concerned, to
guarantee to Seller the full and faithful performance of all obligations
assumed herein by Buyers.
ARTICLE 19 - SUCCESSORS AND ASSIGNEES
19.1 The Agreement is binding on the parties and their
respective successors in business.
19.2 Neither party shall assign the Agreement or rights and
obligations deriving from the Agreement to a third party, without first
obtaining the written consent of the other parties.
ARTICLE 20 - NOTICES
20.1 Any notice or communication by one party to the other
parties in connection with the Agreement shall be in writing and
delivered in person or sent by registered letter and telefax as follows:
if to Seller: Philabel International N.V.
22, Julianaplein
Curagao (Netherlands Antilles)
telefax: (599) 9617879
Attention: EquityTrust (Curacao) NV
if to Guarantors, to their common representative A. Vienna:
Mr. Antonio Vienna c/o Studio Beretta
Via Archimede, 57
Milano
telefax: (2) 70124648
if to Buyers: Watts Industries, Inc.
815 Chestnut Street
North Andover, Massachusetts 01845
telefax: (508) 6882976
Attention: Corporate Counsel
Watts Industries Europe BV
Kollergang 14
6961 LZ Eerbeek
(the Netherlands)
telefax: (31) 833854192
Attention: C.F.O.
20.2 Notices delivered in person shall be effective immediately.
Notices sent by telefax shall be effective immediately if sent on a
business day or, if not, on the first subsequent business day. Notices
sent by registered letter shall be effective upon receipt, unless the
letter confirms a previous notice by telefax.
ARTICLE 21 - COUNTERPARTS
The Agreement has been drawn up in seven counterparts one
for each party, each of which is an original and all of which constitute
one and the same document.
ARTICLE 22 - GOVERNING LAW
The Agreement shall be governed by, and construed in
accordance with, Italian substantive law.
ARTICLE 23 - CONTROVERSIES
23.1 In the event of any dispute arising between the parties
howsoever in connection with the Agreement the parties shall
endeavour in good faith to settle such disputes amicably.
23.2 Should the parties be unable to reach an amicable
solution, then any such dispute (including, but not limited to, those
concerning validity, interpretation, breach, termination, prejudicial or
competence matters) will be finally settled upon request by any party
by a three members arbitration panel under the arbitration
provisions of the Canton Zilrich, expressly excluding the application
of Art. 176 et seq. of the Federal Law on Private International Law.
23.3 Any party wishing to submit a dispute to arbitration
shall inform the other parties in dispute by registered letter. Within
15 (fifteen) days of receipt of such communication, the parties in
dispute will by mutual agreement appoint three arbitrators, including
the umpire. Failing agreement in whole or in part, the arbitrators)
required to compose the arbitration panel shall be appointed, upon
request by any party, by the President pro-tempore of the Tribunal of
Commerce of the Canton Zilrich.
23.4 The arbitration shall be held in Zurich in the English
language.
23.5 Procedural rules shall be those set out in the March 27 -
August 27, 1969 "Concordat". Substantive law shall be Italian law.
23.6 The parties as of now waive deposit of the award and
notification through judicial authority pursuant to Art. 35.5 of the
"Concordat".
23.7 The arbitration award shall be rendered within 90
(ninety) days and shall be final and binding upon the parties.
In witness whereof, the parties have caused the Agreement to
be executed by their duly empowered representatives on the day and
place first above written.
WATTS INDUSTRIES EUROPE BV
By:/s/ Johan van Kouterik
(Johan van Kouterik), Vice President
KF INDUSTRIES EUROPE BV
By:/s/ Michael O. Fifer
(Michael O. Fifer), President
PHILABEL INTERNATIONAL NV
By:/s/ J.W.E. Moret
(J.W.E. Moret),
Attorney-in-Fact
/s/ Antonio Vienna
Mr. Antonio Vienna
G.I.V.A. SpA
By:/s/ Antonio Vienna
(Antonio Vienna), Sole Director
and, in so far as they are concerned,
WATTS INDUSTRIES, INC.
By:/s/ Michael Fifer
(Michael O. Fifer), Vice President
PIBIVIESSE SpA
By:/s/ Antonio Vienna
(Antonio Vienna), President
LIST OF ANNEXES
Annex 1 - Powers of Watts Europe Is Representative
Annex 2 - Powers of KF Industries' Representative
Annex 3 - Powers of Seller Is Representative
Annex 4 - Powers of GIVA's Representative
Annex 5 - Reference Balance Sheet and Calculation of
the Provisional Portion of the Price
Annex 6 - Agreed Criteria
Annex 7 - Form of Buyers I First Bank Guarantee
Annex 8 - Form of Buyers' Second Bank Guarantee
Annex 9 - Form of Seller Is Bank Guarantee
Annex 10 - List of Outstanding Guarantees in Favour of
Creditors of the Operating Companies
Annex 11 - List of Outstanding Guarantees issued by
the Company in Favour of Creditors of Companies
of the GIVA Group
Annex 12 - Representations and Warranties
Schedule A - Patents
Schedule B - Trademarks
Schedule C - Patent Litigations
Schedule D - Material Contracts
Schedule E - List of personnel
Schedule F - Special Terms of
Employment
Schedule G - Insurance Policies
Schedule H - Bank Accounts and Credit
Facilities
Schedule I - Other Litigations
Annex 13 - The New Plant
Annex 14 - The Expansion
Annex 15 - List of countries
Annex 16 - Powers of Watts' Representative
Annex 9
Form of Seller's Bank Guarantee
To: KF Industries Europe BV
___________, [Closing Date]
Guarantee no.: ___________
Whereas:
A. on the date hereof, PHILABEL INTERNATIONAL NV (the
"Seller"), Mr. Antonio Viena and G.I.V.A. SpA (the "Guarantors"), of
the one part, and WATTS INDUSTRIES EUROPE B.V. ("Watts
Europe") and KF INDUSTRIES EUROPE BV ("KF"), of the other part,
entered into a stock purchase agreement (the "Agreement") having as
object the sale from Seller to Buyers of 100% of the shares
representing the entire share capital of PHILABEL NV (the "Holding
Company"), which in turn owns 100% of the shares representing the
entire share capital of Pibiviesse SpA, Mazzo di Rho, Milano;
B. the sale and purchase of the Holding Company
contemplated by the Agreement (the "Sale and Purchase") has been
made on the date hereof (the "Closing Date");
C. the Agreement provides inter alia that the Seller assumes
the obligation to pay to Watts Europe and KF (collectively the
"Buyers") certain indemnifications upon certain terms and conditions
(the "Indemnification");
D. the Agreement further provides that, to guaranty
payment of Indemnifications due to Buyers, if any, Seller has to
deliver to KF at the Closing Date a bank guarantee, issued by a first
class bank in favour of KF for the total amount of 4,026,671,163
(four billion twenty-six million six hundred seventy-one thousand one
hundred sixty-three) Italian Lire; and
E. the Agreement also provides that all disputes arising in
connection with the Agreement shall be finally settled by arbitration
under Italian law in accordance with the Swiss rules of civil procedure,
now, therefore,
on order of Seller the undersigned ________ (the "Bank"), represented
by ______, hereby irrevocably issues this guarantee for the total
amount of 4,026,671,163 (four billion twenty-six million six hundred
seventy-one thousand one hundred sixty-three) Italian Lire in favour
and to the benefit of KF to guaranty payment to Buyers of
Indemnifications, if any.
On _______, 1997 the total amount of this guarantee shall be
automatically reduced from 4,026,671,163 (four billion twenty-six
million six hundred seventy-one thousand one hundred sixty-three)
to 2,013,335,581 (two billion thirteen million three hundred
thirty-five thousand five hundred eighty-one) Italian Lire, unless the
Bank has received prior to such date of ________ 1997 a written
communication by KF (the "KF's Communication") stating that a
claim or claims of Buyers with respect to Indemnifications is or are
pending.
Accordingly, the undersigned Bank irrevocably undertakes to
immediately pay to KF any amount -- up to the said maximum
amount of 4,026,671,163 (four billion twenty-six million six hundred
seventy-one thousand one hundred sixty-three) Italian Lire, as it may
be reduced as above to 2,013,335,581 (two billion thirteen million
three hundred thirty-five thousand five hundred eighty-one) Italian
Lire -- which may be due to Buyers as resulting from a written
statement signed by KF and Seller or pursuant to an arbitration
award rendered under the Agreement and as indicated in such
arbitration award, upon receipt by our bank of a written request of
payment by KF accompanied by an original of the above statements
signed by Buyers and Seller or a certified copy of said arbitration
award, as of now waiving the right to request that KF or Buyers first
bring action against Seller and/or Guarantors and any other possible
exception and notwithstanding any possible opposition by the Seller,
Guarantors or anybody else.
This guarantee may be enforced one or more times, up to the
said maximum amount of 4,026,671,163 (four billion twenty-six
million six hundred seventy-one thousand one hundred sixty-three)
Italian Lire, as it may be reduced as above to 2,013,335,581 (two
billion thirteen million three hundred thirty-five thousand five
hundred eighty-one) Italian Lire, and within the limit of the amount
of this guarantee which remains outstanding after any previous
payment made by the Bank to KF under this guarantee.
This guarantee shall be valid until six years from the Closing
Date (the "Term"), provided that, in the event that prior to such Term
KF has delivered to the Bank a written communication stating that
an arbitration proceeding is pending under the Agreement ("KF's
Arbitration Communication"), accompanied by a certified copy of the
request for arbitration made by any part to the Agreement, then the
validity of this guarantee shall automatically extend until the
expiration of the thirtieth day after the date on which the arbitration
award has been rendered in the above arbitration proceeding (the
"Extended Term").
Upon expiration of Term, or of the Extended Term in the event
of pending arbitration, as the case may be, should this Bank have not
received any request of payment of this guarantee by KF in the
manner set forth herein, then this guarantee shall cease to have any
effect, irrespective of whether or not the original counterpart is
returned to the Bank.
Any communication by the Buyers to the Bank contemplated in
this guarantee will be made by means of registered letter sent by mail
or hand delivered.
This guarantee shall be governed by and interpreted according to Italian law.
Bank
Annex 12
Representations and Warranties
The Representations and Warranties of Seller and Guarantors
are as set forth hereinafter.
A. With respect to the Holding Company
(a) Good standing
The Holding Company is a company duly organized, validly
existing and in good standing under the laws of the Netherlands.
(b) By-laws and Corporate Records
Correct and complete copy of the Bylaws of the Holding
Company has been delivered to Buyers prior to the date hereof.
(c) Shares
Seller has full legal title to the Shares and full right, power and
authority to sell, transfer and deliver the Shares to Buyers.
The Shares have been duly and validly is sued, are fully paid
up and represent 100% (one hundred per cent) of the issued and
outstanding share capital of the Holding Company.The Shares are
free and clear of any pledges, liens, encumbrances, restrictions or
commitments and of any rights of third parties.
There are no other shares or bonds issued by the Holding
Company, as well as no outstanding options, warrants or any other
rights of third parties to purchase or otherwise acquire shares or
bonds, whether issued or not, of the Holding Company or a share in
the profits of the Holding Company and no depository receipts have
been issued.
The share certificates in respect of the Shares delivered by
Seller to Buyers at the Closing Date are valid, represent the totality of
the Shares and delivery thereof by Seller to Buyers vests in Buyers
legal and beneficial title to the Shares.
(d) Assets and Liabilities
The Holding Company is a company having as its main asset a
participation consisting in 100% of the shares representing the entire
share capital of the Company. The Holding Company has no actual
or contingent liabilities (apart from its share capital and an amount
due for taxes and duties, including corporate tax, which amount is
fully covered by cash at hand) and no obligations or commitments of
any kind, either contractual or otherwise, to any third party.
(e) Compliance with Laws
The Holding Company has complied with and is not in default
under or in violation of any law, statute, rule, regulation, ordinance,
code, license, permit, authorization or other provisions applicable to
it, including in particular those concerning tax and environmental
matters.
B. With respect to the Operating Companies
(a) Title to the Company's Shares and to the Quota
The Holding Company has full legal title to the Company's
shares and full right, power and authority to sell, transfer and deliver
them to Buyers.The Company has full legal title to the Quota and full
right, power and authority to sell and transfer the Quota to the
Designated Company.
(b) Shares and Quota
The Company Is shares have been duly and validly issued, are
fully paid up and represent 100% (one hundred per cent) of the
issued and outstanding shares of the Company. The Company's
shares are free and clear of any pledges, liens, encumbrances,
restrictions or commitments and of any rights of third parties. There
are no other shares, or bonds issued by the Company, as well as no
outstanding options, warrants or any other rights of third parties to
purchase or otherwise acquire shares or bonds of the Company.
The Quota is fully paid up and constitutes 80% (eighty per
cent) of the entire share capital of De Martin. The Quota is free and
clear of any pledges, liens, encumbrances, restrictions or
commitments and of any rights of third parties. The Company is not
party to any shareholders' agreement or any other agreement with
the Minority Shareholders of De Martin.
(c) Bylaws and Corporate Records
Correct and complete copy of the updated Bylaws of the
operating Companies have been delivered to Buyers prior to the date
hereof.The corporate records of the Operating Companies are
regularly kept and all minutes of the shareholders and the board of
directors meetings have been entirely and regularly recorded therein.
(d) Good standing
Each of the Operating Companies is a company duly organized,
validly existing and in good standing under the laws of Italy, has full
right and authority to own its property and to carry on its business
as now conducted and has all legal permits, licenses and any other
authorizations required to own and operate its assets, and to engage
in its business as presently conducted. There are no pending or
threatened conditions or events regarding the continued use of the
facilities owned or leased by the operating Companies at the present
operating locations.
(e) Compliance with Laws
Each of the Operating Companies has complied with and is not
in default under or in violation of any law, statute, rule, regulation,
ordinance, code, license, permit, authorization or other provisions
relating to it or its properties and assets or applicable to its business
or products, including in particular, but, not limited to, those
concerning tax, social, labor, environmental, health and security, and
building matters.
(f) Reference Balance Sheet
The Reference Balance Sheet has been prepared in accordance
with the law and accounting principles generally accepted in Italy, as
well as with the Agreed Criteria, and are true, real and correct and
fairly present the financial position of the Company and the situation
of its business as of the date thereof, its assets and liabilities and the
results of its operations. The Company has no liabilities or
obligations, either accrued, absolute, contingent or otherwise, except
(i) to the extent specifically set forth in the Reference Balance Sheet;
or (ii) normal liabilities incurred in the ordinary course of business
since the date of the Reference Balance Sheet and until the Closing
Date.
(g) Balance Sheets
The approved balance sheets of the Operating Companies as at
December 31, 1993, copies of which have been delivered to Buyers
prior to the date hereof, have been prepared in accordance with the
law and accounting principles generally accepted in Italy, and are
true, real and correct and fairly present the financial position of the
Company and the situation of its business as of the date thereof, its
assets and liabilities and the results of its operations.
De Martin has no liabilities or obligations, either accrued,
absolute, contingent or otherwise not reflected in its balance sheet as
at December 31, 1993, except normal liabilities incurred in the
ordinary course of business since the date of its approved balance
sheet for the year 1993 and until the Closing Date. There are no
adverse changes in the financial and economic situation of De Martin
at the Closing Date with respect to its financial and economic
situation at December 31, 1993.
(h) Conduct of Business
From September 1, 1994 and until the Closing Date the
Company has conducted its business in the normal and regular
course which includes, without limitation:
(i) no payment of dividends or other
distribution to shareholders;
(ii) no issuance or redemption of capital stock of
the Company or options or rights to purchase stock of the Company;
(iii) no agreements for any transaction or series
of related transactions having an aggregate value in excess of 200
(two hundred) million Italian lire, except for ordinary product sales;
(iv) no agreements to borrow or lend any amount
of money or to guarantee any obligations; and
(v) no material change in management or
personnel nor in personnel policies, practices or remunerations, and
Seller has not encumbered or granted any rights with respect to the
assets of the Company.
(i) Interest in Other Entities
The Company has no subsidiaries and does not own, directly or
indirectly, any interest or investment in any corporation, partnership
or other entity, except for the participation in De Martin described in
the Agreement. De Martin has no participations.
(j) Title to Properties and Assets
The Operating Companies own outright and have full legal title
to all properties and assets reflected in the Reference Balance Sheet,
as far as the Company is concerned, and in the balance sheet as at
December 31, 1993, as far as De Martin is concerned, as being
owned by it, respectively. All such properties and assets owned by
the Operating Companies constitute all assets required to conduct
business as currently conducted and are subject to no liens, pledges,
mortgages, encumbrances, reservations of ownership of any kind.
(k) Conditions of Fixed Assets
All real property and other fixed assets used by the Operating
Companies conform to applicable laws and regulations. All required
licenses, permits and other authorizations required for the operation
of the Operating Companies' business as presently conducted are in
full force and effect.
All machinery and equipment used by the Operating
Companies are in good operating conditions, except for ordinary wear
and tear.
(l) Inventories
The inventories of raw materials, supplies,work in process and
finished goods reflected in the Reference Balance Sheet as well as
those acquired after the date thereof are properly valued and
recorded in accordance with accounting principles generally accepted
in Italy as well as with the Agreed Criteria and consist of items usable
and saleable in the ordinary course of business, and are not obsolete,
except as otherwise set forth in the Reference Balance Sheet, or in
the books of account of the Company.
The same applies to De Martin, with reference to its approved
balance sheet as at December 31, 1993.
(m) Credits
All accounts, notes receivable and other credits of the
Operating Companies created until the Closing Date, have arisen
from bona fide transactions, are valid, genuine and collectible at their
respective maturity dates.
(n) Industrial Property Rights
Each of the Operating Companies owns or has licenses or other
rights to use all patents, patent applications, inventions, trademarks,
trade names, copyrights, trade secrets and know how presently used,
related to, or necessary for its business as presently conducted. The
patents and patent applications of the Operating Companies are
listed in Schedule A attached hereto. The Trademarks and
trademarks applications of the Operating Companies are listed in
Schedule B attached hereto.No proceedings or claims for
infringement of any rights of a third party has been received, is
pending or is known to be threatened against the Operating
Companies and none of the Operating Companies products infringes
any rights of third parties, except for the litigations described in
Schedule C attached hereto, with the express understanding that
Seller and Guarantors shall keep harmless and indemnify the
Company from any and all costs, expenses, (including legal fees) and
damages deriving from, or connected with, said litigations described
in Schedule C.
(o) Taxes
Each of the Operating Companies has filed for correct amounts
with the appropriate authorities all tax declarations required by law
to be filed. No tax requests, claims or proceedings are pending or, to
the best knowledge of Sellers, threatened against the operating
Companies. All taxes, including those related to the Sale and
Purchase of Certain Participations, which are due and payable by the
Operating Companies until the Closing Date have been paid or
adequately reserved for, as the case may be. Notwithstanding
anything to the contrary hereinabove, Seller and Guarantors will not
have any liability for direct taxes due by the Company in connection
with the Sale and Purchase of the Quota.
(p) Compliance with Environmental, Health and Safety
Legislation
Each of the Operating Companies does not violate nor has
violated any environmental, health or safety rules currently in force.
All necessary licenses, permits, approvals and authorizations for the
performance of the activity carried out by the operating Companies,
and particularly building permits and operating licenses granted by
competent authorities, are in full force and effect and Sellers and the
Operating Companies have not been informed or have no knowledge
of any reason why any of these permits should be suspended,
cancelled, revoked or not renewed. The Operating Companies have
made all investments necessary to maintain the business in
compliance with said permits, licenses, authorizations and approvals,
as well as with applicable environmental health and safety rules.
Each of the Operating Companies has paid until the Closing
Date all duties, levies, taxes and fees, if any, especially those
concerning the waste disposal or water discharges, as well as all
other duties, levies or taxes imposed on the activity of the
Companies.
Each of the Operating Companies has satisfied its obligations,
if any, of keeping books and registers that are mandatory under
environmental legislation and has made all filings required by law.
No inspections have been made by governmental agencies
during the last five years from which any liability has been assessed
against or paid by the Operating Companies or their directors and
there are no other open inspections pending resolution.
Each of the Operating Companies has received no notice or has
no knowledge after due inquiry, that any toxic or hazardous
substances, solid waste or any other pollutants, contaminants or
chemicals, as regulated by the applicable laws, which they have
disposed of, or arranged for the disposal of, have been found at any
site where there exists a release or a threatened release of those
substances.
None of the properties owned or leased by the Operating
Companies has been used by any of them for the handling,
processing, treatment, storage or disposal of hazardous substances
other than in the conduct of the Operating Companies' operations in
accordance with applicable laws. All wastes have been disposed of in
accordance with applicable laws and regulations.
There have been no releases of toxic or hazardous substances
by the Operating Companies outside or into properties owned or
leased by the Operating Companies or, to the best of Seller's
knowledge, by others into properties owned or leased by the
Operating Companies.
Any charges, costs and expenses deriving from, or connected
with said releases or waste disposals offsite or any soil or
groundwater contaminations that occurred before the Closing Date
will be borne by Seller until the time period for a Claim by Buyers
concerning environmental matters has expired pursuant to the
Agreement.
Without limitation to the foregoing and with regard to
underground tanks existing at facilities owned or leased by the
operating Companies, it is stipulated that, should applicable
provisions of law or orders of authorities require removal, or anyhow
prudent in the reasonable business judgment of an owner with a long
term perspective of owning and operating the business, upgrading,
decontamination or any other remedial actions, including with regard
to contamination of soils and/or groundwater, any charges, costs and
related expenses shall be for the account of Seller.
(q) Material Contracts
The contracts, agreements or other contractual engagements
whether written or verbal presently in force with the Operating
Companies, which are material for the Operating Companies (i.e.
having either a value exceeding 150 (one hundred fifty) million Italian
lire or a term exceeding 1 (one) year, as well as all the consultancy
agreements (the "Contracts") are listed or (if verbal) fully described in
Schedule D attached hereto.Each of the Operating Companies is not
in breach under any of the contracts, agreements or other
contractual engagements to which it is a party.
(r) Penalties for Late Deliveries
Penalties due by the Operating Companies for late deliveries of
products ordered by clients before the Closing Date shall not exceed
500 (five hundred) million Italian Lire, excluding from calculation
penalties already paid by the Operating Companies before the date of
the Closing Balance Sheet.
(s) Cancellation of Contracts
Except for the Supply Agreement dated August 31, 1994
between Shell U.K. Exploration and Production and the Company,
there are no Contracts having clauses which give the right to the
respective counterparts to cancel such Contracts and/or to be
entitled to receive any compensation or modify the terms thereof
(including payment and/or restitution terms) , because of the
Transfer.
(t) Employees and Managers
The list of managers, employees and workers of the Operating
Companies setting out the relevant salaries and compensations is
attached hereto as Schedule E and Buyers acknowledge that the
Company will hire two managers and seven employees effective as of
November 21, 1994.
Except as disclosed in Schedule F attached hereto, each of the
Operating Companies is not a party to, nor otherwise bound by:
(i) any "Accordo Aziendale", (ii) any prof it sharing, deferred
compensation, bonus, retainer, health, welfare or incentive plan or
agreement whether legally binding or not; (iii) any plan or policy
providing for 'fringe benefits" to its employees in excess to what is
provided for in the applicable collective agreement, including but not
limited to vacation, disability, sick leave, medical, hospitalization, life
insurance and other insurance plans, and related benefits; (iv) any
retirement or pension plan.
There are no loans presently outstanding between each of the
Operating Companies and any of their directors or managers and
other employees or workers, except for loans granted, pursuant to
law, as an advance payment of their leaving indemnities.
The amount shown on the Reference Balance Sheet for staff
leaving indemnities represents the full amount which the Company
would have been required to pay to its employees for all periods
through the date of the Reference Balance Sheet to cover staff leaving
indemnities if their employment relationship with the Company had
been terminated on that date. There are no other costs payable upon
termination of employment for all periods through the date
mentioned above.
The same applies to De Martin, with reference to its approved
balance sheet as at December 31, 1993.
Each of the Operating Companies has filed and performed all
declarations, returns and other accomplishments required with
respect to its social security and welfare charges, as well as those
charges of their employees to be withheld by the employer, have been
paid in full or withheld until the Closing Date; and no claim or
proceeding is pending, has been notified or is otherwise in progress
or known to be threatened with regard to social and welfare charges.
(u) Insurance Policies
The insurance policies of the operating Companies are listed in
Schedule G attached hereto.
Such insurance policies have been regularly paid and there are
no outstanding claims in respect thereof.
(v) Bank Accounts and Loans
All bank accounts maintained by the operating Companies, as
well as on all credit facilities of the Operating Companies, are listed
in the Schedule H attached hereto.
(x) Litigations
Except as set forth in Schedule I attached hereto there are no
actions, suits, investigations of proceedings pending nor to the
knowledge of Seller, threatened against the Operating Companies, in
any court or by or before any authorities and/or arbitral or similar
bodies; each of the Operating Companies is not subject to any order
judgment or decree or the like with any authority; there are no claims
pending, nor to the best knowledge of Seller threatened, against any
of the Operating Companies.
(y) Product liability and defective goods
Product liability in connection with goods shipped by the
Operating Companies prior to the Closing Date shall be for the
account of Seller, which shall keep harmless and indemnify the
Operating Companies from any costs, expenses or damages deriving
therefrom or connected therewith.
Any liability (including costs, expenses or damages for
replacement, remedial actions or warranty) for defective goods
shipped by the Operating Companies prior to the Closing Date shall
be for the account of Seller to the extent not covered by specific
reserves in the Reference Balance Sheet or in the balance sheet of
De Martin at December 31, 1993.
Any third party claim will be handled in accordance with the
provisions of Art. 9 of the Agreement.
(z) No adverse events
There are no events known to Seller or Guarantors that, either
individually or in the aggregate, may have a material adverse effect
upon the business or assets of the Operating Companies.
