<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9753
GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-1563799
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Perimeter Center Terrace, Suite 595, Atlanta, Georgia 30346
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (770) 395-4500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class August 12, 1998
Common Stock, $0.01 par value.......................30,933,002 shares
- --------------------------------------------------------------------------------
<PAGE>
GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION Numbers
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.................................. 1
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997.................... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997.................... 3
Notes to Condensed Consolidated Financial Statements as of
June 30, 1998 ......................................... 4-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ......... 10-
11
Item 5. Other Information ........................................... 11
Item 6. Exhibits and Reports on Form 8-K............................. 11
SIGNATURES................................................................. 12
<PAGE>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,391 $ 1,621
Receivables 74,018 67,553
Inventories 80,971 92,921
Prepaid expenses 8,119 6,508
Deferred income taxes 7,409 7,409
Total current assets 173,908 176,012
Property, plant and equipment, at cost 670,516 650,968
Less accumulated depreciation 260,648 240,108
Property, plant and equipment, net 409,868 410,860
Other assets 117,031 25,831
Total assets $ 700,807 $ 612,703
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 81,665 $ 92,588
Interest payable 2,497 2,218
Accrued income taxes 1,700 564
Accrued compensation 5,279 7,281
Accrued pension 3,194 2,257
Other accrued liabilities 17,134 13,632
Total current liabilities 111,469 118,540
Long-term debt 492,340 393,040
Deferred income taxes 74,699 65,520
Stockholders' equity
Common stock - $0.01 par value 314 328
Retained earnings 21,985 35,275
Total stockholders' equity 22,299 35,603
Total liabilities and stockholders' equity $ 700,807 $ 612,703
Common shares outstanding 31,379,852 32,781,439
------------------ ----------------
------------------ ----------------
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 225,555 $ 258,208 $ 458,280 $ 497,433
Operating costs and expenses
Cost of sales 180,992 206,430 368,691 409,890
Selling and administrative 10,447 11,874 21,192 22,972
---------------- ----------------- --------------- -----------------
Total operating costs and expenses 191,439 218,304 389,883 432,862
Operating income 34,116 39,904 68,377 64,571
Other income (expense)
Interest, net (7,703) (6,740) (14,829) (12,002)
Income before income taxes 26,413 33,164 53,548 52,569
Provision for income taxes 9,907 12,584 20,086 19,928
Net income $ 16,506 $ 20,580 $ 33,462 $ 32,641
Basic earnings per share $ 0.52 $ 0.61 $ 1.05 $ 0.96
Diluted earnings per share $ 0.52 $ 0.60 $ 1.04 $ 0.95
Weighted average common shares 31,603,716 33,884,054 32,018,855 34,161,236
Weighted average common shares
and equivalents 31,799,781 34,167,528 32,263,111 34,473,603
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
</TABLE>
2
<PAGE>
See notes to condensed consolidated financial statements.
<PAGE>
3
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,462 $ 32,641
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,235 17,840
Change in operating assets, liabilities and other,
net of effects of acquisition 8,131 (4,688)
Net cash provided by operating activities 63,828 45,793
Cash flows from financing activities:
Long-term debt proceeds 156,800 107,400
Long-term debt payments (58,000) (80,000)
Proceeds from issuance of common stock 1,212 786
Repurchase and retirement of common stock (44,152) (29,234)
Dividends paid (5,089) (5,445)
Net cash provided by (used in) financing activities 50,771 (6,493)
Cash flows from investing activities:
Capital expenditures (12,927) (36,134)
Acquisition, net of cash acquired (99,902) --
Net cash used in investing activities (112,829) (36,134)
Net change in cash and cash equivalents 1,770 3,166
Cash and cash equivalents at beginning of period 1,621 698
Cash and cash equivalents at end of period $ 3,391 $ 3,864
-------------- -------------
-------------- -------------
</TABLE>
4
<PAGE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report for the
year ended December 31, 1997.
Operating results for Georgia Gulf Corporation and its subsidiaries (the
"Company" or "Georgia Gulf") for the three- and six-month periods ended June 30,
1998, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires additional disclosure and presentation of amounts comprising
comprehensive income beyond net income. The Company had no other comprehensive
income amounts for the periods presented. As a result, the adoption had no
impact on the Company's reporting under generally accepted accounting
principles.
During June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, although
earlier adoption is permitted. SFAS No. 133 cannot be applied retroactively.
Management has not yet quantified the impacts of adopting SFAS No. 133 on the
Company's financial statements nor determined the timing or method of adoption
of this pronouncement.
NOTE 3: INVENTORIES
The major classes of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
5
<PAGE>
<S> <C> <C>
Raw materials and supplies $ 30,407 $ 34,451
Finished goods 50,564 58,470
Inventories $ 80,971 $ 92,921
--------------------- --------------------
--------------------- --------------------
</TABLE>
NOTE 4: STOCKHOLDERS' EQUITY
The Company repurchased and retired 1,541,700 shares of its common stock
for $44,152,000 during the six months ended June 30, 1998. As of June 30, 1998,
the Company had authorization to repurchase up to 5,980,000 additional shares
under the current common stock repurchase program.
NOTE 5: DERIVATIVE FINANCIAL INSTRUMENTS
The Company has two interest rate swap agreements for a total notional
amount of $100,000,000 maturing in June 2002 to fix the interest rate on a term
loan. Also, the Company has an interest rate swap agreement for a notional
amount of $100,000,000 as a cash flow hedge for a cogeneration facility
operating lease agreement. This interest rate swap agreement will mature August
2002.
The Company does not use derivatives for trading purposes. Interest rate
swap and cap agreements, forms of derivatives, are used by the Company to manage
interest costs on certain portions of the Company's long-term debt. These
financial statements do not reflect temporary market gains and losses on
derivative financial instruments, although the estimated fair value is disclosed
in the Company's annual report for the year ended December 31, 1997. Amounts
paid or received on the interest rate swap agreements are recorded to interest
expense as incurred. As of June 30, 1998, and December 31, 1997, interest rate
swap and cap agreements were the only forms of derivative financial instruments
outstanding.
NOTE 6: EARNINGS PER SHARE
Income available to common stockholders, the numerator in basic and diluted
earnings per share computations, is $16,506,000, and $20,580,000 for the three
months ended June 30, 1998 and 1997, respectively. For the six months ended June
30, 1998 and 1997, the numerator for basic and diluted earnings per share is
$33,462,000 and $32,641,000, respectively.
The following table reconciles the denominator for the basic and diluted
earnings per share computations shown on the condensed consolidated statements
of income (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average common shares 31,604 33,884 32,019 34,161
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Plus incremental shares from
assumed conversions:
Options 196 263 244 290
Employee stock purchase plan rights -- 21 -- 23
------ ------ ----- ------
Weighted average common shares
and equivalents 31,800 34,168 32,263 34,474
------ ------ ----- ------
------ ------ ----- ------
</TABLE>
NOTE 7: ACQUISITION
On May 11, 1998, the Company acquired all the issued and outstanding common
stock (the "Stock") of North American Plastics, Inc. ("North American
Plastics"), a privately-held manufacturer of flexible polyvinyl chloride ("PVC")
compounds with a production capacity of 190,000,000 pounds. North American
Plastics has two manufacturing locations in Mississippi, with revenues for 1997
of approximately $90,000,000. Its PVC compounds are used in wire and cable for
construction, automobiles and appliances, as well as various other consumer and
industrial products.
The Stock was acquired in exchange for net cash consideration of
$99,902,000 plus the assumption of $500,000 in debt. The cash portion of the
acquisition was financed with proceeds from the Company's existing revolving
credit loan. The transaction was accounted for as a purchase and the
consideration exchanged exceeded the fair market value of the net tangible
assets of North American Plastics by approximately $87,000,000. This excess was
allocated to goodwill and is being amortized on a straight-line basis over a
period of 35 years. The results of operations of the acquired business have been
included in the Company's condensed consolidated financial statements from the
date of acquisition. Pro forma results of operations have not been presented
because the effect of this acquisition was not significant.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Industry Overview
Georgia Gulf manufactures and markets products through two highly
integrated lines categorized into electrochemicals and aromatic chemicals; and
also a third product line, methanol, a natural gas chemical. The Company's
electrochemical products include chlorine, caustic soda, sodium chlorate, vinyl
chloride monomer ("VCM"), and polyvinyl chloride ("PVC") resins and compounds;
the Company's primary aromatic chemical products include cumene, phenol and
acetone.
For electrochemicals, industry operating rates for chlorine/caustic plants
ran above 95 percent for the early part of 1998. Demand for caustic has been
steady and pricing has improved over the comparable prior year periods. Georgia
Gulf consumes most of its chlorine capacity internally in the production of VCM,
which is further processed into PVC resins and compounds. Both VCM and PVC
resins have suffered from industry overcapacity which has led to excess supply
and reduced operating rates in both 1998 and 1997. The decline in demand from
Asia has also negatively impacted pricing for VCM and PVC resins. However, the
market demand for PVC compounds, which are more specialized products, has
remained strong in 1998, benefiting from the continued good overall domestic
business environment.
Aromatic industry operating rates were high for both the three- and
six-month periods ended June 30, 1998 as a result of strong demand attributable
to the continued strength of downstream markets for phenol, particularly
bisphenol A and phenolic resins. Domestic phenol prices were stable, although
export prices declined slightly. Acetone prices were also down due to a slight
industry supply and demand imbalance.
The methanol market has experienced a rapid decline since the beginning of
1998. Significant increases in global supply coupled with a lack of demand for
methanol in Asia have created a significant imbalance between supply and demand.
As a result, pricing was lower for the second quarter and first half of 1998, as
compared to the same periods last year.
Second Quarter of 1998 Compared With the Second Quarter of 1997:
For the second quarter ended June 30, 1998, diluted earnings per share were
$0.52 on net income of $16.5 million and net sales of $225.6 million. This
compares with diluted earnings per share of $0.60, net income of $20.6 million
and net sales of $258.2 million for the second quarter of 1997.
Operating income for the second quarter of 1998 was $34.1 million, a
decrease of 15 percent from $39.9 million for the same period in 1997. Total
sales volumes declined five percent over the prior year for the quarterly
comparison as lower methanol and cumene sales volumes overshadowed sales volume
increases for phenol, acetone and the Company's vinyl products. The overall
average selling price of the Company's products experienced an eight percent
decline for the same period comparison. With the exception of caustic soda,
pricing was generally lower for all products with the most significant decline
coming from methanol. Lower raw material costs helped offset a large portion of
these sales price decreases; however, natural gas costs did not decline, which
contributed to the significant deterioration in methanol margins from the prior
year period. Results for the second quarter of 1998 were positively impacted by
the Company's recent acquisition of North American Plastics, Inc. ("North
American Plastics") as operating profits from this business exceeded the
additional financing costs resulting from the acquisition.
8
<PAGE>
Interest expense increased to $7.7 million for the second quarter of 1998,
compared with $6.7 million for the same period in 1997. This increase primarily
is a result of a higher debt balance for the second quarter of 1998 from the
North American Plastics acquisition and the fact that more interest was
capitalized in 1997 in connection with capital expansion activity.
Basic and diluted earnings per share for the second quarter of 1998 were
favorably impacted by a reduction in the number of outstanding common shares
from the second quarter of 1997 as a result of the Company's stock repurchase
programs.
Six Months Ended June 30, 1998 Compared With the Six Months Ended June 30, 1997:
For the six months ended June 30, 1998, diluted earnings per share were
$1.04 on net income of $33.5 million and net sales of $458.3 million. This
compares with diluted earnings per share of $0.95, net income of $32.6 million
and net sales of $497.4 million for the first six months of 1997.
Operating income for the first six months of 1998 was $68.4 million, an
increase of six percent from $64.6 million for the same period in 1997. Total
sales volumes declined two percent over the prior year for the six-month
comparison as sales volume increases for phenol, acetone and the Company's vinyl
products did not offset lower methanol and cumene sales volumes. The overall
average selling price of the Company's products declined six percent for the
period to period comparison. With the exception of caustic soda and acetone,
pricing was generally lower for all products with the most significant decline
coming from methanol and cumene. Lower raw material costs helped offset a large
portion of these sales price decreases; however, natural gas costs declined only
slightly, which contributed to the significant deterioration in methanol margins
from the prior year.
Interest expense increased to $14.8 million for the first six months of
1998, compared with $12.0 million for the same period in 1997. This increase
primarily reflects less capitalized interest in 1998, along with a higher
average debt balance for 1998.
Basic and diluted earnings per share for the first six months of 1998 were
favorably impacted by a reduction in the number of outstanding common shares
from the same period in 1997 as a result of the Company's stock repurchase
programs.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, Georgia Gulf generated $63.8
million of cash flow from operating activities as compared with $45.8 million
for the six months ended June 30, 1997. Major sources of cash flow from
operating activities in the first six months of 1998 were net income of $33.5
million, non-cash provisions of $22.2 million for depreciation and amortization,
and fluctuations in working capital items, primarily resulting from a decrease
in inventories offset by lower accounts payable. Changes in working capital
during the first six months of 1997 were primarily attributable to an increase
in accounts receivable from higher sales during the second quarter of 1997,
offset in part by lower inventories.
Debt increased by $99.3 million during the six months ended June 30, 1998,
to a level of $492.3 million. The revolving credit loan was used to fund the net
purchase price of North American Plastics in May of 1998 for $99.9 million. The
Company had approximately $97.0 million of availability under its $350.0 million
revolving credit loan as of June 30, 1998.
9
<PAGE>
Capital expenditures for the six months ended June 30, 1998 were down
significantly to $12.9 million as compared to $36.1 million for the same period
in 1997. Georgia Gulf completed a major capital expansion program in 1997, which
included capacity expansions in the phenol, acetone, cumene, VCM and PVC
compound plants. Capital expenditures for 1998 will be directed toward certain
environmental projects and increased efficiency of existing operations. The
Company estimates that total capital expenditures for 1998 will approximate
$35.0 million.
The Company declared dividends of $0.16 per share or $5.1 million during
the first six months of 1998. The Company also repurchased and retired 1.5
million shares of its common stock at a cost of $44.2 million during the same
period. As of June 30, 1998, the Company had authorization to repurchase up to
approximately 6.0 million additional shares under the current common stock
repurchase program.
Management believes that cash provided by operations and the availability
of borrowings under the Company's revolving credit facility will provide
sufficient funds to support planned capital expenditures, dividends, stock
repurchases, working capital fluctuations and debt service requirements.
OUTLOOK
Although the acquisition of North American Plastics is having a positive
impact on the Company's earnings, the Company is continuing to experience very
difficult market conditions for both the methanol and PVC resin businesses due
to industry over-capacity and poor economic conditions in the Far East. As a
result, management does not anticipate an improvement in financial performance
for the third quarter of 1998.
FORWARD-LOOKING STATEMENTS
This form 10-Q and other communications to stockholders, as well as oral
statements made by representatives of the Company, may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements relate to, among other things, the Company's outlook
for future periods, supply and demand, pricing trends and market forces within
the chemical industry, cost reduction strategies and their results, planned
capital expenditures, long-term objectives of management and other statements of
expectations concerning matters that are not historical facts.
Predictions of future results contain a measure of uncertainty and,
accordingly, actual results could differ materially due to various factors.
Factors that could change forward-looking statements are, among others, changes
in the general economy, changes in demand for the Company's products or
increases in overall industry capacity that could affect production volumes
and/or pricing, changes and/or cyclicality in the industries to which the
Company's products are sold, availability and pricing of raw materials,
technological changes affecting production, difficulty in plant operations and
product transportation, governmental and environmental regulations and other
unforeseen circumstances. A number of these factors are discussed in this Form
10-Q and in the Company's other periodic filings with the Securities and
Exchange Commission, including the Company's annual report on Form 10-K for the
year ended December 31, 1997.
10
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
As previously reported in its Form 10-K for the year ended December 31,
1997, the Company is a party to numerous individual and several class-action
lawsuits filed against the Company, among other parties, arising out of an
incident that occurred in September 1996 in which workers were exposed to a
chemical substance on the Company's premises in Plaquemine, Louisiana. The
substance was later identified to be a form of mustard agent, a chemical which
is not manufactured as part of the Company's ordinary operations and which
apparently resulted from the unexpected introduction into the Company's
feedstocks of one or more impurities from sources unknown. The Company presently
believes there are approximately 1,950 plaintiffs, of which approximately 600
are workers claiming to have been on-site at the time of the incident.
The lawsuits are pending in the 18th Judicial District, Iberville Parish.
The Company has filed answers in the cases in which it has been served.
Discovery has been occurring in these cases. All of the actions claim one or
more forms of compensable damages, including past and future wages and past and
future physical and emotional pain and suffering.
The Company is presently developing information relating to the extent of
damages suffered, as well as evaluating the merit of such claims, defenses
available and liability of other persons. It is not yet possible to estimate the
Company's ultimate exposure. Notwithstanding the foregoing, the Company believes
it has meritorious defenses to the claims asserted and intends to assert and
pursue those defenses vigorously; further, the Company believes any liability
ultimately imposed would be covered by its liability insurance.
In addition, the Company is subject to other claims and legal actions that
arise in the ordinary course of business. Management believes that the ultimate
liability, if any, with respect to these other claims and legal actions, will
not have a material effect on the financial position or on results of operations
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held May 19, 1998, in
Atlanta, Georgia for the following purposes: (i) to elect three directors to
serve for a term of three years; (ii) to consider and take action upon the
ratification of the selection of Arthur Andersen LLP to serve as independent
public accountants for the year ending December 31, 1998, and (iii) to consider
and take action to approve and adopt the 1998 Equity and Performance Incentive
Plan.
The results of the voting by stockholders at the annual meeting were as
follows:
<TABLE>
<CAPTION>
Broker Non-Votes
Directors For Withheld or abstentions
----------------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Alfred C. Eckert III 29,088,762 822,854 0
Jerry R. Satrum 28,741,217 1,170,399 0
Edward A. Schmitt 28,742,534 1,169,082 0
In addition, the terms of the following directors continued after the meeting:
John D. Bryan
Dennis M. Chorba
Robert E. Flowerree
</TABLE>
11
<PAGE>
James R. Kuse
Edward S. Smith
The selection of Arthur Andersen LLP to serve as independent public
accountants for the Company for the year ending December 31, 1998, was ratified
by the following votes:
For Against Abstain Broker Non-Votes
---------- ------ ------- ----------------
29,854,112 23,463 34,041 0
The adoption of the 1998 Equity and Performance Incentive Plan was approved
by the following votes:
For Against Abstain Broker Non-Votes
---------- -------- --------- ----------------
24,199,814 2,956,732 2,755,070 0
Item 5. Other Information.
Proposals by stockholders intended to be presented at the 1999 Annual
Meeting must be forwarded in writing and received at the principal executive
office of the Company no later than December 1, 1998, directed to the attention
of the Secretary, for consideration for inclusion in the Company's proxy
statement for the Annual Meeting of Stockholders to be held in 1999. Moreover,
with regard to any proposal by a stockholder not seeking to have such proposal
included in the proxy statement but seeking to have such proposal considered at
the 1999 Annual Meeting, if such stockholder fails to notify the Company in the
manner set forth above of such proposal no later than February 13, 1998, then
the persons appointed as proxies may exercise their discretionary voting
authority if the proposal is considered at the 1999 Annual Meeting
notwithstanding that stockholders have not been advised of the proposal in the
proxy statement for the 1999 Annual Meeting. Any proposals submitted by
stockholders must comply in all respects with the rules and regulations of the
Securities and Exchange Commission and the provisions of the Company's
Certificate of Incorporation and Bylaws and of Delaware law.
Item 6. Exhibits and Reports on Form 8-K.
a) The following exhibits are filed as part of this Form 10-Q Quarterly
Report.
Exhibit No. Description
10 (a) Stock Purchase Agreement, dated May 11, 1998, between
the Company and North American Plastics, Inc.
b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the second quarter of 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEORGIA GULF CORPORATION
------------------------
(Registrant)
Date August 13, 1998 /s/ Edward A. Schmitt
---------------------------------------- ---------------------
Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date August 13, 1998 /s/ Richard B. Marchese
---------------------------------------- -----------------------
Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEORGIA GULF CORPORATION
------------------------
(Registrant)
Date August , 1998
---------------------------------------- ---------------------
Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date August , 1998
---------------------------------------- ---------------------
Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
14
<PAGE>
Exhibit 10(a)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made this 11th day of May, 1998, by
and among GEORGIA GULF CORPORATION, a Delaware corporation ("Purchaser"), NORTH
AMERICAN PLASTICS, INC., a Mississippi corporation (the "Acquired Company"),
JOHN S. CHEW, JR. ("Chew") and the SHAREHOLDERS as defined hereinbelow (the
"Shareholders").
W I T N E S S E T H :
WHEREAS, John S. Chew, Jr. Revocable Trust, Karen C. Robinson, Kelly
Pauline Robinson Qualified Subchapter S Trust, Olivia Ann Robinson Qualified
Subchapter S Trust and Claire Elizabeth Robinson Subchapter S Trust
(collectively, the "Shareholders") are the current holders of all of the issued
and outstanding shares of capital stock of the Acquired Company;
WHEREAS, Chew is formerly a shareholder of the Acquired Company and its
founder, and is the grantor of the John S. Chew, Jr. Revocable Trust;
WHEREAS, the parties hereto desire to enter into this Stock Purchase
Agreement pursuant to which Purchaser will acquire all of the issued and
outstanding shares of capital stock of the Acquired Company from the
Shareholders, upon the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, agreements, representations, warranties and covenants hereinafter set
forth, the parties hereto agree as follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
1.1 "Acquired Company" shall mean North American Plastics, Inc., a
Mississippi corporation.
1.2 "Agreement" shall mean this Stock Purchase Agreement.
1.3 "Airplane" shall mean the Acquired Company's certain model Learjet
60 (Serial Number 106) airplane, and equipment related thereto to be identified
in Exhibit 1.3 hereto.
1.4 "Benefit Plans" shall have the meaning set forth in Section 3.16
hereof.
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1.5 "Business" shall mean the operations currently conducted by the
Acquired Company.
1.6 "Chew" shall mean John S. Chew, Jr., a Mississippi resident.
1.7 "Closing" shall mean the consummation of the transactions provided
for in this Agreement.
1.8 "Closing Date" shall mean the date on which the Closing occurs
pursuant to Section 7.1 hereof.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.12 "Consulting Agreement" shall mean the Consulting Agreement between
the Acquired Company and Chew, substantially in the form attached as Exhibit
2.17 hereto.
1.10 "Covenant Not to Compete" shall mean the Covenant Not to Compete
between Purchaser, the Acquired Company and Chew, substantially in the form
attached as Exhibit 2.16 hereto.
1.11 "Election" shall mean the election provided by Section 338(h)(10)
of the Code and any corresponding elections under state, local and foreign tax
laws.
1.12 "Environmental Matters" shall mean all matters of or relating to
the handling, treatment, storage or disposal into the environment of Hazardous
Substances and compliance with laws and regulations relating to the environment.
1.13 "ERISA" shall mean the Employment Retirement Income Security Act
of 1974, as amended.
1.14 "ERISA Plan" shall have the meaning set forth in Section 3.16.1
hereof.
1.15 "Existing Title Encumbrances" shall mean the matters encumbering
title to the Real Property set forth in Exhibit 3.7.2.2 hereto.
1.16 "Governmental Body" shall mean any foreign, federal, state, local
or other governmental authority or regulatory body, including without limitation
a political subdivision, agency or court.
1.17 "Hazardous Substance" shall have the meaning set forth in Section
3.19 hereof.
1.18 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
1.19 "Improvements" shall mean, collectively, any and all buildings,
fixtures and other improvements located on the Real Property.
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1.20 "Intellectual Property Rights" means all (a) patents, patent
applications, patent disclosures and inventions, (b) Internet domain names,
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof together with all of
the goodwill associated therewith, (c) copyrights (registered or unregistered)
and copyrightable works and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, data bases and documentation thereof, (f)
trade secrets and other confidential information (including ideas, formulas,
compositions, inventions, whether patentable or unpatentable and whether or not
reduced to practice, know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (g) other
intellectual property rights and (h) copies and tangible embodiments thereof (in
whatever form or medium).
1.21 "Interim Balance Sheet" shall mean the balance sheet included
within the Interim Financial Statements.
1.22 "Interim Financial Statements" shall have the meaning set forth in
Section 3.5 hereof.
1.23 "Interim Financial Statement Date" shall mean March 31, 1998.
1.24 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.25 "1996 and 1997 Financial Statements" shall have the meaning set
forth in Section 3.5 hereof.
1.26 "Permits" shall mean all licenses, registrations, certificates,
approvals, and permits issued by governmental authorities and quasi-governmental
authorities in regard to the Real Property, the Improvements, or any portion or
component of either thereof.
1.27 "Permitted Shareholder Debt Reduction" shall have the meaning set
forth in Section 3.10.10 hereof.
1.28 "Permitted 1998 Pre-Closing Dividends" shall mean dividends made
to Shareholders by the Company on or after January 1, 1998 and prior to Closing
up to but not exceeding the amount therefor accrued on the balance sheet of the
Company as of December 31, 1997 (included in the 1996 and 1997 Financial
Statements).
1.29 "Permitted 1998 Tax Distribution Closing Payments" shall have the
meaning set forth in Section 2.4 hereof.
1.30 "Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, estate, unincorporated organization or Governmental Body.
1.31 "Property" shall have the meaning set forth in Section 3.19
hereof.
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1.32 "Purchaser" shall mean Georgia Gulf Corporation, a Delaware
corporation.
1.33 "Real Property" shall mean those certain tracts of land located in
Monroe County and Madison County, Mississippi, and described on Exhibit 3.7.2.1
hereto.
1.34 "Representative" shall mean Chew, or in the event that Chew
resigns, dies or is physically unable to act as the "Representative," then the
"Representative" shall mean Karen C. Robinson.
1.35 "Shareholders" shall mean the Persons identified in the recitals
hereto as the "Shareholders."
1.36 "Tax Returns" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
1.37 "Taxes" shall mean any federal, state, local or foreign income,
gross receipts, property, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add-on minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any Governmental Body.
II. COVENANTS AND UNDERTAKINGS.
2.1 Purchase and Sale of Stock. Subject to the terms and conditions
hereinafter set forth, the Shareholders shall, at the Closing, sell, assign,
transfer, convey and deliver to Purchaser, free and clear of all liens, claims,
charges, security interests, and other encumbrances of any nature whatsoever,
all of the issued and outstanding shares of capital stock of the Acquired
Company. Such sale, transfer, conveyance and delivery shall be evidenced by duly
endorsed in blank share certificates or share certificates accompanied by duly
executed stock powers (in either case, and with all necessary transfer taxes, if
any, paid or other revenue stamps affixed thereto).
2.2 Purchase Price; Retirement of Debt.
2.2.1 Purchaser, in full payment for the shares of capital stock of the
Acquired Company, shall pay to the Shareholders Ninety-Eight Million Two Hundred
Eighty-Eight Thousand Dollars ($98,288,000.00), which sum shall be paid among
the Shareholders in accordance with Exhibit 2.2.1.
2.2.2 In addition, at and coincident with the Closing, Purchaser shall
contribute, lend or otherwise provide to the Acquired Company the funds
sufficient to pay and retire in full the debt (including accrued interest) of
the Acquired Company owing to Chew at the Closing up to and not exceeding the
amount reflected on the Interim Balance Sheet in respect thereof, plus any
interest accrued thereon, but unpaid, at the stated rate for such obligation
from the Interim Financial Statement Date through the Closing Date, less Eight
Million Dollars ($8,000,000.00) to reflect the
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credit indicated in Section 2.3 hereof. In addition, at the Closing the
Shareholders will receive the Permitted 1998 Tax Distribution Closing Payments
and the Shareholders' Estimate for Election Reimbursement Amount as calculated
pursuant to and in accordance with the provisions of Sections 2.4 and 2.5
hereof.
2.3 Purchase of Airplane. Prior to the Closing, Chew or an affiliated
company shall purchase from the Acquired Company the Airplane for Eight Million
Dollars ($8,000,000.00). Such purchase shall be effected by Chew deducting such
amount from, and crediting same against to reduce, the debt owed by the Acquired
Company to Chew described in Section 2.2 hereof. Such transfer shall be made
pursuant to a bill of sale and assignment and assumption of contract rights
related to the Airplane in the form of Exhibit 2.3 attached hereto. Any sales,
transfer, recording or other taxes, fees and expenses (other than taxes in
respect of income) relating to such transfer will be borne solely by Chew.
2.4 Permitted Distribution.
2.4.1 Prior to Closing the Representative, on behalf of the
Shareholders, shall provide the Purchaser a good faith calculation (the
"Shareholders' Estimate for 1998 1st Four Months' Tax Liability") of taxes
estimated to be payable by each of the Shareholders in respect of income
attributed to each Shareholder by reason of the ownership by such Shareholder of
the capital stock of the Acquired Company and solely as to the operations of the
Acquired Company during the period beginning on January 1, 1998 and ending on
April 30, 1998 (such liability for taxes, herein the "1998 1st Four Months' Tax
Liability"). The Shareholders' Estimate for 1998 1st Four Months' Tax Liability
shall be in writing and be accompanied by work papers and other information and
data pertaining to the Acquired Company and the Shareholders reasonably
sufficient to demonstrate the estimate of liability for taxes thereby provided.
Such calculation, and each of the further calculations described herein, shall
be made individually as to each Shareholder. The Acquired Company at and
coincident with Closing shall distribute and pay to each Shareholder (and the
Purchaser shall contribute, lend or otherwise provide the Acquired Company such
funds to the extent necessary to cause a distribution and payment to such
Shareholder of) the Shareholders' Estimate for 1998 1st Four Months' Tax
Liability for such Shareholder (the "Permitted 1998 Tax Distribution Closing
Payments"). Subsequent to Closing the Acquired Company shall prepare and shall
provide to the Representative the final Forms K-1 for the Acquired Company for
1998 and its written calculation ("Calculation for 1998 Tax Liability") of the
taxes estimated to be payable by each Shareholder in respect of income
attributed to each Shareholder by reason of the ownership by such Shareholder of
the capital stock of the Acquired Company and solely as to the operations of the
Acquired Company during the period beginning on January 1, 1998 and ending on
the Closing Date (such liability for taxes herein the "1998 Tax Liability"). The
Calculation for 1998 Tax Liability shall be based on and consistent with the
Forms K-1. The Acquired Company shall pay to such Shareholder (and the Purchaser
shall contribute, lend or otherwise provide the Acquired Company such funds to
the extent necessary to cause a distribution to such Shareholder of) the excess,
if any, of the Calculation for 1998 Tax Liability over the Permitted 1998 Tax
Distribution Closing Payment (in each case for such Shareholder). Should the
Permitted 1998 Tax Distribution Closing Payment for any Shareholder exceed the
Calculation for 1998 Tax Liability for such Shareholder, such Shareholder shall
promptly pay the Acquired Company (or the Purchaser) such excess.
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2.4.2 Notwithstanding anything herein to the contrary, the tax
liability of the Shareholders to be distributed and paid to the Shareholders
pursuant to this Section 2.4 shall be computed without giving effect to the sale
by the Shareholders of the capital stock of the Acquired Company to Purchaser
pursuant to this Agreement or the making of the Election (although it shall give
effect to sale of the Airplane provided for in Section 2.3 hereof). Further,
such liability shall be computed using the "closing-of-the-books" method of
allocation, wherein it would be presumed that the books of the Acquired Company
would be closed as of the Closing Date. The Shareholders shall file their tax
returns and other similar reports on a basis fully consistent with the Forms K-1
referenced hereinabove. Nothing contained in this Section 2.4 (or in Section
8.2(c) hereof) shall limit any tax or other representations or warranties made
by the Shareholders and the Acquired Company to Purchaser pursuant to Article
III hereof or otherwise.
2.5 Certain Tax Election Matters.
2.5.1 At the sole election of the Purchaser, and as so directed by the
Purchaser, the Acquired Company and the Shareholders covenant and agree to make
an Election with respect to the purchase and sale of the Company's capital stock
as contemplated herein. At or prior to the Closing, as directed by the
Purchaser, the Acquired Company and the Shareholders shall execute and deliver
to Purchaser such tax election forms as prepared by the Purchaser and as
determined by the Purchaser as necessary or desirable to effect the Election. If
the Purchaser determines to make the Election, the parties hereto agree to take
all reasonably necessary and appropriate actions, including filing such tax
forms, returns and other documents as may be required, to effect and preserve a
timely Election.
2.5.2 The parties agree that the purchase price and the liabilities of
the Acquired Company (plus other relevant items) will be allocated to and among
the assets of the Acquired Company for all purposes (including tax and financial
accounting purposes) in a manner consistent with the fair market value set forth
on the Allocation Schedule attached hereto as Exhibit 2.5.2. The parties will
file all tax returns (including amended returns and claims for refund) and
information reports in a manner consistent with such schedule.
2.5.3 The Purchaser agrees to pay to the Shareholders at Closing any
incremental income tax to be incurred by the Shareholders attributable to the
Election (the "Election Liability"). Prior to Closing the Representative, on
behalf of the Shareholders, shall provide the Purchaser a calculation of the
Election Liability (the "Shareholders' Estimate for Election Reimbursement
Amount"). Such estimate shall be in writing and be accompanied by work papers
and other information and data pertaining to the Company and the Shareholders
reasonably sufficient to demonstrate the estimate of taxes thereby calculated.
Such calculation, and each of the further calculations described herein, shall
be made individually as to each Shareholder. The Shareholders' Estimate for
Election Reimbursement Amount for each Shareholder shall be paid by Purchaser at
Closing to such Shareholder. Subsequent to the Closing, Purchaser shall compute
the Election Liability, and shall provide same to the Representative. If the
Election Liability exceeds the Shareholders' Estimate for Election Reimbursement
Purchaser shall pay such excess to the Shareholders.
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2.5.4 Nothing contained in this Section 2.5 (or in Section 8.2(c)
hereof) shall limit any tax or other representations or warranties made by the
Shareholders and the Acquired Company to Purchaser pursuant to Article III
hereof or otherwise.
2.5.5 If for tax purposes, other than federal income tax purposes, the
taxable period of the Acquired Company that includes the Closing Date does not
terminate on such date (a "Straddle Period"), the parties will, to the extent
permitted by applicable law, elect with the relevant Governmental Body to treat
a portion of any such Straddle Period as a short taxable period ending as of the
close of the Closing Date.
2.6 Shareholder Acknowledgment. Simultaneously with the execution of
this Agreement, the Acquired Company and the Shareholders shall deliver to
Purchaser a Shareholder Acknowledgment, Consent and Power of Attorney in the
form attached hereto as Exhibit 2.6, executed by each of the Shareholders,
pursuant to which the Representative shall be given an irrevocable power of
attorney to act exclusively on behalf of the Shareholders with regard to any
matters contemplated by this Agreement and to distribute any payments received
pursuant to this Agreement to the Shareholders or to their personal
representatives, heirs and assigns.
2.7 Acquisition Proposal. Prior to the Closing, neither the Acquired
Company, Chew nor any of the Shareholders shall directly or indirectly solicit
or encourage inquiries or proposals with respect to, furnish any information
relating to, or participate in or enter into any negotiations or discussions
concerning, any acquisition, business combination or purchase of all or a
portion of the assets of, or any equity interest in, the Acquired Company, or
assets utilized or required in the operation of the Acquired Company, other than
as contemplated by this Agreement. The Shareholders, Chew and the Acquired
Company will notify Purchaser immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated with either of them; and the Acquired
Company shall instruct any officer, director, agent or affiliate of the Acquired
Company to refrain from doing any of the above.
2.8 Conduct of the Business of the Acquired Company Prior to Closing.
2.8.1 Except with the prior consent in writing of Purchaser, the
Acquired Company, Chew and the Shareholders covenant and agree that, between the
date of this Agreement and the Closing Date, the Acquired Company will conduct
its business in the ordinary course, and that they will: (i) use their best
efforts to preserve the organization of the Acquired Company intact, to keep
available the services of its present officers and employees, and to preserve
the goodwill of customers, suppliers, and others having business relations with
the Acquired Company; (ii) maintain the properties of the Acquired Company in
the same working order and condition as such properties are in as of the date of
this Agreement, reasonable wear and tear excepted and not liquidate into cash
the assets of the Acquired Company except in the ordinary course of business;
(iii) keep in force at no less than their present limits all existing bonds and
policies of insurance insuring the Acquired Company and its respective
properties; (iv) not make or permit any change in the Acquired Company's
Articles of Incorporation or Bylaws, or in its authorized, issued or outstanding
securities; (v) not grant any stock option or right to purchase any security of
the Acquired Company, issue any security convertible into such securities,
purchase, redeem, retire or otherwise acquire any of such
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securities, or agree to do any of the foregoing (other than in respect of a
Permitted Shareholder Debt Reduction); (vi) not make any contribution to, or
distribution from, any employee benefit plan, pension plan, stock bonus plan,
401(k) plan or profit sharing plan (except for the payment of any health,
disability and life insurance premiums which may become due and except for
distributions required to be made pursuant to the terms currently in effect of
any Benefit Plans); (vii) not declare, set aside, make or permit any payment of
dividends, distributions or other payments with respect of the capital stock, or
any other securities of the Acquired Company (except for (A) the Permitted 1998
Pre-Closing Dividends and the Permitted 1998 Tax Distribution Closing Payments
to be made in accordance with the provisions of Section 2.4 hereof and (B) the
distribution to Chew of life insurance policies listed on Exhibit 2.8.1 in
exchange for a reduction in the debt owed Chew by the Acquired Company equal to
the cash value of such policies); (viii) not increase the compensation payable
or to become payable by the Acquired Company to any officer, director, employee,
or agent and will not make any bonus payment or arrangement to any officer,
director, employee or agent; (ix) not sell or agree to sell any assets, except
in the ordinary course of business; (x) not authorize or make a material capital
expenditure; (xi) promptly advise Purchaser in writing upon their knowledge of
any matters arising or discovered after the date of this Agreement which, if
existing or known at the date hereof, would be required to be set forth or
described in this Agreement or the Exhibits hereto; and (xii) promptly advise
Purchaser in writing upon notice or communication from third parties relating to
such third party's alleging its consent or approval or waiver is required in
connection with the transactions contemplated herein.
2.8.2 Except after prior notification to, and with the prior written
consent of, Purchaser, the Acquired Company will not make, and the Shareholders
will not permit the Acquired Company to make, between the date of this Agreement
and the Closing Date, any change in its banking or safe deposit arrangements or
grant any powers of attorney. A list of all bank accounts, safe deposit boxes
(and the contents thereof) and powers of attorney of the Acquired Company and of
all persons authorized to act with respect thereto is attached hereto as Exhibit
2.8.2.
2.8.3 Except with the prior consent in writing of Purchaser, the
Acquired Company will not make, and the Shareholders will not permit the
Acquired Company to make, between the date of this Agreement and the Closing
Date, any material changes in the Acquired Company's accounting methods or
practices.
2.9 Filings; Other Actions. Subject to the terms and conditions herein
provided, the Acquired Company, the Purchaser and the Shareholders shall use all
reasonable efforts to promptly take, or cause to be taken, all other action and
do, or cause to be done, all other things necessary, proper or appropriate under
applicable laws and regulations, rules or orders to consummate and make
effective the transactions contemplated by this Agreement and use all reasonable
efforts to obtain any consents of third parties (including, without limitation,
those listed on Exhibit 3.9) to agreements which would otherwise be violated by
any provisions hereof or the provisions hereof would cause the occurrence of a
default thereunder, or result in acceleration of any obligation thereunder, or
give right by any party to terminate any of its obligations thereunder, and of
all governmental or regulatory agencies whose consents or other approvals would
be required to consummate the transactions contemplated herein. The Acquired
Company and the Shareholders covenant to cause the Acquired Company's federal,
state and local tax returns required to be filed before Closing to be timely and
accurately filed with the appropriate taxing authorities. The Acquired Company
shall
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submit all such tax returns to Purchaser at least fifteen (15) days prior to the
date they must be filed, and Purchaser shall have the opportunity to comment on
and approve such returns, which approval shall not be unreasonably withheld. The
Shareholders hereby agree to provide Purchaser with all information within any
of their knowledge or possession necessary to file such returns. All such
information shall be true, correct and accurate in all respects. The Acquired
Company shall employ the services of KPMG Peat Marwick LLP in respect of the
preparation of the tax returns and reports for the period during 1998 ending on
May 11, 1998.
2.10 Examination of Books and Records. Between the date of this
Agreement and the Closing Date, the Acquired Company will allow, and the
Shareholders will cause the Acquired Company to allow, Purchaser, its counsel
and other representatives full access to all the books, records, files,
documents, assets, properties, contracts and agreements of the Acquired Company
that may be reasonably requested, and promptly shall furnish Purchaser, its
officers and representatives during such period with all information concerning
the affairs of the Acquired Company that may be reasonably requested. Purchaser
will conduct any investigation in a manner which will not unreasonably interfere
with the business of the Acquired Company.
2.11 Publicity. The Acquired Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and in making any filings
with any federal or state governmental or regulatory agency with respect
thereto.
2.12 Resignation. At the Closing, the Acquired Company and the
Shareholders covenant to cause to be delivered the resignation of each of the
directors of the Acquired Company, Chew, Judith A. Chew and Karen C. Robinson,
each as an officer of the Acquired Company, and the plan administrator under any
Benefit Plan maintained by the Acquired Company, such resignations to be
effective immediately following the Closing.
2.13 Repayment of Loans and Advances. Prior to or at the Closing, the
Acquired Company shall cause, and the Shareholders shall direct the Company to
cause, all loans and advances made by the Acquired Company to the Shareholders,
any family members or affiliates of the Shareholders or any employee of the
Acquired Company or any entity controlled by any of them to be repaid along with
all accrued interest and all other sums due thereunder, and as of the Closing,
no outstanding amounts shall be due to the Acquired Company from the
Shareholders, any family members or affiliates of the Shareholders or any
employee or any such controlled entity. The Acquired Company shall not forgive
any such indebtedness nor shall it disperse funds by way of bonus or otherwise
to the Shareholders, any family members or affiliates of the Shareholders or any
employee or any such controlled entity for the direct or indirect purpose of
providing funds to repay such loans or advances.
2.14 Amounts Due Shareholders by the Acquired Company. On or prior to
the Closing Date, and except in respect of the indebtedness to be retired as
provided for in Section 2.2.2 hereof, the Shareholders shall cause to be
contributed to the capital of the Acquired Company the full amount of any loans,
advances, or other like amounts, including any interest due thereon, from the
Shareholders or any family members or affiliates of the Shareholders to the
Acquired Company. As of the Closing Date, the Acquired Company shall not owe
amounts to any such parties for loans,
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advances, management fees, corporate overhead or otherwise. Prior to the
Closing, no such loans, advances or other like amounts (including interest
thereon) shall be paid or retired from the assets of the Acquired Company. The
Acquired Company and Purchaser agree to use their best efforts (without the
requirement to pay fees or expend money) to have Chew released, effective as of
Closing, from his obligation as set forth in that certain Escrow Agreement dated
May 13, 1994, by and between Chew and Trustmark National Bank, and if necessary
Purchaser shall offer the guarantee of Purchaser in substitution thereof.
2.15 Supplying of Financial Statements. The Acquired Company and the
Shareholders covenant to deliver to Purchaser all regularly prepared unaudited
financial statements of the Acquired Company prepared after the date of this
Agreement, in format historically utilized internally, as soon as available.
2.16 Covenant Not to Compete. Purchaser, the Acquired Company and Chew
shall enter at the Closing into a Covenant Not to Compete, substantially in the
form of Exhibit 2.16 attached hereto.
2.17 Consulting Agreement. The Acquired Company and Chew shall enter at
the Closing into a Consulting Agreement, substantially in the form of Exhibit
2.17 attached hereto.
2.18 Compliance with Securities Laws. In connection with the
transactions contemplated by this Agreement, the parties hereto agree to
cooperate with one another in complying with the provisions of the 1933 Act and
the General Rules and Regulations thereunder, and all other applicable federal
and state securities laws, and each of them agrees to furnish the other, or its
counsel, with such information and to take such actions, as may be reasonably
requested in respect of such compliance.
2.19 Administrative Filings and Approvals. The Acquired Company and
Purchaser shall each, in cooperation with the other, make the required filings
in connection with the transaction contemplated by this Agreement under the HSR
Act with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice. As promptly as practicable from time to time after
the date of this Agreement, each party shall make all such further filings and
submissions, and take such further action, as may be required in connection
therewith, and shall furnish all other information in its possession necessary
therefor. Purchaser and the Acquired Company shall each notify the other
immediately upon receiving any request for additional information with respect
to such filings from either the Antitrust Division of the Department of Justice
or the Federal Trade Commission, and the party receiving the request shall use
its best efforts to comply with such request as soon as possible. Neither such
party shall withdraw any such filing or submission without the written consent
of the other. Purchaser will make or cause to be made all such other filings and
submissions under laws and regulations applicable to Purchaser, if any, as may
be required by Purchaser for the consummation of the transactions contemplated
by this Agreement. The Acquired Company and the Shareholders will make or cause
to be made all such other filings and submissions under laws and regulations
applicable to them, if any, as may be required of either of them for
consummation of the transactions contemplated by this Agreement. The parties
hereto will coordinate and cooperate with one another in exchanging such
information and reasonable assistance as may be requested in connection with all
of the foregoing.
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III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY, CHEW
AND THE SHAREHOLDERS.
The Shareholders, Chew and the Acquired Company, jointly and severally,
represent and warrant to, and for the benefit of, Purchaser as follows:
3.1 Organization, Standing and Foreign Qualification. The Acquired
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Mississippi and has the full power and authority
(corporate and otherwise) to carry on its business in the places and as it is
now being conducted and to own and lease the properties and assets which it now
owns or leases. The Acquired Company is now, and will be at the Closing, duly
qualified and/or licensed to transact business, and in good standing as a
foreign corporation in the jurisdictions listed in Exhibit 3.1 hereto, and the
character of the property owned or leased by the Acquired Company and the nature
of the business conducted by it do not require such qualification and/or
licensing in any other jurisdictions.
3.2 Authority and Status. Each of the Shareholders, Chew and the
Acquired Company has the capacity and authority to execute and deliver this
Agreement, to perform hereunder, and to consummate the transactions contemplated
hereby without the necessity of any act or consent of any other person
whomsoever. The execution, delivery and performance by the Acquired Company of
this Agreement and each and every agreement, document, and instrument provided
for herein have been duly authorized and approved by the Board of Directors and
the Shareholders. This Agreement and each and every agreement, document, and
instrument to be executed, delivered and performed by the Acquired Company, Chew
or any of the Shareholders in connection herewith constitute or will, when
executed and delivered, constitute the valid and legally binding obligations of
the Acquired Company, Chew and each of the Shareholders, as the case may be,
enforceable against each of them in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
Attached hereto as Exhibit 3.2 are true, correct and complete copies of the
Articles of Incorporation and the Bylaws of the Acquired Company.
3.3 Capitalization. The entire authorized capital stock of the Acquired
Company consists of one million two hundred thousand (1,200,000) shares of no
par value common stock, of which shares one million (1,000,000) are voting and
two hundred thousand (200,000) are nonvoting, and all of which shares are issued
and outstanding and no shares are held in the Acquired Company's treasury. The
Acquired Company has no other shares of capital stock authorized, issued or
outstanding. All of the issued and outstanding shares of common stock of the
Acquired Company have been validly issued and are fully paid and nonassessable
and are owned by the Shareholders, free and clear of all liens, claims, charges
and encumbrances of any nature whatsoever. The authorization or consent of no
other person or entity is required in order to consummate the transactions
contemplated herein by virtue of any such person or entity having an equitable
or beneficial interest in the Acquired Company or the capital stock of the
Acquired Company. There are no outstanding options, warrants, calls, commitments
or plans by the Acquired Company to issue any additional shares of its capital
stock, to pay any dividends on such shares or to purchase, redeem, or retire any
outstanding shares of its capital stock, nor are there outstanding any
securities or
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obligations which are convertible into or exchangeable for any shares of capital
stock of the Acquired Company. The copy of the stock transfer ledger delivered
to Purchaser accurately reflects all share issuances and transfers, and the duly
authorized and validly issued share ownership, in respect of the Acquired
Company's capital stock from its inception.
3.4 Absence of Equity Investments. Except as described in Exhibit 3.4
hereto, the Acquired Company does not, either directly or indirectly, own of
record or beneficially any shares or other equity interests in any corporation,
partnership, limited partnership, joint venture, trust or other business entity.
Except as described in Exhibit 3.4 hereto, none of the Shareholders owns,
directly or indirectly, of record or beneficially any shares or other equity
interests in any corporation (except as a stockholder holding less than one
percent (1%) interest in a corporation whose shares are traded on a national or
regional securities exchange or in the over-the-counter market), limited
liability company, partnership, limited partnership, joint venture, trust or
other business entity, all or any portion of the business of which is
competitive with that of the Acquired Company.
3.5 Financial Statements, Liabilities and Obligations of the Acquired
Company.
3.5.1 Attached hereto as Exhibit 3.5.1 are true, correct and complete
copies of the Acquired Company's audited balance sheets as of December 31, 1996
and December 31, 1997 and the related statements of earnings, changes in
stockholders' equity and cash flows for the years then ended, together with the
report of KPMG Peat Marwick LLP thereon (the "1996 and 1997 Financial
Statements," respectively). Also attached hereto as Exhibit 3.5.1 is a true,
correct and complete copy of the Acquired Company's unaudited balance sheet as
of March 31, 1998 (the "Interim Financial Statement Date"), and the related
unaudited income statement for the three (3)-month period then ended (the
"Interim Financial Statements"). The 1996 and 1997 Financial Statements and the
Interim Financial Statements have been prepared from and are in complete
accordance with the books and records of the Acquired Company, are true,
complete and accurate statements of the financial position of the Acquired
Company as of their respective dates, have been prepared in accordance with
generally accepted accounting principles, consistently applied, fairly and
accurately present the financial position and results of operations of the
Acquired Company as of the respective dates thereof, and disclose all
liabilities of the Acquired Company, whether absolute, contingent, accrued or
otherwise, existing as of the respective dates thereof; provided, however, that
the Interim Financial Statements have been prepared on a "tax basis" of
accounting. The books and records of the Acquired Company are sufficient and
accurate to the extent (i) to permit Purchaser's independent certified public
accountants to conduct an audit of the Acquired Company sufficient in scope to
permit the issuance of an unqualified opinion on the financial statements of the
Acquired Company, and (ii) to permit Purchaser to comply with any applicable
reporting requirements under any applicable federal or state securities laws.
3.5.2 The Acquired Company has no liability or obligation (whether
accrued, absolute, contingent or otherwise) except for (i) the liabilities and
obligations of the Acquired Company which are disclosed and reserved against in
the Interim Financial Statements or Exhibit 3.5.2 hereto, to the extent and in
the amounts so disclosed and reserved against, and (ii) liabilities incurred or
accrued in the ordinary course of business since the Interim Financial Statement
Date, and which do not, either individually or in the aggregate, have a material
adverse effect on the assets, operations or the business of the Acquired
Company. There is no basis for any assertion against the
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Acquired Company as of the Interim Financial Statement Date of any liability of
any nature or in any material amount not fully accrued and appearing on the
balance sheet as of that date.
3.5.3 Except as disclosed in the Interim Financial Statements or
Exhibit 3.5.2, the Acquired Company is not in default with respect to any
liabilities or obligations and all such liabilities or obligations shown and
reflected in the Interim Financial Statements or Exhibit 3.5.2, and such
liabilities incurred or accrued subsequent to the Interim Financial Statement
Date have been, or are being, paid or discharged as they become due, and all
such liabilities and obligations were incurred in the ordinary course of the
Business, except as indicated in Exhibit 3.5.2.
3.6 Taxes. Except as set forth on Exhibit 3.6, (a) the Acquired Company
has, as of the date hereof, and will prior to the Closing Date have, timely and
accurately filed all Tax Returns required to have been filed on or before such
dates; (b) all Taxes shown to be due on the Tax Returns referred to in clause
(a), including without limitation all withholding or other payroll-related taxes
shown on such returns, have been or will be timely paid or deposited and all
required estimated taxes have been or will be timely paid or deposited; (c) the
Acquired Company has not waived any statute of limitations in respect of Taxes
of the Acquired Company or agreed to an extension of time with respect to an
assessment of taxes or deficiency; (d) no issues that have been raised or
threatened in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (a) are currently pending;
and (e) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (a) by a taxing authority
have been paid in full. The Acquired Company has not been a member of an
affiliated group filing a consolidated federal income tax return. The Acquired
Company does not have, nor will have any liability for the Taxes of any Person
other than the Acquired Company (A) under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local, or foreign law), (B) as a transferee or
successor, (C) by contract, or (D) otherwise. For all taxable periods not closed
by the applicable statute of limitations, the Acquired Company has been a "small
business corporation" as that term is defined in Section 1361(b) of the Code, it
has had in effect an election under Section 1362(a) of the Code to be treated as
an S corporation, and it has filed all of the federal income tax returns (and
all state income tax returns in those states permitting the equivalent of an S
corporation election) consistently with S corporation status. The Acquired
Company has not incurred and will not, with respect to any taxable period ending
on or prior to the Closing Date or, with respect to any taxable period ending
after the Closing Date, that portion of such period ending on the Closing Date,
incur any taxable income or liability for taxes under or by reason of Sections
1363(d), 1371(d), 1374 or 1375 of the Code. The Acquired Company has neither
agreed nor is required to make any adjustments under Section 481(a) of the Code,
by reason of a change in method of accounting or otherwise. The Forms K-1
previously issued by the Acquired Company to its shareholders, since its
inception, correctly indicate and have been prepared at all times consistent
with the ownership of shares of the Acquired Company reflecting the duly
authorized and validly issued shares of the Acquired Company.
3.7 Ownership of Assets and Leases.
3.7.1 Other than with respect to the Real Property and Improvements:
3.7.1.1 Exhibit 3.7.1.1 attached hereto constitutes the fixed and
tangible assets schedule of the Acquired Company as regularly maintained by the
Acquired Company and
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such list is complete and correct in all material respects and includes all
material fixed or tangible assets owned by the Acquired Company, including, but
not limited to, all machinery and equipment, office furniture and equipment and
all vehicles owned by the Acquired Company, and depreciation schedules of the
assets shown thereon.
3.7.1.2 The Acquired Company has good and marketable title to all of
the assets shown on Exhibit 3.7.1.1 and all other fixed or tangible assets of
the Acquired Company subject to no mortgage, pledge, lien, security interest,
conditional sale agreement, encumbrance, charge or adverse claim whatsoever,
except as specifically shown on Exhibit 3.8.
3.7.1.3 Except as shown on Exhibit 3.7.1.2, none of the properties or
assets used by the Acquired Company are held under any lease, or as conditional
vendee under any conditional sale or other title retention agreement. Exhibit
3.7.1.2 includes a list of all leases of all machinery and equipment of which
the Acquired Company is a lessee, including respective expiration dates and
monthly rentals.
3.7.1.4 Each of the leases and agreements described in Exhibit 3.7.1.2
is in full force and effect and constitutes a legal, valid and binding
obligation of the Acquired Company and the other respective parties thereto and
is enforceable in accordance with its terms, and there is not under any of such
leases or agreements existing any default of the Acquired Company or of any
other parties thereto (or event or condition which, with notice or lapse of
time, or both, would constitute a default). The Acquired Company has not
received any payment from a lessor in connection with or as inducement for
entering into any such lease except as set forth on Exhibit 3.7.1.2.
3.7.1.5 None of the property of the Acquired Company shown on Exhibits
3.7.1.1 or 3.7.1.2 is leased by the Acquired Company to any other person or
entity.
3.7.1.6 There are no material items of machinery and equipment or
vehicles employed or used by the Acquired Company which are not described in
Exhibits 3.7.1.1 or 3.7.1.2. The Acquired Company either owns or leases all
assets which are necessary to conduct its business. All machinery and equipment
owned or leased by the Acquired Company are usable and operable in its business
and are in good operating condition and reasonable state of repair, subject only
to ordinary wear and tear.
3.7.1.7 Other than in respect of immaterial quantities of the Acquired
Company's inventories, all inventories owned by the Acquired Company consist
only of items of a quality and quantity readily usable or readily salable, at
prices equal to the values at which such items are reflected in the Acquired
Company's books, in the normal course of its business and are valued so as to
reflect the normal valuation policy of the Acquired Company, all in accordance
with generally accepted accounting principles, applied on a basis consistent
with prior years, but not in excess of the lower of cost or net realizable
market value.
3.7.1.8 Except pursuant to this Agreement, the Acquired Company is not
a party to any contract or obligation whereby there has been granted to anyone
an absolute or contingent right to purchase, obtain or acquire any rights in any
of the assets, properties or operations
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which are owned by the Acquired Company, other than the sale of inventories in
the ordinary course of the Acquired Company's business.
3.7.1.9 Except as set forth on Exhibit 3.7.1.9 attached hereto, or to
the extent reserved for in the 1996 and 1997 Financial Statements and the
Interim Financial Statements, all of the accounts receivable of the Acquired
Company as of the Closing Date and all of the notes receivable of the Acquired
Company as of the Closing Date will be bona fide, will reflect actual
transactions, will have arisen and be collectible in the ordinary course of the
Business and will be paid when due and in accordance with their terms other than
in immaterial respects consistent with past experience.
3.7.2 With respect to the Real Property and Improvements:
3.7.2.1 The parcels of property described in Exhibit 3.7.2.1 as the
owned Real Property are the only real estate owned by the Acquired Company.
3.7.2.2 The Acquired Company owns fee simple title to the Real Property
described in Exhibit 3.7.2.1 and to all of the Improvements, subject only to the
Existing Title Encumbrances set forth in Exhibit 3.7.2.2.
3.7.2.3 The parcels of property described in Exhibit 3.7.2.3 as the
leased Real Property are the only real estate leased by the Acquired Company.
Exhibit 3.7.2.3 includes a list of all leases of real estate of which the
Acquired Company is a lessee, including respective expiration dates and monthly
rentals. Each of the leases described in Exhibit 3.7.2.3 is in full force and
effect and constitutes a legal, valid and binding obligation of the Acquired
Company and the other respective parties thereto and is enforceable in
accordance with its terms, and there is not under any of such leases existing
any default of the Acquired Company or of any other party thereto (or event or
condition which, with notice or lapse of time, or both, would constitute a
default). The Acquired Company has not received any payment from a lessor in
connection with or as inducement for entry into any such lease except as set
forth on Exhibit 3.7.2.3.
3.7.2.4 None of the property shown on Exhibits 3.7.2.1 or 3.7.2.3 is
leased by the Acquired Company to any other person or entity.
3.7.2.5 There is no real estate used by the Acquired Company which is
not described in Exhibits 3.7.2.1 or 3.7.2.3. The Acquired Company either owns
or leases all real estate which is necessary to conduct its business.
3.7.2.6 No taxes, assessments, water charges or sewer charges relating
to the Real Property or the Improvements are delinquent and there are no special
taxes, assessments or charges pending, nor to the best knowledge of the Acquired
Company and Shareholders threatened, against the Real Property or the
Improvements. All water, sewer, gas, electric, telephone and drainage facilities
and all other utilities required by law or by the normal use and operation of
the Real Property and the Improvements currently service the Real Property and
the Improvements in such capacities as are required by law or by the normal use
and operation of the Real Property and the Improvements.
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3.7.2.7 The Real Property and the Improvements are usable and operable
in the Business and the Improvements are in good operating condition and
reasonable state of repair, subject only to ordinary wear and tear.
3.7.2.8 The Acquired Company has obtained and maintained in full force
and effect to the date hereof all Permits required for the normal use and
operation of the Real Property and the Improvements as currently operated. A
complete and correct list of all such Permits is set forth on Exhibit 3.7.2.8.
The Acquired Company has delivered to Purchaser complete and accurate
photocopies of all Permits. The Acquired Company has complied in all material
respects with all such Permits and has not received any notice that any such
Permits will not be renewed upon expiration or of any conditions which will be
imposed in order to receive any such renewal. Except as described on Exhibit
3.7.2.8, all of the Permits will remain in full force and effect, and will inure
to the benefit of the Acquired Company, after the consummation of the
transactions contemplated by this Agreement.
3.7.2.9 The Real Property is being operated and maintained in full
compliance with all building code, zoning and other applicable local, state and
federal ordinances, regulations and requirements which affect the use and
operation thereof, with all Existing Title Encumbrances, with all contracts
related thereto and with all Permits. The Acquired Company has not received any
notice of violation of law or municipal ordinance, order or requirement having
jurisdiction or affecting the Real Property. The zoning classification of the
various tracts comprising the Real Property permits the use of all or any part
of the Real Property for the purposes and in the manner in which the Real
Property is currently used. The Acquired Company has not received notice of any
pending or contemplated changes in the status of the zoning for the Real
Property. None of the Acquired Company, nor any predecessor in title to the Real
Property, has any agreement currently in effect with any county or township in
which a tract is located, or any other entity, public or private, which would be
binding and would prevent the use of the Real Property for any of the uses
allowed by the current zoning of the Real Property.
3.7.2.10 The Acquired Company is the owner and holder of and the named
insured under those certain owner's title insurance policies (the "Title
Policies") photocopies of which are attached hereto as Exhibit 3.7.2.10. The
Title Policies are in full force and effect and have not been surrendered or
canceled and, except as set forth on Exhibit 3.7.2.10, have not been endorsed.
The Acquired Company has not made a claim under any of the Title Policies. The
Real Property abuts a public right-of-way and the rights of ingress and egress
to and from the Real Property and adjoining public ways are not restricted or
limited in any manner. There are no pending, nor to the best knowledge of the
Acquired Company and the Shareholders threatened or contemplated, eminent domain
proceedings affecting the Real Property or any part thereof.
3.8 Indebtedness of the Acquired Company. Attached hereto as Exhibit
3.8 is a list of all instruments, agreements or arrangements pursuant to which
the Acquired Company has borrowed any money, incurred any indebtedness, or
established any line of credit which represents a liability of the Acquired
Company on the date hereof. The Acquired Company has performed all the
obligations required to be performed by it to the date hereof pursuant to the
obligations listed on Exhibit 3.8 and the Acquired Company is not in default
under any mortgage, indenture, note or other obligation for, or relating to,
borrowed money to which the Acquired Company is a party, or to
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which any property or assets belonging to, or used by, the Acquired Company is
subject, and there has not occurred any event which, but for the passage of time
or giving of notice, or both, would constitute a default.
3.9 Agreement Does Not Violate Other Instruments. Except as listed in
Exhibit 3.9, the execution and delivery of this Agreement by the Acquired
Company, Chew and each the Shareholders do not, and the consummation of the
transactions contemplated hereby will not, violate any provision of the Articles
of Incorporation, as amended, or Bylaws, as amended, of the Acquired Company or
violate or constitute an occurrence of default under any provision of, or
conflict with, or result in acceleration of any obligation under, or give rise
to a right by any party to terminate its obligations under, any mortgage, deed
of trust, conveyance to secure debt, note, loan, lien, lease, agreement,
instrument, or any order, judgment, decree or other arrangement to which the
Acquired Company, Chew or any of the Shareholders is a party or is bound or by
which the Acquired Company's assets are affected. Except as listed or described
on Exhibit 3.9 attached hereto, no consent, approval, order or authorization of,
or registration, declaration or filing with, any governmental entity is required
to be obtained or made by or with respect to the Acquired Company, Chew or any
of the Shareholders, or any assets, properties or operations of the Acquired
Company, Chew or any of the Shareholders, in connection with the execution and
delivery by the Acquired Company, Chew and each of the Shareholders of this
Agreement or the consummation of the transactions contemplated hereby.
3.10 Absence of Changes. Since January 1, 1998, the Acquired Company
has not, except as disclosed on Exhibit 3.10 attached hereto:
3.10.1 Transferred, assigned, conveyed or liquidated any of its assets
or business or entered into any transaction or incurred any liability or
obligation, other than in the ordinary course of its business;
3.10.2 Suffered any adverse change in its business, operations, or
financial condition and neither the Acquired Company nor the Shareholders has
become aware of any event or state of facts which may result in any such adverse
change;
3.10.3 Suffered in respect of its properties any destruction, damage or
loss, whether or not covered, by insurance;
3.10.4 Suffered, permitted or incurred the imposition of any lien,
charge, encumbrance (which as used herein includes, without limitation, any
mortgage, deed of trust, conveyance to secure debt or security interest) or
claim upon any of its assets, except for any current year lien with respect to
personal or real property taxes not yet due and payable;
3.10.5 Committed, suffered, permitted or incurred any default in any
liability or obligation;
3.10.6 Made or agreed to any adverse change in the terms of any
contract or instrument to which it is a party;
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3.10.7 Waived, canceled, sold or otherwise disposed of, for less than
the face amount thereof, any claim or right which it has against others;
3.10.8 Incurred any other liability or obligation or entered into any
transaction other than in the ordinary course of business;
3.10.9 Received any notices indicating, and neither the Acquired
Company nor the Shareholders has reason to believe, that any customer or
supplier has taken or contemplates any steps which could disrupt the business
relationship of the Acquired Company with said customer or supplier or could
result in the diminution in the value of the Acquired Company as a going
concern;
3.10.10 Except for payment or prepayment by the Company of any sums due
under any notes payable to Chew in respect of the principal amount thereof or
interest accrued but unpaid at the stated (pre-default) interest rate therefor
("Permitted Shareholder Debt Reduction"), paid, agreed to pay or incurred any
obligation for any payment of any indebtedness except (i) current liabilities
incurred in the ordinary course of business and (ii) payments as they become due
pursuant to governing agreements disclosed on Exhibit 3.8 hereunder; or
3.10.11 Delayed or postponed the payment of any liabilities, whether
current or long term, or failed to pay in the ordinary course of business any
liability on a timely basis consistent with prior practice.
3.10A Limitation on Dividends, Etc. Since January 1, 1998, (a) the
Acquired Company has not declared, promised or made any distribution, dividend
or other payment to its Shareholders (other than (i) reasonable compensation for
services actually rendered, (ii) Permitted Shareholder Debt Reduction, and (iii)
Permitted 1998 Pre-Closing Dividends), or issued any additional shares or
rights, options or calls with respect to the Acquired Company's shares, or
redeemed, purchased or otherwise acquired any of the Acquired Company's shares,
or made any change whatsoever in the Acquired Company's capital structure; (b)
nor has the Acquired Company paid, agreed to pay or incurred any obligation for
any payment for, any contribution or other amount to, or with respect to, any
employee benefit plan (other than in accordance with its express terms), or
(other than customary year end bonus payments for 1997 and ordinary salary
adjustments in respect of 1998) paid any bonus to, or granted any increase in
the compensation of, the Acquired Company's directors, officers, agents or
employees, or made any increase in the pension, retirement or other benefits of
its directors, officers, agents or other employees.
3.11 Litigation. Except as otherwise set forth in Exhibit 3.11 hereto,
there is no suit, action, proceeding, claim or investigation pending, or to the
best knowledge of the Acquired Company and the Shareholders threatened, against
or affecting the Acquired Company and there exists no basis or grounds for any
such suit, action, proceeding, claim or investigation. None of the items
described in Exhibit 3.11, singly or in the aggregate, if pursued and/or
resulting in a judgment, would have a material adverse effect on the assets,
business, goodwill or financial condition of the Acquired Company or the right
of the Acquired Company or any of the Shareholders to consummate the
transactions contemplated hereby.
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3.12 Licenses and Permits; Compliance With Law. The Acquired Company
holds all licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the conduct
of its business and the use of its assets. All such licenses, certificates,
permits, franchises and rights are listed in Exhibit 3.12. Except as noted in
Exhibit 3.12, the Acquired Company has conducted and is presently conducting its
business so as to comply in all respects with all applicable statutes,
ordinances, rules, regulations and orders of any governmental authority.
Further, the Acquired Company is neither presently charged with, or to the best
knowledge of the Acquired Company and the Shareholders under governmental
investigation, with respect to any actual or alleged violation of any statute,
ordinance, rule or regulation, nor presently the subject of any pending or, to
the best knowledge of the Acquired Company and the Shareholders threatened,
adverse proceeding by any regulatory authority having jurisdiction over its
business, properties or operations. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in the termination of any license, certificate, permit, franchise or
right held by the Acquired Company, and all such licenses, certificates,
permits, franchises and rights will continue to inure to the benefit of the
Acquired Company after the transactions contemplated by this Agreement.
3.13 Contracts, Agreements and Instruments Generally. Exhibit 3.13
hereto consists of a true and complete list of all contracts, agreements,
commitments and other instruments (whether oral or written) to which the
Acquired Company is a party that involve the receipt of revenue or an
expenditure by the Acquired Company or require the performance of services or
delivery of goods to, by, through, on behalf of or for the benefit of the
Acquired Company, in each case in excess of twenty-five thousand dollars
($25,000.00) per year. Exhibit 3.13 also identifies all:
3.13.1 leases, rental agreements or other contracts or commitments
affecting the ownership or leasing of, title to or use of any interest in real
or personal property with payments equal to or greater than one thousand dollars
($1,000.00) per month and all maintenance or service agreements relating to any
real or personal property with payments equal to or greater than one thousand
dollars ($1,000.00) per month;
3.13.2 contracts or commitments providing for payments by the Acquired
Company based in any manner upon the sales, purchases, receipts, income or
profits of the Acquired Company;
3.13.3 franchise agreements, marketing agreements or royalty
agreements;
3.13.4 employment contracts or commitments (including without
limitation any standard form contracts such as employee nondisclosure
agreements), and any other contracts, plans or commitments providing for any
continuing payment of any type or nature, including, without limitation, any
severance, termination, parachute, or other payments (whether due to a change in
control, termination or otherwise) and bonuses and vested commissions. Exhibit
3.13 also includes a listing of all such agreements, if any, for which the
standard form was materially or substantially modified or materially or
substantially altered, and any contracts that are not in the standard form.
Other than the standard form agreements listed on Exhibit 3.13, those listed
variations from the standard form agreements and those listed agreements that
are not in the standard form, there are no other agreements of the type referred
to in this Section 3.13.4;
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3.13.5 contracts, agreements, understandings or arrangements
restricting the Acquired Company from carrying on its business anywhere in the
world;
3.13.6 instruments or arrangements evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase-money obligation, guaranty, subordination,
conditional sale or lease-purchase; and
3.13.7 joint venture or joint product development agreements with any
party.
The contracts, agreements, commitments and other instruments listed or
required to be listed on Exhibit 3.13 are herein referred to as the "Material
Contracts."
All the Material Contracts are valid and binding upon the Acquired
Company and the other parties thereto and are in full force and effect and
enforceable in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors rights generally and general principles of equity relating to the
availability of equitable remedies. Except as listed on Exhibit 3.13, none of
the Acquired Company and, to the knowledge of the Acquired Company and the
Shareholders, any other party to any such contract, commitment or arrangement
has breached any provision of, or is in default under, the terms thereof. Except
as listed on Exhibit 3.13, to the Acquired Company's and the Shareholders'
knowledge, there are no facts or circumstances that would prevent the work in
process of the Acquired Company or its contracts and agreements from maturing
upon performance by the Acquired Company into accounts receivable collectible in
the aggregate in amounts consistent in all material respects with historical
experience. Except for terms specifically described in Exhibit 3.13, the
Acquired Company has not received any payment from any contracting party in
connection with or as an inducement for entering into any contract, agreement,
policy or instrument except for payment for actual services rendered or to be
rendered by the Acquired Company consistent with amounts historically charged
for such services.
3.14 Intellectual Property
3.14.1 Exhibit 3.14.1 contains a complete and accurate list of all (i)
patented or registered Intellectual Property Rights owned or used by the
Acquired Company, (ii) pending patent applications and applications for other
registrations of Intellectual Property Rights filed by or on behalf of the
Acquired Company, and (iii) material unregistered Intellectual Property Rights
owned or used by the Acquired Company. Exhibit 3.14.1 attached also contains a
complete and accurate list of all licenses and other rights granted by the
Acquired Company to any Person with respect to any Intellectual Property Rights
and all licenses and other rights granted by any Person to the Acquired Company
with respect to any Intellectual Property Rights, in each case identifying the
subject Intellectual Property Rights . The Acquired Company owns and possesses
all right, title and interest to, or has the right to use pursuant to a valid
and enforceable license, all Intellectual Property Rights necessary for the
operation of its business as presently conducted and as presently proposed to be
conducted, free and clear of all liens, claims and encumbrances of any nature
whatsoever. It is not and will not be necessary to utilize any Intellectual
Property Rights of any of the Acquired Company's employees developed, invented
or made prior to or during their employment by the Acquired Company except for
any such Intellectual Property Rights that have previously been
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assigned to or are otherwise owned by the Acquired Company. Except as set forth
on Exhibit 3.14.1, the loss or expiration of any Intellectual Property Right or
related group of Intellectual Property Rights owned or used by the Acquired
Company has not had and would not reasonably be expected to have a material
adverse effect, and no loss or expiration of any Intellectual Property Right is
threatened, pending or, to the Acquired Company's or the Shareholders'
knowledge, reasonably foreseeable. The Acquired Company has taken commercially
reasonable steps to maintain and protect the Intellectual Property Rights which
it owns and uses.
3.14.2 Except as set forth on Exhibit 3.14.2, (i) there have been no
claims made against the Acquired Company asserting the invalidity, misuse or
unenforceability of any of the Intellectual Property Rights owned or used by the
Acquired Company and there is no basis for any such claim, (ii) the Acquired
Company has not received any notices of, and has no knowledge of any facts which
indicate a likelihood of, any infringement or misappropriation by, or conflict
with, any third party with respect to any Intellectual property Rights
(including any demand or request that the Acquired Company license any rights
from a third party), (iii) the conduct of the Acquired Company's business has
not infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons and (iv) to the Acquired Company's and Shareholders' knowledge, the
Intellectual Property Rights owned by or licensed to the Acquired Company have
not been infringed, misappropriated or conflicted by other Persons.
3.15 Labor Matters. Exhibit 3.15 sets forth a list of all employees and
independent contractors of the Acquired Company to whom the Acquired Company
currently pays wages of at least $50,000 per annum, their current salaries or
rates and the Acquired Company's salary increase guidelines. Except as set forth
on Exhibit 3.15, within the last three (3) years the Acquired Company has not
been the subject of any union activity or labor dispute, nor has there been any
strike of any kind called or, to the best knowledge of the Acquired Company and
the Shareholders threatened to be called, against it; and, except as set forth
on Exhibit 3.15, the Acquired Company has not violated any federal, state, or
other governmental statutes, regulations, or ordinances relating to employment
and labor matters including, without limitation, the provisions of Title VII of
the Civil Rights Act of 1964 (race, color, religion, sex, and national origin
discrimination), 42 U.S.C. ss. 1981 (discrimination), 42 U.S.C. ss.ss. 621-634
(the Age Discrimination in Employment Act), 29 U.S.C. ss. 206 (equal pay),
Executive Order 11246 (race, color, religion, sex, and national origin
discrimination), Executive Order 11141 (age discrimination), ss. 503 of the
Rehabilitation Act of 1973 (handicap discrimination), 42 U.S.C. ss.ss.
12101-12213 (Americans with Disabilities Act), 29 U.S.C. ss.ss. 2001-2654
(Family and Medical Leave Act), 29 U.S.C. ss.ss. 651-678 (occupational safety
and health) and requirements relating to the documentation of the nationality of
employees. There has not been, and to the best knowledge of the Acquired Company
and the Shareholders there will not be, any adverse change in relations with
employees and independent contractors of the Acquired Company as a result of the
transactions contemplated by this Agreement. The staffing and employment levels
of the Acquired Company are now, and will be at Closing, sufficient to run the
Business at levels of production, sales, marketing and administration consistent
with the levels of production, sales, marketing and administration for the prior
fiscal year.
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3.16 Benefit Plans.
3.16.1 Exhibit 3.16 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plan, any other employee program,
arrangement, agreement or understanding, (whether arrived at through collective
bargaining or otherwise), any medical, vision, dental or other health plan, any
life insurance plan or any other employee benefit plan or fringe benefit plan,
including, without limitation, any "employee benefit plan," as that term is
defined in Section 3(3) of ERISA and any multiemployer plan within the meaning
of Section 3(37) of ERISA, currently or previously adopted, maintained,
sponsored in whole or in part or contributed to by the Acquired Company or any
current or former member of a commonly controlled group of trades or businesses
(as defined in Section 4001(b)(1) of ERISA) including the Acquired Company for
the benefit of employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries of the Acquired Company and under which
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries of the Acquired Company are eligible to participate or under
or in connection with which the Acquired Company has any contingent or
noncontingent liability of any kind whether or not probable of assertion
(collectively, the "Benefit Plans"). Any of the Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, or an "employee welfare benefit plan" as that term is defined in Section
3(1) of ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan is or
has been a multiemployer plan within the meaning of Section 3(37) of ERISA.
3.16.2 Exhibit 3.16 also lists, with respect to all Benefit Plans: (i)
all trust agreements or other funding arrangements, including insurance
contracts, and all amendments thereto applicable to the Benefit Plans, (ii)
where applicable, with respect to any such plan or plan amendments, the most
recent determination letters issued by the United States Internal Revenue
Service, (iii) all rulings, opinion letters, information letters or advisory
opinions issued by the United States Department of Labor after December 31,
1974, with respect to each such Benefit Plan, (iv) annual reports or returns and
audited or unaudited financial statements for the most recent three (3) plan
years and any amendments thereto, and (v) the most recent summary plan
descriptions and any material modifications thereto with respect to such Benefit
Plans. Contemporaneously with the delivery of the Exhibits to this Agreement,
the Acquired Company and the Shareholders have delivered a true and complete
copy of each such Benefit Plan, agreements, letters, rulings, opinions, letters,
reports, returns, financial statements and/or summary descriptions described in
Sections 3.16.1 or 3.16.2 hereof, certified as such by a duly authorized officer
of the Acquired Company and by the Shareholders.
3.16.3 All the Benefit Plans and the related trusts subject to
ERISA comply in all material respects with and have been administered in
compliance in all material respects with the provisions of ERISA, all provisions
of the Code relating to qualification and tax exemption under Code Sections
401(a) and 501(a) or otherwise applicable to secure intended tax consequences,
all applicable state or federal securities laws and all other applicable laws,
rules and regulations and collective bargaining agreements, and neither the
Acquired Company nor the Shareholders has received any notice from any
governmental agency or instrumentality questioning or challenging such
compliance. All necessary governmental approvals for the Benefit Plans which
have been obtained, including, but not limited to, timely determination letters
on the qualification of the ERISA Plans and tax exemption of related trusts, as
applicable, under the Code and timely registration and
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disclosure under applicable securities laws, and all such governmental approvals
continue in full force and effect. No event has occurred which will or could
give rise to disqualification of any such plan under Sections 401(a) or 501(a)
of the Code or to a tax under Section 511 of the Code.
3.16.4 None of the Acquired Company or, to the best knowledge of the
Acquired Company and the Shareholders any administrator or fiduciary of any such
Benefit Plan (or agent or delegate of any of the foregoing), has engaged in any
transaction or acted or failed to act in any manner which could subject the
Acquired Company to any direct or indirect liability (by indemnity or otherwise)
for a breach of any fiduciary, co-fiduciary or other duty under ERISA. No oral
or written representation or communication with respect to any aspect of the
Benefit Plans has been made to employees of the Acquired Company prior to the
Closing Date which is not in accordance in all material respects with the
written or otherwise preexisting terms and provisions of such Benefit Plans in
effect immediately prior to the Closing Date. Except as disclosed in Exhibit
3.16 there are no unresolved claims or disputes under the terms of, or in
connection with, the Benefit Plans, and no action, legal or otherwise, has been
commenced with respect to any claim.
3.16.5 All annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and accurate
in all material respects as of the dates thereof, and there have been no
amendments filed to any of such reports, returns, statements, valuations or
descriptions or required to make the information therein true and accurate.
3.16.6 No "party in interest" (as defined in Section 3(14) of ERISA) or
"disqualified person" (as defined in Section 4975(e)(2) of the Code) of any
Benefit Plan has engaged in any "prohibited transaction" (within the meaning of
Section 4975(c) of the Code or Section 406 of ERISA). There has been no (i)
"reportable event" (as defined in Section 4043 of ERISA), or event described in
Section 4062(f) or Section 4063(a) of ERISA or (ii) termination or partial
termination, withdrawal or partial withdrawal with respect to any of the ERISA
Plans which the Acquired Company (or any member of a controlled group of trades
or businesses as defined in Section 4001(b) which has, since January 1, 1975,
included the Acquired Company) maintains or contributes to or has maintained or
contributed to or was required to maintain or contribute to for the benefit of
employees of the Acquired Company or any subsidiaries now or formerly in
existence. With respect to any termination or withdrawal from any such ERISA
Plan, the Acquired Company has no direct or indirect liability to said Plan or
any beneficiary thereof.
3.16.7 None of the ERISA Plans is a defined benefit pension plan.
3.16.8 As of the Interim Financial Statement Date, the Acquired Company
had no current or future liability under any Benefit Plan that was not reflected
in the Interim Financial Statements.
3.16.9 The Acquired Company does not maintain any Benefit Plan
providing deferred or stock based compensation which is not reflected in the
Interim Financial Statements.
3.16.10 The Acquired Company has not maintained, and does not
now maintain, a Benefit Plan providing welfare benefits (as defined in ERISA
Section 3(1)) to employees after
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retirement or other separation of service except to the extent required under
Part 6 of Title I of ERISA and Code Section 4980B.
3.16.11 Except as disclosed in Exhibit 3.16, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee of the Acquired Company to severance pay, unemployment
compensation or any payment contingent upon a change in control or ownership of
the Acquired Company, or (ii) accelerate the time of payment or vesting, or
increase the amount, of any compensation due to any such employee or former
employee.
3.16.12 All Benefit Plans subject to section 4980B of the Code, as
amended from time to time, or Part 6 of Title I of ERISA or both have been
maintained in compliance with the requirements of such laws and any regulations
(proposed or otherwise) issued thereunder.
3.17 Customers. Exhibit 3.17 attached hereto consists of a true and
correct list of the largest sixty (60) customers of the Acquired Company
(representing in revenue for the twelve (12) months ended December 31, 1997 and
for the three (3) months ended March 31, 1998 (and part of April, 1998) of not
less than ninety-five and eight tenths percent (95.8%) of Acquired Company's
revenue for 1997) and total sales to each such customer within such respective
periods. Neither the Acquired Company nor any of the Shareholders has received
any notice, or has any knowledge that, any customer listed on Exhibit 3.17 has
taken, or any such notice or knowledge that any such customer has determined or
intends to take any steps, that could reasonably be expected to minimize in any
material respect the business relationship of the Acquired Company with such
customer.
3.18 Suppliers. Exhibit 3.18 attached hereto consists of a true and
correct list of all suppliers to the Acquired Company who had total purchases
(per supplier) during the twelve (12) months ended December 31, 1997 of one
hundred fifty-five thousand dollars ($155,000.00) or more, and their respective
purchases for the three (3) months ended March 31, 1998, and total purchases
from each such supplier within such respective periods. Neither the Acquired
Company nor any of the Shareholders has received any notice, or has any
knowledge that, any supplier listed on Exhibit 3.18 has taken, or any such
notice or knowledge that any such supplier has determined or intends to take any
steps, that could reasonably be expected to minimize in any material respect the
business relationship of the Acquired Company with such supplier or suppliers.
3.19 Environmental Matters. Except as set forth in Exhibit 3.19, no
real property used by the Acquired Company or leased by the Acquired Company
(the "Property") has been used by the Acquired Company or, to the best knowledge
of the Acquired Company and the Shareholders any other party, for the handling,
treatment, storage or disposal into the environment of any Hazardous Substance
(as hereinafter defined). Except as set forth in Exhibit 3.19, during the period
of time the Acquired Company has used or leased the Property, and to the best
knowledge of the Acquired Company and the Shareholders prior thereto, no
release, discharge, spillage or disposal of any Hazardous Substance and no soil,
water or air contamination by any Hazardous Substance has occurred or is
occurring in, from or on the Property. Except as set forth in Exhibit 3.19, the
Acquired Company has complied with all reporting requirements under any
applicable federal, state or local environmental laws and permits, and the
Acquired Company has not violated any such environmental laws or permits. Except
as set forth in Exhibit 3.19, there are no claims, actions, suits, proceedings
or investigations related to the presence, release, production, handling,
discharge, spillage, transportation or disposal of any Hazardous Substance or
ambient air conditions or
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contamination of soil, water or air by any Hazardous Substance pending or, to
the best knowledge of the Acquired Company and the Shareholders threatened, with
respect to the Property or otherwise against the Acquired Company in any court
or before any state, federal or other governmental agency or private arbitration
tribunal and there is no basis for any such claim, action, suit, proceeding or
investigation. There are no underground storage tanks on the Property. Except as
set forth in Exhibit 3.19, no building or other improvement included in the
Property contains any asbestos or any asbestos-containing materials. For the
purposes of this Agreement, "Hazardous Substance" shall mean any hazardous or
toxic substance or waste as those terms are defined by any applicable federal,
state or local law, ordinance, regulation, policy, judgment, decision, order or
decree including, without limitation, the Comprehensive Environmental Recovery
Compensation and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA"), the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., and petroleum,
petroleum products and oil.
3.20 Product Warranty. Each product manufactured, sold, leased or
delivered by the Acquired Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Acquired
Company has no material liability, whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due (and there
is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against it giving rise to any
such liability) for replacement or repair thereof or other damages in connection
therewith, subject only to the reserve for product warranty claims set forth on
the face of the balance sheet accompanying the most recent financial statement
delivered by the Acquired Company and the Shareholders pursuant to Section 2.15
herein (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Acquired Company. No product manufactured, sold, leased or delivered by the
Acquired Company is subject to any guaranty, warranty or other indemnity beyond
the applicable standard terms and conditions of sale or lease. Prior to the
Closing Date, the Acquired Company shall have submitted to Purchaser a copy of
the standard terms and conditions of sale or lease for the Acquired Company
(containing applicable guaranty, warranty and indemnity provisions).
3.21. Insurance. Set forth in Exhibit 3.21 is a complete list of all
insurance policies which the Acquired Company maintained with respect to its
businesses, properties or employees within the preceding three (3) years. Except
as set forth in Exhibit 3.21, such policies are in full force and effect and, to
the knowledge of the Acquired Company and the Shareholders, no event has
occurred which would give any insurance carrier a right to terminate any such
policy. Such policies, with respect to their amounts and types of coverage, are
adequate to insure fully against risks to which the Acquired Company and its
property and assets are exposed. Except as set forth in Exhibit 3.21, since the
beginning of the Acquired Company's fiscal year, there has not been any change
in the Acquired Company's relationship with its insurers or in the premiums
payable pursuant to such policies.
3.22 Related Party Relationships. Except as set forth in Exhibit 3.22,
none of the Shareholders nor any officer or director of the Acquired Company,
possesses, directly or indirectly, any beneficial interest in, or is a director,
officer or employee of, any corporation, partnership, firm, association or
business organization which is a client, supplier, customer, lessor, lessee,
lender, creditor, borrower, debtor or contracting party with or of the Acquired
Company (except as a
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stockholder holding less than a one percent (1%) interest in a corporation whose
shares are traded on a national or regional securities exchange or in the
over-the-counter market).
3.23 Antitrust Matters. The Acquired Company has conducted and is
conducting the Business in compliance with all federal and state antitrust and
trade regulation laws, statutes, rules and regulations, including without
limitation, the Sherman Act, the Clayton Act, the Robinson Patman Act, the
Federal Trade Commission Act, state laws patterned after any of the above, all
laws forbidding price-fixing, collusion, or bid-rigging, and rules or
regulations issued pursuant to authority set forth in any of the above. With
respect to any of the foregoing, the Acquired Company is not presently directly
or indirectly involved with, or to the best knowledge of the Acquired Company
and the Shareholders charged with or under any governmental investigation with
respect to, and there is no basis or grounds for, any charge, claim,
investigation, suit, action, proceeding or any actual or alleged violation of
any such law, statute, rule or regulation.
3.24 Exhibits. Matters disclosed on each Exhibit shall be deemed
disclosed only for purposes of the matters to be disclosed on such Exhibit and
shall not be deemed to be disclosed for any other purpose unless expressly
provided therein.
3.25 Disclosure and Absence of Undisclosed Liabilities. This Agreement
and the Exhibits hereto disclose all facts material to the assets, business or
operations of the Acquired Company. No representation or statement contained
herein or in any certificate, schedule, list, exhibit or other instrument
furnished to Purchaser pursuant to the provisions hereof contains or will
contain any untrue statement of any material fact or omits or will omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
3.26 Agreement as to Knowledge. Any provision of this Agreement
referring to the knowledge of the Shareholders shall be deemed to include the
knowledge of Chew.
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to, and for the benefit of, the
Acquired Company as follows:
4.1 Organization and Standing. Purchaser is a duly organized and
validly existing corporation in good standing under the laws of the State of
Delaware, and has the full power and authority (corporate and otherwise) to
carry on its business in the places and as it is now being conducted and to own
and lease the properties and assets which it now owns or leases.
4.2 Authority and Status. Purchaser has the capacity and authority to
execute and deliver this Agreement, to perform hereunder, and to consummate the
transactions contemplated hereby without the necessity of any act or consent of
any other person whomsoever. The execution, delivery and performance by
Purchaser of this Agreement and each and every agreement, document, and
instrument provided for herein have been duly authorized and approved by its
Board of Directors. This Agreement and each and every other agreement, document,
and instrument to be executed, delivered and performed by Purchaser in
connection herewith constitute or will, when
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executed and delivered, constitute the valid and legally binding obligation of
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
4.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by Purchaser does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the
Articles of Incorporation, as amended, or Bylaws, as amended, of Purchaser, or
violate or constitute an occurrence of default under any provision of, or
conflict with, or result in acceleration of any obligation under, or give rise
to a right by any party to terminate its obligations under, any mortgage, deed
of trust, conveyance to secure debt, note, loan, lien, lease, agreement,
instrument, or any order, judgment, decree or other arrangement to which
Purchaser is a party or is bound or by which its assets are affected.
4.4 Litigation, Etc. There is no suit, action, proceeding, claim or
investigation pending, or to the knowledge of the Purchaser threatened, against
the Purchaser which would have a material adverse effect on the right of the
Purchaser to consummate the transactions contemplated hereby. Purchaser is not
contemplating a filing for bankruptcy or commencing any similar insolvency
proceeding.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions, all of
which may be waived, in whole or in part, by Purchaser for purposes of
consummating such transactions, but without prejudice to any other right or
remedy which it may have hereunder as a result of any misrepresentation by, or
breach of any covenant or warranty of, the Acquired Company, Chew or the
Shareholders contained in this Agreement or any other certificate or instrument
furnished by the Acquired Company, Chew or the Shareholders hereunder.
5.1 Representations True at Closing. The representations and warranties
made by the Acquired Company, Chew and the Shareholders to Purchaser in this
Agreement, the Exhibits hereto or any document or instrument delivered to
Purchaser or its representatives hereunder shall be true and correct on the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of such time, except for changes contemplated
by this Agreement.
5.2 Covenants of the Acquired Company, Chew and the Shareholders. The
Acquired Company, Chew and the Shareholders shall have duly performed all of the
covenants, acts and undertakings to be performed by them on or prior to the
Closing Date, and the President of the Acquired Company, Chew and the
Shareholders shall deliver to Purchaser a certificate dated as of the Closing
Date certifying to the fulfillment of this condition and the condition set forth
in Section 5.1 hereof.
5.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative
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body to enjoin, restrain, prohibit or obtain substantial damages in respect of,
or which is related to, or arises out of, this Agreement or the consummation of
the transactions contemplated hereby, or which is related to or arises out of
the business of the Acquired Company, if such action, proceeding, investigation,
regulation or legislation, in the reasonable judgment of Purchaser would make it
inadvisable to consummate such transactions.
5.4 Opinion of Counsel. An opinion of Wells, Moore, Simmons & Hubbard,
PLLC, counsel for the Acquired Company, Chew and the Shareholders, shall have
been delivered to Purchaser dated as of the Closing Date, substantially in form
and substance of the opinion attached hereto as Exhibit 5.4.
5.5 Consents, Approvals and Waivers. Purchaser shall have received a
true and correct copy of each and every consent, approval and waiver (whether
governmental or private) (a) referred to in Section 2.9 hereof, or (b) otherwise
required for the execution of this Agreement and the consummation of the
transactions contemplated hereby.
5.6 Absence of Adverse Changes. Since the Interim Financial Statement
Date (a) the Acquired Company shall not have suffered any change in its
financial condition, business, property or assets which adversely affects the
conduct of its business, and (b) neither the Acquired Company, Chew nor any of
the Shareholders shall have permitted or suffered to occur any transaction or
event described in Section 3.10 hereof which is not described in Exhibit 3.10
hereto.
5.7 Covenant Not to Compete. Chew shall have entered into a Covenant
Not to Compete substantially in the form of Exhibit 2.16.
5.8 Consulting Agreement. Chew shall have entered into an Consulting
Agreement substantially in the form of Exhibit 2.17.
5.9 Environmental Audit. Purchaser shall have received the results of
an environmental audit on the Real Property conducted by environmental engineers
of Purchaser's choosing and paid for by Purchaser, which results shall be
satisfactory to Purchaser in all respects, within Purchaser's sole discretion.
5.10 Title to Real Property. Purchaser shall have received the results
of a title search and survey of the Real Property, which results shall be
satisfactory to Purchaser in all respects, within Purchaser's sole discretion,
and Purchaser shall have obtained title insurance, in form and content
acceptable to Purchaser from a reputable insurer insuring the Real Property at
customary rates.
5.11 Results of Certain Investigations. The Purchaser shall have
completed, and been satisfied in its sole discretion with the results of, legal
and business investigations with respect to the operations of the Acquired
Company.
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VI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY, CHEW
AND THE SHAREHOLDERS TO CLOSE.
All of the obligations of the Acquired Company, Chew and the
Shareholders to consummate the transactions contemplated by this Agreement shall
be contingent upon and subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived, in whole or in part, by the Acquired Company, Chew and the
Shareholders, but without prejudice to any other right or remedy which they may
have hereunder as a result of any misrepresentation by, or breach of any
covenant or warranty of, Purchaser contained in this Agreement, or any
certificate or instrument furnished by it hereunder.
6.1 Representations True at Closing. The representations and warranties
made by Purchaser in this Agreement to the Acquired Company, Chew and the
Shareholders or any document or instrument delivered to the Acquired Company,
Chew, the Shareholders or their representatives hereunder shall be true and
correct on the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such date, except for
changes contemplated by this Agreement.
6.2 Covenants of Purchaser. Purchaser shall have duly performed all of
the covenants, acts and undertakings to be performed by them on or prior to the
Closing Date, and a duly authorized officer of Purchaser shall deliver a
certificate dated as of the Closing Date certifying to the fulfillment of this
condition and the condition set forth under Section 6.1 above.
6.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of, the business of
Purchaser, if such action, proceedings, investigation, regulation or
legislation, in the reasonable judgment of the Acquired Company, Chew or the
Shareholders would make it inadvisable to consummate same.
6.4 Opinion of Counsel. An opinion of Joel I. Beerman, Esq., General
Counsel for the Purchaser, shall have been delivered to the Representative dated
as of the Closing Date, substantially in form and substance of the opinion
attached hereto as Exhibit 6.4.
VII. CLOSING.
7.1 Time and Place of Closing. The consummation of the transactions
provided for in this Agreement (herein referred to as the "Closing") shall be
held at the offices of Jones, Day, Reavis & Pogue, 3500 SunTrust Plaza, 303
Peachtree Street, N.E., Atlanta, Georgia, 30308-3242, commencing at 10:00 a.m.
Eastern Time, on May 11, 1998 (herein referred to as the "Closing Date"), unless
another place or date is agreed to in writing by the parties hereto, but in no
event will the Closing be held later than May 11, 1998.
7.2 Transactions at Closing. At the Closing, each of the following
transactions shall occur:
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7.2.1 The Acquired Company's, Chew's and the Shareholders' Performance.
At the Closing, the Acquired Company, Chew and the Shareholders shall deliver to
Purchaser the following:
(i) all certificates representing shares of the outstanding
capital stock of the Acquired Company, duly endorsed for transfer or
accompanied by instruments of transfer reasonably satisfactory in form
and substance to Purchaser and its counsel;
(ii) the certificate of the Shareholders, Chew and of the
President of the Acquired Company described in Section 5.2;
(iii) copies of the consents, approvals and waivers described in
Section 2.9 and Section 5.5;
(iv) certificates of compliance or certificates of good standing
of the Acquired Company, as of the most recent practicable date, from
the appropriate governmental authority of the jurisdiction of its
incorporation and any other jurisdiction which is set forth in Exhibit
3.1 hereto;
(v) certified copies of resolutions of the Board of Directors of
the Acquired Company and of the Shareholders approving the transactions
set forth in this Agreement;
(vi) certificates of incumbency for the officers of the Acquired
Company;
(vii) resignations of each director, of Chew, Judith A. Chew and
Karen C. Robinson each as an officer of the Acquired Company and of the
plan administrator under any Benefit Plan maintained by the Acquired
Company;
(viii) evidence of the repayments described in Section 2.13;
(ix) an executed Covenant Not to Compete from Chew, substantially
in the form of Exhibit 2.16;
(x) an executed Consulting Agreement from Chew, substantially in
the form of Exhibit 2.17;
(xi) opinion of counsel described in Section 5.4; and
(xii) such other evidence of the performance of all covenants and
satisfaction of all conditions required of the Acquired Company, Chew
and the Shareholders by this Agreement, at or prior to the Closing, as
Purchaser or its counsel may reasonably require.
7.2.2 Performance by Purchaser. At the Closing, Purchaser shall deliver
to the Acquired Company, Chew and the Shareholders the following:
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(i) cash, by wire transfer, in the aggregate amount referenced in
Section 2.2;
(ii) certificate of the authorized officer described in Section
6.2;
(iii) certificate of incumbency of the officers of Purchaser who
are executing this Agreement and the other documents contemplated
hereunder;
(iv) certified copy of resolutions of the Board of Directors of
Purchaser approving the transactions set forth in this Agreement;
(v) opinion of counsel described in Section 6.4; and
(vi) such other evidence of the performance of all the covenants
and satisfaction of all of the conditions required of Purchaser by this
Agreement at or before the Closing as the Acquired Company, Chew, the
Shareholders or their counsel may reasonably require.
VIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
8.1 Survival of Representations and Warranties of the Acquired Company,
Chew and the Shareholders. All representations, warranties, agreements,
covenants and obligations made or undertaken by the Acquired Company, Chew and
the Shareholders in this Agreement or in any document or instrument executed and
delivered pursuant hereto are material, have been relied upon by Purchaser,
shall survive the Closing hereunder and shall not merge in the performance of
any obligation by any party hereto. Each of the Shareholders and Chew agrees to
and shall indemnify and hold harmless Purchaser or any assignee of Purchaser at
all times after the date of this Agreement from and against and in respect of,
any liability, claim, deficiency, loss, damage, or injury and all reasonable
costs and expenses (including reasonable counsel fees and costs of any suit
related thereto) suffered or incurred by Purchaser (collectively, a "Loss")
arising from (a) any misrepresentation by, or breach of any covenant or warranty
of, the Acquired Company, Chew or any of the Shareholders contained in this
Agreement or any exhibit, certificate, or other instrument furnished or to be
furnished by the Acquired Company, Chew or any of the Shareholders hereunder;
(b) any nonfulfillment of any agreement on the part of the Acquired Company,
Chew or any of the Shareholders under this Agreement or from any
misrepresentation in or omission from, any certificate or other instrument
furnished or to be furnished to Purchaser hereunder; (c) any claim against, or
liability of, the Acquired Company, which accrued prior to the Interim Financial
Statement Date to the extent not fully accrued or reserved against in the
Interim Financial Statements; or (d) any matter regarding Hazardous Substances
on any Real Property or regarding any applicable federal, state or local
environmental laws or permits pertaining to the Real Property except to the
extent any Loss therefrom is expressly disclosed either in Exhibit 3.19 hereto
or in the Phase I Environmental Site Assessments issued by Clayton Environmental
to Purchaser. Any examination, inspection or audit of the properties, financial
condition or other matters of the Acquired Company and its business conducted by
Purchaser pursuant to this Agreement shall in no way limit, affect or impair the
ability of Purchaser to rely upon the representations, warranties, covenants and
obligations of the Acquired Company, Chew and each of the Shareholders set forth
31
<PAGE>
herein. Since following Closing the Acquired Company will be owned by Purchaser,
the parties hereto agree that any Loss suffered or incurred by the Acquired
Company arising as provided for in this Section 8.1 shall be deemed a Loss
suffered or incurred by Purchaser.
8.2 Survival of Representations and Warranties of Purchaser. All
representations, warranties, agreements, covenants and obligations made or
undertaken by Purchaser in this Agreement or in any document or instrument
executed and delivered pursuant hereto are material, have been relied upon by
the Acquired Company, Chew and the Shareholders, shall survive the Closing
hereunder for a period of two (2) years and shall not merge in the performance
of any obligation by any party hereto, except for any claim to be indemnified
pursuant to Section 8.2(c) or in respect of the covenants in Sections 2.4 and
2.5, which shall survive for the statutory period of limitations under the
applicable tax statutes, unless such claim is raised by the taxing authority by
way of an offset against any claim or suit for refund or is allowed to be
assessed after the expiration of the applicable statute of limitations pursuant
to a validly executed waiver or extension thereof or pursuant to the mitigation
provisions contained in the Code, in which case a claim may be made within one
(1) year after such offset or assessment. Purchaser agrees to and shall
indemnify and hold harmless the Acquired Company, Chew and the Shareholders at
all times after the date of this Agreement from and against and in respect of,
any liability, claim, deficiency, loss, damage or injury and all reasonable
costs and expenses (including reasonable counsel fees and costs of any suit
related thereto) suffered or incurred by the Acquired Company, Chew or the
Shareholders arising from (a) any misrepresentation by, or breach of any
covenant or warranty of, Purchaser contained in this Agreement or any exhibit,
certificate or other instrument furnished or to be furnished by Purchaser
hereunder, or any claim by a third party (regardless of whether the claimant is
ultimately successful) which if true would be such a misrepresentation or
breach, (b) any nonfulfillment of any agreement on the part of the Purchaser
under this Agreement or from any misrepresentation in or omission from, any
certificate or other instrument furnished or to be furnished to the Acquired
Company, Chew or the Shareholders hereunder, or (c) the failure of the Acquired
Company (or Purchaser) to reimburse, by virtue of the payments made pursuant to
Sections 2.4 and 2.5 hereof, the Shareholders for their respective 1998 Tax
Liability and the Election Liability as determined by a final, nonappealable
order of a Governmental Body.
8.2A Defense of Third Party Claims. Any Person making a claim for
indemnification under Sections 8.1 or 8.2 hereof (an "Indemnitee") shall notify
the indemnifying party or parties (an "Indemnitor") of the claim in writing
promptly after receiving written notice of any action, lawsuit, proceeding,
investigation or other claim against it by a third party (including without
limitation, a Governmental Body), describing the claim, the amount thereof (if
known and quantifiable) and the basis thereof; provided that the failure to so
notify an Indemnitor shall not relieve the Indemnitor of its obligations
hereunder except to the extent that (and only to the extent that) such failure
shall have caused the damages for which the Indemnitor is obligated to be
greater than such damages would have been had the Indemnitee given the
Indemnitor prompt notice hereunder. Any Indemnitor shall be entitled to
participate in the defense of such action, lawsuit, proceeding, investigation or
other claim giving rise to an Indemnitee's claim for indemnification at such
Indemnitor's expense, and at its option (subject to the limitations set forth
below) shall be entitled to assume the defense thereof at such Indemnitor's
expense by appointing a reputable counsel reasonably acceptable to the
Indemnitee to be the lead counsel in connection with such defense within fifteen
(15) days after receipt of such written notice from the Indemnitee; provided
that:
32
<PAGE>
(a) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any fees and expenses of
such separate counsel that are incurred prior to the date the
Indemnitor effectively assumes control of such defense which,
notwithstanding the foregoing, shall be borne by the Indemnitor);
(b) the Indemnitor shall not be entitled to assume control of
such defense and shall pay the fees and expenses of counsel retained by
the Indemnitee if (i) the claim for indemnification relates to or
arises in connection with any criminal proceeding, action, indictment,
allegation or investigation; (ii) settlement of, or an adverse judgment
with respect to, the action, lawsuit, investigation, proceeding or
other claim giving rise to such claim for indemnification would, in the
reasonable judgment of the Indemnitee, likely establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnitee in any material respect or the Indemnitee reasonably
believes that settlement or an adverse judgment with respect thereto
would be detrimental to or injure the Indemnitee's reputation; (iii)
the claim seeks an injunction or equitable relief against the
Indemnitee; (iv) upon petition by the Indemnitee, the appropriate court
rules that the Indemnitor failed or is failing to vigorously prosecute
or defend such claim; or (v) the Indemnitee reasonably believes that
the loss relating to such claim could exceed the limitations on such
indemnification as set out in Section 8.5 hereof; and
(c) if the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee (not to be unreasonably withheld)
before entering into any settlement of such claim and, if the
Indemnitee shall control the defense of any such claim, the Indemnitee
shall obtain the prior written consent of the Indemnitor (not to be
unreasonably withheld) prior to entering into any settlement of such
claim.
8.2B Insurance Proceeds. To the extent an Indemnitee is entitled to
receive and actually receives any proceeds of insurance with respect to a matter
for which it is to be indemnified hereunder, the indemnification obligation of
the Indemnitor hereunder shall be reduced to the extent thereof (net of all
out-of-pocket costs related to such insurance recovery). An Indemnitee shall use
commercially reasonable efforts (consistent with past practice) to recover any
amounts which it may reasonably be entitled to under any existing insurance
policy with respect to a matter for which it is to be indemnified hereunder.
8.3 Limitation on Indemnification. Notwithstanding the provisions of
Sections 8.1 and 8.2, and subject to the final sentence of this Section 8.3, no
party entitled to indemnification shall be entitled to make a claim against any
party providing indemnification unless and until the aggregate amount of all
claims which may be asserted against such party exceeds two hundred fifty
thousand dollars ($250,000.00) at which time claims may be asserted for all such
indemnifiable losses without limitation by reason of this Section 8.3. For
purpose of the foregoing limitation, each of the parties providing
indemnification pursuant to Section 8.1 shall be deemed to be a single party
providing indemnification for purposes of computing the two hundred fifty
thousand dollar ($250,000.00) threshold. The limitation set forth in this
Section 8.3 shall not apply to (a) any knowing breach by any party of any of the
representations and warranties made herein or pursuant
33
<PAGE>
to this Agreement by such party, or any intentional breach of any covenant or
obligation herein or pursuant to this Agreement (a "Knowing Breach"); (b) the
breach of or noncompliance with any of the representations, warranties and
covenants contained in Sections 3.3, 3.6 and 11.5 of this Agreement; or (c)
indemnification pursuant to Section 8.2(c) hereof.
8.4 Survival Period for Claims Against Chew and Shareholders. A claim
for indemnification based on the covenants, representations and warranties
contained in the provisions of Sections 3.2, 3.3, 3.7.1.2, 3.7.2.2, 3.19, 11.2
or 11.5 shall survive for the longest period available under applicable laws and
may be made at any time. Except for such claims, a claim for indemnification
hereunder shall be forever barred unless made by notifying Chew and the
Shareholders (a) in the case of a claim based upon a tax liability of the
Acquired Company (including, without limitation, any claim based upon an
assertion that any of the previously filed tax returns of the Acquired Company
are inaccurate or incomplete), within the statutory period of limitations under
the applicable tax statute, unless such claim is raised by the taxing authority
by way of an offset against any claim or suit for refund or is allowed to be
assessed after the expiration of the applicable statute of limitations pursuant
to a validly executed waiver or extension thereof or pursuant to the mitigation
provisions contained in the Code, in which case a claim may be made within one
(1) year after such offset or assessment, or (b) in all other cases, within two
(2) years after the Closing Date.
8.5 Maximum Aggregate Liability Amount. Except as set forth in Exhibit
8.5 hereto, the maximum aggregate liability of Chew and the Shareholders in
respect of a claim by Purchaser for indemnification under this Agreement shall
equal the sum of the amounts paid by Purchaser pursuant to Sections 2.1, 2.4 and
2.5 hereof (the "Maximum Aggregate Liability Amount"), and the obligations of
Chew and the Shareholders for indemnification hereunder shall terminate when the
Maximum Aggregate Liability Amount has been paid to Purchaser. In addition,
except as indicated in Exhibit 8.5 hereto, the maximum aggregate liability of
each of the Shareholders other than the John S. Chew, Jr. Revocable Trust (the
"Minority Shareholders") for indemnification under this Agreement shall equal
the sum of all amounts paid by Purchaser to such Minority Shareholder pursuant
to Sections 2.1, 2.4 and 2.5 hereof, and the obligations of any Minority
Shareholder for indemnification hereunder shall terminate when such amount has
been paid to Purchaser by such Minority Shareholder.
IX. TAX EFFECT OF THE TRANSACTION.
Neither Purchaser, the Acquired Company, Chew nor the
Shareholders have made nor do any of them make herein any representation or
warranty as to the tax consequences of the transactions contemplated or provided
for herein to any party hereto. It is understood and agreed that each party has
looked to its own advisors for advice and counsel as to such tax effects.
34
<PAGE>
X. TERMINATION.
10.1 Method of Termination. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, the consideration for which is (a) the covenants set forth in Article II
hereof, and (b) expenditures and obligations incurred and to be incurred by
Purchaser, on the one hand, and by the Acquired Company, Chew and the
Shareholders, on the other hand, in respect of this Agreement, and this
Agreement may be terminated or abandoned only as follows:
10.1.1 By the mutual consent of the parties, notwithstanding prior
approval by the shareholders of any or all of such corporations;
10.1.2 By the Shareholders, Chew and the Acquired Company after May 11,
1998, if any of the conditions set forth in Article VII hereof, to which their
obligations are subject, have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by any act or failure to act
of any of them; or
10.1.3 By Purchaser after May 11, 1998, if any of the conditions set
forth in Article VI hereof, to which its obligations are subject have not been
fulfilled or waived, unless such fulfillment has been frustrated or made
impossible by any act or failure to act.
10.2 Effect of Termination. In the event of a termination of this
Agreement pursuant to Section 10.1.1 hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement, and no party (or any
of its officers, directors, employees, agents, representatives or shareholders)
shall be liable to any other party for any costs, expenses, damage or loss of
anticipated profits hereunder. In the event of any other termination, the
parties shall retain any and all rights attendant to a breach of any covenant,
representation or warranty made hereunder.
10.3 Risk of Loss. The Acquired Company, Chew and the Shareholders
assume all risk of condemnation, destruction, loss or damage due to fire or
other casualty from the date of this Agreement up to the Closing. If the
condemnation, destruction, loss, or damage is such that the business of the
Acquired Company is interrupted or curtailed or the assets of the Acquired
Company are materially affected, then Purchaser shall have the right to
terminate this Agreement. If the condemnation, destruction, loss, or damage is
such that the business of the Acquired Company is neither interrupted nor
curtailed nor its assets materially affected, or if the business is interrupted
or curtailed or the assets are materially affected and Purchaser nevertheless
foregoes the right to terminate this Agreement, the consideration payable
pursuant to Article II hereof shall be adjusted at the Closing to reflect such
condemnation, destruction, loss, or damage to the extent that insurance proceeds
are not sufficient to cover such destruction, loss or damage, and if Purchaser,
the Acquired Company, Chew and the Shareholders are unable to agree upon the
amount of such adjustment, the dispute shall be resolved jointly by the
independent accounting firms then employed by Purchaser and the Acquired
Company, and if said accounting firms do not agree, they shall appoint a
nationally recognized accounting firm, whose determination of the dispute shall
be final and binding.
35
<PAGE>
XI. GENERAL PROVISIONS.
11.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, mailed by
registered or certified mail, return receipt requested, or sent by Federal
Express or other nationally recognized overnight delivery service addressed as
follows:
11.1.1 If to the Acquired Company, Chew or the Shareholders:
John S. Chew, Jr.
109 Southern Ridge Road
Madison, Mississippi 39110
with a copy to:
Wells, Moore, Simmons & Hubbard, PLLC
1300 Deposit Guaranty Plaza
P. O. Box 1970
Jackson, Mississippi 39215-1970
Attn: T. Calvin Wells
11.1.2 If to Purchaser:
Georgia Gulf Corporation
400 Perimeter Center Terrace, Suite 595
Post Office Box 105197
Atlanta, Georgia 30348
Attn: Mr. Joel I. Beerman, Vice President and General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attn: John E. Zamer
11.1.3 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made. If delivered by mail or overnight delivery service, the date
on which such notice, request, instruction or document is received shall be the
date of delivery. In the event any such notice, request, instruction or document
is mailed or sent to a party in accordance with this Section 11.1 and is
returned to the sender as nondeliverable, then such notice, request, instruction
or document shall be deemed to have been delivered or received on the fifth day
following the deposit of such notice, request, instruction or document in the
United States mails or overnight delivery service, as the case may be.
36
<PAGE>
11.1.4 Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
11.1.
11.2 Brokers.
11.2.1 Each of the Shareholders and Chew represents and warrants to
Purchaser that no investment banker, broker or finder has acted for him or the
Acquired Company, in connection with this Agreement or any of the transactions
contemplated hereby. Each of the Shareholders and Chew agrees to indemnify and
hold harmless the Purchaser from and against any fee, claim, loss, or expense
arising out of any claim by any investment banker, broker or finder employed or
alleged to have been employed by any of the Shareholders, Chew or the Acquired
Company.
11.2.2 The Purchaser represents and warrants to the Shareholders, Chew
and the Acquired Company that it has not retained any investment banker, broker
or finder in connection with this Agreement or any of the transactions
contemplated hereby. Purchaser agrees to indemnify and hold harmless Chew and
the Shareholders from and against any fee, claim, loss, or expense arising out
of any claim by any investment banker, broker or finder employed or alleged to
have been employed by it.
11.3 Further Assurances. Each party covenants that at any time, and
from time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 Waiver. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 Expenses. Except as indicated in the last sentence of this Section
11.5, all expenses incurred by the parties hereto in connection with or related
to the authorization, preparation and
execution of this Agreement and the Closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of brokers, agents, representatives, counsel and accountants
employed by any such party, shall be borne solely and entirely by the party
which has incurred the same. Except as indicated in the last sentence of this
Section 11.5, all such fees and expenses of the Acquired Company shall be borne
by the Shareholders, and in no event shall any assets of the Acquired Company be
utilized for or reduced by the payment of any such fees or expenses. Each of
Chew and the Shareholders hereby represents and warrants that no such fees or
expenses have been paid by the Acquired Company from the Acquired Company's
assets prior to the date of this Agreement, and hereby covenants that the
Acquired Company will not so pay any such fees or expenses prior to or at the
Closing. Notwithstanding anything in this Section 11.5 to the contrary, the
Acquired Company shall pay expenses in respect of services rendered by KPMG Peat
Marwick LLP in connection with or related to the authorization, preparation and
execution of this Agreement and the Closing of the transactions contemplated
hereby for the period prior to and through the Closing in an aggregate amount
not to exceed twenty thousand dollars ($20,000.00), and the Acquired Company
shall pay legal expenses
37
<PAGE>
of Wells, Moore, Simmons & Hubbard, PLLC, in connection with or related to the
authorization, preparation and execution of this Agreement and the Closing of
the transactions contemplated hereby in an aggregate amount not to exceed
fifteen thousand dollars ($15,000.00).
11.6 Nondisclosure of Terms. The Acquired Company, Chew and the
Shareholders, jointly and severally, represent and warrant that prior to the
execution hereof (and except in connection with and pursuant to the pre-merger
notification filing made under the HSR Act) they have not disclosed any of the
terms, conditions, obligations or matters contained in or relating to this
Agreement and the transactions contemplated herein, and the Acquired Company,
Chew and the Shareholders, jointly and severally, covenant and agree that
following the execution of this Agreement it and they shall not disclose to any
person, individual or entity any of such terms, conditions or matters and to
keep the same confidential, regardless of whether the Closing occurs; provided,
however, that the Acquired Company, Chew and the Shareholders may disclose such
terms, conditions, obligations or matters contained in or relating to this
Agreement and the transactions contemplated herein to its lenders.
11.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
11.8 Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.9 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
11.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Mississippi.
11.11 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.
11.12 Pronouns. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter gender as the context requires.
11.13 Exhibits Incorporated. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such Exhibits, if any, will
be filled in as required in order to consummate the transactions contemplated
herein and in accordance with this Agreement.
11.14 Time of Essence. Time is of the essence in this Agreement.
38
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
GEORGIA GULF CORPORATION
"Purchaser"
By:
------------------------------
Title:
---------------------------
NORTH AMERICAN PLASTICS, INC.
"Acquired Company"
By:
------------------------------
Title:
---------------------------
---------------------------------
JOHN S. CHEW, JR.
JOHN S. CHEW, JR. REVOCABLE TRUST
By:
-----------------------------
John S. Chew, Jr., Trustee
KAREN C. ROBINSON
KELLY PAULINE ROBINSON QUALIFIED
SUBCHAPTER S TRUST
By: Trustmark National Bank,
Jackson, Mississippi, Trustee
By:
-----------------------------
Trust Officer
39
<PAGE>
OLIVIA ANN ROBINSON QUALIFIED
SUBCHAPTER S TRUST
By: Trustmark National Bank,
Jackson, Mississippi, Trustee
By:
-----------------------------
Trust Officer
CLAIRE ELIZABETH ROBINSON
QUALIFIED SUBCHAPTER S TRUST
By: Trustmark National Bank,
Jackson, Mississippi, Trustee
By:
------------------------------
Trust Officer
40
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0
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