<PAGE> 1
Page 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended October 31, 1997
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: 0-22798
-------------------------------------------------
SPECIALTY EQUIPMENT COMPANIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3337593
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1245 Corporate Blvd., Suite 401, Aurora, IL 60504
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 585-5111
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all and 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 requirement 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.
Class Outstanding at December 11 , 1997
- ----------------------------- ----------------------------------------
Common Stock, $0.01 par value 18,106,673 shares
The exhibit index is on page 15.
<PAGE> 2
Page 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SPECIALTY EQUIPMENT COMPANIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ................................................. $102,775 $107,694 $313,110 $330,082
Cost of sales ........................................... 71,951 74,532 217,036 229,307
-------- -------- -------- --------
Gross margin ............................................ 30,824 33,162 96,074 100,775
Selling, general and administrative expenses ............ 15,435 17,798 47,405 51,685
Amortization ............................................ 489 287 1,369 664
Other expense (income) net............................... (21) (100) (352) (103)
-------- -------- --------- --------
Earnings from operations before interest and
income taxes ....................................... 14,921 15,177 47,652 48,529
Interest expense, net ................................... 4,515 3,965 14,407 11,974
-------- -------- -------- --------
Earnings from operations before income taxes ............ 10,406 11,212 33,245 36,555
Income taxes ............................................ 4,049 4,037 12,932 13,094
-------- -------- -------- --------
Net earnings before extraordinary item .................. 6,357 7,175 20,313 23,461
Extraordinary item (net of taxes) ....................... (1,784) - (1,784) -
-------- -------- -------- --------
Net earnings ............................................ $ 4,573 $ 7,175 $ 18,529 $23,461
======== ======== ======== =======
Net earnings per common and dilutive common
equivalent share before extraordinary item.......... $ 0.29 $ 0.33 $ 0.95 $ 1.09
Extraordinary item (net of taxes) ....................... (0.08) (0.00) (0.08) (0.00)
-------- -------- -------- -------
Net earnings per common and dilutive
common equivalent share............................ $ 0.21 $ 0.33 $ 0.87 $ 1.09
======== ======== ======== =======
Average number of common and dilutive common
equivalent shares outstanding...................... 21,311 21,432 21,371 21,478
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
<PAGE> 3
Page 3
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
January 31, October 31,
1997 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents ................................................. $ 7,787 $ 48,479
Accounts receivable, net ............................................. 53,486 62,541
Inventories .......................................................... 55,311 54,522
Other current assets ................................................. 15,847 13,730
--------- --------
Total current assets .............................................. 132,431 179,272
Net property, plant and equipment ...................................... 34,217 37,838
Restricted cash equivalents ............................................ 3,059 2,986
Goodwill and intangible assets, net .................................... 5,861 23,046
Other assets ........................................................... 1,348 956
Total assets ...................................................... --------- --------
$ 176,916 $244,098
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt ............................... $ 141 $ 18,421
Accounts payable ..................................................... 25,371 25,425
Accrued expenses ..................................................... 59,852 78,489
Accrued income taxes ................................................. 4,939 10,181
--------- ---------
Total current liabilities ...................................... 90,303 132,516
Long-term debt, excluding current installments ......................... 155,440 159,811
Other non-current liabilities .......................................... 2,404 1,799
Stockholders' equity (deficit):
Common stock ...................................................... 180 183
Additional paid-in capital ........................................ 54,501 54,074
Accumulated deficit ............................................... (125,583) (102,122)
Other ............................................................. (329) (2,163)
-------- ---------
Total stockholders' deficit .................................... (71,231) (50,028)
Commitments and contingent liabilities (note 7) ........................
Total liabilities and stockholders' equity (deficit).................... $176,916 $ 244,098
======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 4
Page 4
SPECIALTY EQUIPMENT COMPANIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
1996 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................ $ 18,529 $ 23,461
Items not affecting cash:
Depreciation and amortization .................................... 3,404 3,592
Armortization .................................................... 2,019 664
Utilization of NOL carry forward.................................. 819 819
(Gain) loss from asset sales ..................................... (25) -
-------- ---------
Total .......................................................... 24,746 28,536
-------- ---------
Changes in current assets and liabilities:
Accounts receivable, net ............................................ (21,191) (4,285)
Inventories ......................................................... (1,165) 3,843
Other current assets ................................................ 3,147 2,764
Accounts payable and other current
liabilities, excluding current installments of long-term debt..... 14,209 18,552
-------- ---------
Total .......................................................... (5,000) 20,874
-------- ---------
Net cash flows from operations ........................................ 19,746 49,410
Cash flows from investing activities:
Additions to property, plant and equipment .......................... (5,903) (2,508)
Disposals of property, plant and equipment .......................... 31 13
Cash equivalents restricted for capital additions ................... 2,839 73
Net assets of businesses acquired ................................... (1,321) (21,492)
-------- ---------
Net cash used in investing activities .......................... (4,354) (23,914)
-------- ---------
Cash flows from financing activities:
Repayments of long-term debt ........................................ (37,591) (43)
Proceeds from long-term debt ........................................ - 18,000
Proceeds from stock options exercised ............................... 323 592
Cancellation of stock options ....................................... (780) (1,836)
Treasury stock acquired.............................................. - (1,958)
-------- ---------
Net cash provided by (used in) financing activities ............ (38,048) 14,755
-------- ---------
Other ................................................................. 625 441
-------- ---------
Net increase (decrease) in cash and cash equivalents................... (22,031) 40,692
Cash and cash equivalents:
Beginning of period................................................. 28,447 7,787
-------- ---------
End of period....................................................... $ 6,416 $ 48,479
======== =========
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
<PAGE> 5
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
These financial statements should be read with the financial statements and the
notes thereto for the fiscal year ended January 31, 1997 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("Commission") on March 27, 1997.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three and nine month periods ended October 31, 1996 and
1997, (b) the financial position at January 31, 1997 and October 31, 1997 and
(c) the statements of cash flows for the nine month periods ended October 31,
1996 and 1997, have been made. The financial results for the three and nine
months ended October 31, 1997 are not necessarily indicative of the financial
results for the entire 1998 fiscal year. Certain reclassifications have been
made to the prior period financial statements to conform with the current
period presentation.
Net earnings per common and dilutive common equivalent share is computed based
on the weighted average number of common and dilutive common equivalent shares
outstanding during the period.
2. Accounts Receivable
Accounts receivable at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
Description 1997 1997
------------ -------------
(in thousands)
<S> <C> <C>
Accounts receivable .............................................. $ 58,145 $ 66,870
Less: allowance for doubtful accounts ............................ 4,659 4,329
-------- ---------
Total ...................................................... $ 53,486 $ 62,541
======== =========
</TABLE>
3. Inventories
Inventories at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1997
------------ -------------
(in thousands)
<S> <C> <C>
Raw materials.................................................... $ 27,082 $ 28,429
Work in progress................................................. 8,005 8,167
Fnished goods.................................................... 20,224 17,926
-------- --------
55,311 54,522
Less: excess of FIFO cost over LIFO cost - -
-------- --------
Total ..................................................... $ 55,311 $ 54,522
======== ========
</TABLE>
The Company uses the LIFO method of valuing inventories. LIFO had a
de minimis effect on the cost of sales for the three and nine month periods
ended October 31, 1996 and 1997.
<PAGE> 6
Page 6
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Intangibles and Goodwill:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1997
---------------- --------------
(in thousands)
Intangibles consisted of the following:
<S> <C> <C>
Patents ............................................................... $ 991 $ 991
Other intangibles ..................................................... 49,571 51,625
Deferred pension costs ................................................ 1,603 1,603
Less: accumulated amortization ........................................ 46,304 46,868
--------- -----------
Net intangibles ....................................................... $ 5,861 $ 7,351
========= ===========
Goodwill consisted of the following:
Goodwill .............................................................. $ - $ 15,796
Less: accumulated amortization ........................................ - 101
--------- -----------
$ - $ 15,695
========== ===========
</TABLE>
Other intangibles primarily include deferred financing fees, engineering
drawings, distribution networks and skilled workforce.
5. Income Taxes
The Company follows the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes"("Statement 109"). At January 31, 1997, the Company had a net deferred
tax asset of $32.3 million less a valuation allowance of $22.1 million. The
Company has approximately $16.1 million in NOL carry forwards. However, a
number of issues regarding the treatment of certain changes in ownership of the
Company pursuant to certain provisions of the Internal Revenue Code of 1986, as
amended ("IRC"), may arise which, if determined adversely, could limit the
amount and/or use of the NOL carry forwards. The NOL carry forwards are
available through fiscal 2008.
6. Long-Term Debt
Long-term debt at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1997
---------------- --------------
Description (in thousands)
<S> <C> <C>
11-3/8% senior subordinated notes due 2003 ............................. $ 149,040 $ 149,040
Industrial project revenue bonds due 2008 .............................. 6,400 6,400
Capitalized leases ..................................................... 141 4,051
Other .................................................................. - 18,741
--------- -----------
155,581 178,232
Less: current installments............................................ 141 18,421
--------- -----------
Total long-term debt, less current installments........................ $155,440 $ 159,811
========= ============
</TABLE>
<PAGE> 7
Page 7
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingent Liabilities
The Company is involved in litigation and claims incidental to its business.
The ultimate outcome of these matters cannot presently be determined because of
the uncertainties inherent in litigation. However, such claims are being
vigorously contested and management does not believe that it is probable that
the ultimate outcome of the loss contingencies relating to such litigation and
claims will have, individually or in the aggregate, a material adverse impact
upon the financial condition or results of operations of the Company.
The following is a summary of the more significant litigation and claims.
Litigation
The Company was a defendant along with other defendants in an action filed
on July 20, 1995 entitled "Thermodyne Food Service Products, Inc. and AFTEC,
Inc. v. McDonald's Corporation, et al." in the United States District Court,
Northern District of Illinois, Eastern Division. Plaintiffs alleged that the
Company and other defendants misappropriated trade secrets in connection with
the Company's development of an oven for McDonald's and OSI. As a result of a
ruling on a motion to dismiss, all the claims against the Company other than
the trade secret claim were dismissed. The case was settled by the terms of a
confidential settlement agreement dated May 28, 1997 pursuant to which one of
the defendants agreed to make a settlement payment in a confidential amount.
Although the Company is not required under the terms of this settlement
agreement to pay any damages or make any settlement payments, it is possible
that the codefendant who did make a settlement payment will seek contribution
from the Company. The Company has not established a reserve in its financial
statements relating to this matter.
The Company and certain of its current and former directors are named as
defendants in an action filed by Virginia A. Noerr, who claims to own shares
of the Company's common stock. The action "Noerr v. Greenwood et al.," C.A.
No. 14320, is pending in the Court of Chancery for the State of Delaware in and
for New Castle County, Delaware. Plaintiff purports to bring this action both
as a class action on behalf of all stockholders of record on April 2, 1993 and
derivatively for the benefit of the Company. Plaintiff's complaint, which has
twice been amended, asserts that (i) the defendants breached their fiduciary
duties to the Company by soliciting stockholder approval of the Company's
Executive Long-Term Incentive Plan and Non-Employee Directors Long-Term
Incentive Plan (see footnote 8 to these financial statements) by means of a
misleading proxy statement and (ii) the Board breached its fiduciary duty in
approving such option plans. The complaint seeks an order declaring the
stockholder approval of those option plans void, canceling the options granted
thereunder, enjoining the directors exercising any such options, imposing a
constructive trust for the benefit of the Company upon any profits the
individual named defendants may have made through exercise of their options,
requiring an accounting in connection therewith, and awarding unspecified
damages plus plaintiff's attorneys' fees and expenses also in an unspecified
amount. The most recent amended complaint was filed after the court granted in
part the defendants' joint motion to dismiss the complaint, striking certain
nondisclosure claims; the court's order, however, denied the remainder of
defendants' motion to dismiss. The Company and the individual defendants
believe that the allegations made in the complaint as amended are without merit
and are factually incorrect and the Company intends to contest these
allegations vigorously. The individual defendants have each made demand upon
the Company for indemnification with respect to this action. The Company
believes that is the Company were liable to the individual defendants for
indemnification, the uninsured portion of such liability would not be material
to the Company.
<PAGE> 8
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Environmental and Related Matters
On May 5, 1994, the Company (doing business as Taylor Freezer Company) was
among more than 80 parties notified as potential third-party defendants in an
action involving the clean up of the MIG/Dewane Landfill near Belvidere,
Illinois. A third-party complaint has been filed by the principal owners and
operators of the landfill. Those owners and operators were sued by the
principal users of the landfill who in turn had been sued by the Environmental
Protection Agency ("EPA") in April, 1992. The complaint seeks contribution for
the proposed clean up of the site. The Company has not received settlement
offers from the EPA, but it settled its alleged liability with the private
plaintiffs for $54,000 for the costs associated with the remedial investigation
of the site. The Company has not settled its alleged liability for clean up
costs at the site. Beatrice Company (ConAgra) has assumed defense of the
matter and has agreed to defend and indemnify the Company for claims related to
the MIG/Dewane site to the extent they are related to Taylor and the events
giving rise to the claims occurring during the Beatrice Company (ConAgra)
period of ownership. Based upon presently available information, management
does not believe this matter will have a material effect on the Company's
results of operation or financial condition.
The Company has also received notice of potential environmental actions from
(i) the South Carolina Department of Health and Environmental Control
("SCDHEC") and the EPA with respect to drums of hazardous waste materials
disposed of in South Carolina, (ii) the SCDHEC with respect to the clean up of
the Unisphere Hazardous Waste Site in Spartanburg County, South Carolina, and
(iii) the Nevada Department of Conservation and Natural Resources, Division of
Environmental Protection ("NDEP"), which issued a finding of alleged violation
and order relating to alleged soil and ground water contamination. With
respect to the SCDHEC matter discussed in (i) above, management is unable to
determine the existence or amount of its potential liabilities because no
formal proceedings have been commenced and no notifications have been received
regarding this matter since December, 1992. The Company has reason to believe
that this site will be the subject of no further action by the EPA. With
respect to the SCDHEC matter discussed in (ii) above, management is unable to
determine the existence or amount of its potential liability, if any, because
the use of the site by Beverage-Air occurred prior to the purchase of the
Beverage-Air assets by the Company from Gerlach Industries in November, 1986.
With respect to the NDEP matter discussed in (iii) above, the Company has spent
approximately $318,000 to conduct tests and to implement a remediation program,
but given the pendency of the Company's appeal and its uncertain outcome,
management cannot estimate what, if any, additional expenditures might be
required.
Letters of Credit
As of October 31, 1997, the Company had letters of credit outstanding totaling
$10.3 million, which guarantee various business activities, including $6.5
million of letters of credit which guarantee the Industrial Project Revenue
Bonds (see note 6 above).
8. Stock Option Plan and Stock Warrants
On May 6, 1993 the stockholders approved long-term incentive plans for both
non-employee directors and employees. Pursuant to the Non-Employee Directors
Long-Term Incentive Plan ("Director Plan") each non-employee director was
granted an option to purchase 175,241 shares of the Company's common stock at a
price of $1.00 per share (which was not less than management's determination of
the fair market value of the underlying shares on the date of grant). The
aggregate grants under the Director Plan totaled 876,205 shares.
<PAGE> 9
Page 9
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Executive Long-Term Incentive Plan, as amended, ("Employee Plan") allows
for the issue of a total of 4,004,814 shares of the Company's common stock. All
of the options granted are at an exercise price which was not less than
management's determination of the fair market value of the underlying shares at
the respective dates of grant.
The options under the Director Plan all vested and became exercisable on May 6,
1995, as on such date all of the conditions to vesting were satisfied. All
options awarded pursuant to the Director Plan expire on May 6, 2000.
The following sets forth information with respect to options issued and
outstanding:
<TABLE>
<CAPTION>
Average option
Shares price per share
<S> <C> <C>
Options outstanding at January 31, 1997 2,995,537 $ 2.42
Options exercised (105,700) (1.00)
Options canceled (33,400) (1.00)
--------- -------
Options outstanding at April 30, 1997
(2,806,437 exercisable) 2,856,437 2.48
Options issued 50,000 13.44
Options exercised (190,782) (1.00)
Options canceled (75,268) (1.00)
-------- -------
Options outstanding at July 31, 1997
(2,540,387 exercisable) 2,640,387 $ 2.84
Options exercised (91,100) (1.35)
Options canceled (13,900) (1.76)
--------- -------
Options outstanding at October 31, 1997 2,535,387 $ 2.90
========= =======
</TABLE>
Options so canceled represent options which are withheld by the Company, upon
exercise by the grantee, to satisfy the grantee's withholding tax liability.
The options canceled cannot be reissued.
A non-employee director has stock warrants currently exercisable to purchase
1,133,296 shares of Common Stock at approximately $2.01 per share.
<PAGE> 10
Page 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF THE OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The following table sets forth selected operating data as a percentage of
Company net revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue:
Beverage-Air........................................... 44.4% 40.2% 39.7% 43.3%
Gamko ................................................. - 5.8 - 1.9
Taylor Company......................................... 38.3 36.7 43.8 38.7
Wells Manufacturing/Bloomfield ........................ 14.1 14.0 13.6 13.1
World Dryer............................................ 3.2 3.3 2.9 3.0
----- ----- ----- -----
Net revenue ........................................... 100.0 100.0 100.0 100.0
Gross margin .......................................... 30.0 30.8 30.7 30.5
Selling, general and administrative expenses........... 15.0 16.5 15.1 15.7
Amortization .......................................... 0.5 0.2 0.5 0.2
Other expense (income), net ........................... - - (0.1) (0.1)
----- ----- ----- -----
Earnings from operations before
interest expense and income taxes .................... 14.5 14.1 15.2 14.7
Interest expense ...................................... 4.4 3.7 4.6 3.6
----- ----- ----- -----
Earnings from operations
before income taxes .................................. 10.1 10.4 10.6 11.1
Income taxes .......................................... 3.9 3.7 4.1 4.3
----- ----- ----- -----
Net earnings before extraordinary item................. 6.2% 6.7% 6.5% 6.8%
===== ===== ===== =====
</TABLE>
Three and Nine Month Periods Ended October 31, 1997 (Fiscal 1998) Compared to
Three and Nine Month Periods Ended October 31, 1996 (Fiscal 1997).
Revenue. Revenue for the three months ended October 31, 1997 increased
4.8% to $107.7 million compared with $102.8 million for the comparable period
in fiscal 1997. Revenue for the nine months ended October 31, 1997 increased
5.4% to $330.1 million compared with $313.1 million for the comparable period
in fiscal 1997. The revenue increase for the three months was primarily
attributable to sales from Gamko which was acquired in August partially offset
due to a decline in sales of refrigeration and glass door merchandising
equipment. In the nine month period increased sales of refrigeration and glass
door merchandising equipment to the soft drink bottler industry and sales of
Gamko products were offset somewhat by lower sales of ice cream freezer
equipment and cooking grills. The timing of two large international
beverage-equipment orders has somewhat distorted quarterly comparisons between
fiscal year 1997 and fiscal year 1998. Fiscal year 1997 included a one-time
order which was shipped during the third and fourth quarters of that year and
fiscal 1998's sales include a large equipment order which was shipped primarily
during the first and second quarter of this year. For the first nine months of
fiscal 1998, revenue from sales of products for use outside the United States
was 30.5% of revenue as compared with 31.5% for the same period in fiscal 1997.
<PAGE> 11
Page 11
Gross Margin. Gross margin for the three months ended October 31, 1997
increased 0.8% to $33.2 million, compared with $30.8 million for the comparable
period in fiscal 1997. Gross margin for the nine months ended October 31, 1997
increased 4.9% to $100.8 million, compared with $96.1 million for the
comparable period in fiscal 1997. As a percent of revenue, gross margin
increased from 30.0% of revenue for the three month period ended October 31,
1996 to 30.8% of revenue in the three month period ended October 31, 1997. The
increase in gross margin for the three month period ended October 31, 1997 was
due to more favorable sales mix in part due to the effect of Gamko. The decline
in gross margin as a percent of revenue for the nine month periods ended
October 31, 1997 compared to the prior year periods was primarily due to a
higher percentage of sales to the soft drink bottler market which carries lower
gross margins, costs associated with the new Beverage-Air plant in South
Carolina and increased price competition in the soft drink bottler market.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expense for the three months ended October 31, 1997
increased 15.3% to $17.8 million. SG&A expense for the nine months ended
October 31, 1997 increased 9.0% to $51.7 million compared with $47.4 million
for the comparable period in fiscal 1997. As a percent of revenue, SG&A
increased from 15.0% to 16.5% in the three months ended October 31, 1997 and
from 15.1% to 15.7%, in the nine months ended October 31, 1997, compared to the
comparable periods in fiscal 1997. The higher expenses reflect the Gamko
acquisition as well as increased sales promotion activity primarily for the
three months ended October 31, 1997, partially offset by favorable medical and
casualty insurance experience of $0.7 million.
Amortization. Amortization for the three months ended October 31, 1997
decreased to $287,000 compared with $489,000 for the comparable period in
fiscal 1997. Amortization for the nine months ended October 31, 1997 decreased
to $664,000 compared with $1.4 million for the comparable period in fiscal
1997.
Other Expense (Income). Other income for the nine month periods ended October
31, 1997 decreased by $246,000 versus the comparable prior year periods,
reflecting a net recovery of $0.3 million of Canadian federal sales taxes
recorded in the prior year, partially offset by a favorable currency exchange
variance of $0.1 million in the current year.
Interest Expense. Interest expense for the three months ended October 31, 1997
decreased 12.2% to $4.0 million compared with $4.5 million for the comparable
period in fiscal 1996. Interest expense for the nine months ended October 31,
1997 decreased 16.9% to $12.0 million compared with $14.4 million for the
comparable period in fiscal 1997. The decrease is principally due to a decrease
in average amounts borrowed due to the acquisition by the Company of $31.0
million of its 11-3/8% senior subordinated notes in August 1996 and an increase
in interest income earned from short-term cash investments.
Liquidity and Capital Resources
Net cash flows from operations were $49.4 million for the nine months ended
October 31, 1997 compared with $19.7 million for the nine months ended October
31, 1996. The increase is primarily the result of a decrease in accounts
receivable, primarily foreign receivables, compared to the prior year. See --
"Results of Operations -- Revenue."
Net cash used in investing activities amounted to $23.9 million for the nine
months ended October 31, 1997 compared with $4.4 million for the nine months
ended October 31, 1996. The increase is attributable to net assets of
businesses acquired, primarily Gamko, of $21.5 million. Through the first nine
months of fiscal 1997, total capital expenditures have been $2.5 million. The
Company anticipates that capital expenditures for fiscal 1998 will be
approximately $5.0 million. The Company's capital spending for the balance of
fiscal 1998 is expected to be related to the acquisition, installation,
improvement and equipping of its Beverage-Air and Taylor production facilities.
<PAGE> 12
Page 12
On September 16, 1997 the Company announced a plan to purchase $10 million of
its common stock (up to 600,000 shares) in the open market and in private
transactions. For the three months ended October 31, 1997 the Company
purchased 116,115 shares of its common stock at an average price of $16.86 per
share. Through December 11, 1997 the Company has purchased a total of 267,327
shares at an average price of $16.31 per share.
In August 1997 the Company acquired Gamko Holding, B.V. ("Gamko"), a
manufacturer of refrigeration equipment based in The Netherlands. The
acquisition was initially funded through current cash and cash equivalent
balances. Subsequently the Company borrowed $18 million as a part of the
financing for the transaction. The Company believes that the acquisition will
be important in serving the global expansion of its major bottling and
foodservice/catering equipment customers in both western and eastern European
markets. In calendar 1996 Gamko's sales were approximately $25 million U.S.
As of October 31, 1997, the Company had net working capital of $46.8 million.
The Company's average operating working capital (defined as average monthly
gross accounts receivable and net inventory less accounts payable) as a
percentage of sales declined from 22% during fiscal year 1996 to 21% for the
nine months ended October 31, 1997. The Company's earnings from operations
were sufficient to cover fixed charges for the nine months ended October 31,
1997.
As of October 31, 1997, the Company had no borrowings under the Revolving
Credit Facility of its Bank Credit Agreement. However, it had outstanding
letters of credit in the amount of $10.3 million, including $6.5 million of
letters of credit which guarantee the Industrial Project Revenue Bonds
(referenced in note 6 to the financial statements included as item 1 hereto).
Under the Revolving Credit Facility, the Company had $45.0 million available
for additional borrowings. In addition, the Company had cash and cash
equivalents of $48.5 million as of October 31, 1997.
The Company had four financial covenants to meet at October 31, 1997 under the
Bank Credit Agreement -- a liquidity ratio covenant at October 31, 1997 of at
least 1.25:1.00; a senior funded debt to cash flow covenant for the twelve
months ended October 31, 1997 of not greater than 2.00:1.00; a total funded
debt to cash flow covenant ratio for the twelve months ended October 31, 1997
not greater than 3.50:1.00 and an interest coverage covenant ratio of at least
2.0:1.00. The Company met each of these covenants as it had a liquidity ratio
of 26.33:1.00 at October 31, 1997; a senior funded debt to cash flow ratio of
0.09:1.00 for the twelve months ended October 31, 1997; total funded debt to
cash flow ratio for the twelve months ended October 31, 1997 of 2.53:1.00 and
an interest coverage ratio for the twelve months ended October 31, 1997 of
4.01:1.00.
Management believes that the Bank Credit Agreement and the other sources of
capital described above, with internally generated funds, will be adequate to
meet the Company's anticipated capital and cash requirements for at least the
next twelve months, including debt service and corporate income taxes.
Impact of Inflation
Management does not believe that inflation has had a material impact on the
Company's operations during the first nine months of fiscal 1997. Management
believes that the Company may face increasing costs during the balance of the
fiscal year as a result of inflation which the Company may not fully be able to
offset with increased productivity or pass on to its customers due to
competitive factors within the industry.
Safe Harbor for Forward-Looking Statements Under the Securities Litigation
Reform Act of 1995
Except for historical information contained herein, this Quarterly Report to
Stockholders contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those anticipated and discussed herein. These factors include:
general economic conditions and their impact on the growth of the quick service
restaurant and soft drink bottler industries, the Company's dependence on its
major customer and key management personnel, the effects of competition, the
demands relating to further overseas expansion, the significance of the
Company's outstanding indebtedness and other factors detailed elsewhere from
time to time in the Company's filings with the Securities and Exchange
Commission.
<PAGE> 13
Page 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See note 7 of "Notes to Unaudited Consolidated Financial Statements" included
in Part I. Item 1. of this Form 10-Q.
Item 4. Submissions of Matters to a Vote of Security Holders
There were no matters submitted to a vote of stockholders for the quarter ended
October 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
10.1 Stock Purchase Agreement between Specialty Equipment Companies,
Inc. and Quaboes B.V. and Shareholders of Gamko Holdings B.V. and
of Coolpart B.V., dated August 11, 1997.
27.1 Financial Data Schedule
2. Reports on Form 8-K.
Report on Form 8-K filed September 16, 1997.
<PAGE> 14
Page 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Specialty Equipment Companies, Inc.
(Registrant)
Date: December 12, 1997 /s/ Jeffrey P. Rhodenbaugh
------------------ ----------------------------------------------
Jeffrey P. Rhodenbaugh, Chief Executive
Officer (Principal Executive Officer)
Date: December 12, 1997 /s/ Donald K. McKay
------------------ -----------------------------------------------
Donald K. McKay, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 15
Page 15
Exhibit Index
Exhibit
No. Description
------- -----------
10.1 Stock Purchase Agreement Between Specialty Equipment Companies,
Inc. and Quaboes B.V. and Shareholders of Gamko Holdings B.V.
and of Coolpart B.V. dated August 11, 1997.
27.1 Financial data schedule.
<PAGE> 1
==========================================
STOCK PURCHASE AGREEMENT
BETWEEN
SPECIALTY EQUIPMENT COMPANIES, INC.
AND QUABOES B.V.
And
SHAREHOLDERS OF GAMKO HOLDINGS B.V. AND OF
COOLPART B.V.
Dated August 11, 1997
==========================================
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of August 11, 1997 (the
"Agreement") among Specialty Equipment Companies, Inc., a Delaware Corporation
("Specialty U.S.") and Quaboes B.V. ("Purchaser"), Argil Beheer B.V., Pe We
Beheer B.V., Professional Management Development Europe B.V. ("PMDE"), A.C.M.
van Gils, P.W. Van Den Dries and J.B.C. Broos (collectively referred to herein
as the "Shareholders" and individually as a "Shareholder").
RECITALS
Purchaser is a wholly owned subsidiary of Specialty U.S. Argil Beheer
B.V., Pe We Beheer B.V. and PMDE (the "Corporate Shareholders") own all of the
outstanding capital stock (the "Gamko Shares") of Gamko Holding B.V. ("Gamko"),
and A.C.M. van Gils, P.W. Van Den Dries and J.B.C. Broos (the "Individual
Shareholders") own all of the outstanding capital stock (the "Coolpart Shares")
of Coolpart B.V. ("Coolpart"). Gamko and Coolpart are, together with the
Operating Subsidiaries, the Sales Subsidiaries and the Coolpart Holdings, as
defined in Section 4.1, collectively referred to herein as the "Corporations."
The Corporations are in the business of producing a complete range of
professional cooling equipment (the "Business"). Subject to the terms and
conditions of this Agreement, Purchaser is purchasing all of the Gamko Shares,
Coolpart Shares and the Coolpart Loans from the Shareholders.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
1.1. Purchase of Stock and Loans. On and subject to the
terms and conditions set forth in this Agreement, at the Closing the
Shareholders shall sell, convey and transfer to Purchaser, free and clear of
all liens, charges, security agreements, rights of first refusal or other
encumbrances or restrictions, (a) all of the Gamko Shares and Coolpart Shares
(sometimes referred to collectively as the "Purchased Shares") and (b) all of
their loans to Coolpart ("Coolpart Loans").
1.2. Purchase Price. The aggregate purchase price for the
Purchased Shares and the Coolpart Loans shall be (i) $18,547,751.77, payable at
the Closing Time, (ii) $2,060,861.31, payable by deposit into an escrow account
as provided in Section 1.3(e), (iii) up to $936,755.14 as provided in Section
1.4., and (iv) Purchaser's assumption of the guarantees made by certain
Shareholders with respect to loans to Coolpart from third parties as provided
in Section 1.3(d). The payments to the various Shareholders under this
Agreement shall be divided among such Shareholders as shown in Schedule 1.2
attached hereto.
1.3. Closing. The closing of the purchase and sale of the
Shares as contemplated by this Agreement (the "Closing") is taking place by the
Shareholders transferring the Shares to the Purchaser through the execution by
the parties of a separate notarial deed of transfer, before a Netherlands civil
law notary at the offices of Nauta
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<PAGE> 3
Dutilh in Rotterdam, the Netherlands, at the time and date (which is intended
to be August 11, 1997) at which such notary shall have received confirmation
that the amount of the Purchase Price payable at Closing has been credited to
the notarial third party account. The time and date of the Closing is referred
to herein as the "Closing Time."
(a) At or prior to the Closing Time, the
Shareholders shall deliver to Purchaser (i) resignations of all supervisory
directors of the Corporations; (ii) an employment agreement for A.C.M. van
Gils, executed by Purchaser and Mr. van Gils; (iii) a legal opinion of
Asselbergs & Klinkhamer, counsel to the Shareholders, in form satisfactory to
Purchaser.
(c) On and subject to the terms and conditions set
forth in this Agreement, the individual Shareholders hereby assign to Purchaser
all of their loans and advances to Coolpart ("Coolpart Loans"), which
assignment is, subject to the same conditions, hereby accepted by the Purchaser
and acknowledged by Coolpart.
(d) On and subject to the terms and conditions set
forth in this Agreement, purchaser hereby assumes all obligations of
Shareholders with respect to their guarantees of the following loan obligations
of Coolpart and agrees to hold them harmless from any liability with respect to
such guarantees:
Shareholder Date Payee Principal Amount
DFL
A.C.M. van Gils 250,000
A.C.M. van Gils 70,000
P.W. Van Den Dries 250,000
P.W. Van Den Dries 70,000
J.B.C. Broos 250,000
J.B.C. Broos 70,000
(e) The escrow account shall be an interest bearing
account at a branch of ABN AMRO in the Netherlands to secure the Shareholders'
indemnification obligations set forth in Article X herein (such escrow account,
subject to reductions for application to such indemnification obligations to be
disbursed to Shareholders on December 31, 1998 if and to the extent such
indemnification obligations have been met).
1.4. Potential Operations Incentive. Purchaser shall
deliver up to $936,755.14 of the Potential Operations Incentive provided for in
accordance with Exhibit A to the letter of intent. Specialty U.S. guarantees
the performance by Purchaser of its obligations under this Section 1.4.
1.5 Effective Time. The sale and purchase of the Purchased
Shares referred to in Section 1.1 shall be deemed effective as of December 31,
1996 (the
2
<PAGE> 4
"Effective Time"), and Purchaser shall be entitled to all profits earned
between the Effective Time and the Closing.
ARTICLE II. INTENTIONALLY OMITTED
ARTICLE III. INTENTIONALLY OMITTED
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
As an inducement to Purchaser to enter into this Agreement, the
Shareholders jointly and severally make the following representations and
warranties to Purchaser; except that, (i) with respect to Coolpart and the
Coolpart Holdings, the representations made herein are made only to the
knowledge of the Shareholders, who have made no investigation of the accuracy
of those representations, and (ii) the representations of the Individual
Shareholders extend only to Section 4.1(a):
4.1 Group Structure; Organization and Corporate Power;
Subsidiaries; Etc..
(a) Gamko owns all the capital stock of Gamko B.V.
("Gamko Operating"), Gamko Kuhltechnik GmbH, Gambo Refrigeration UK Ltd., Gamko
Horecatechniek B.V., Eurogram B.V., Gamko Refrigerazione SRL, LePeGe B.V. and
75% of the capital stock of Gamko Refrigeration SARL (collectively the
"Subsidiaries"), and A.C.M. van Gils, P.W. Van Den Dries and J.B.C. Broos own
all the capital stock of Coolpart B.V., in each case free and clear of all
liens, charges, security interests, options, proxies, pledges, voting trusts or
agreements, rights of first refusal or other encumbrances or restrictions.
Coolpart's ownership in other corporations or entities ("Coolpart Holdings") is
as described in Schedule 4.1. The shareholders guarantee that Gamko can buy
the remaining 25% of the capital stock of Gamko Refrigeration SARL for DFL
165,000 with settlement of all payment obligations relating to the shares and
that the Shareholders will reimburse Gamko in an amount of DFL 82,500 with
respect to such purchase.
(b) Gamko, Gamko Operating and Coolpart (the
"Principal Corporations") have each been duly incorporated and each is validly
existing under Netherlands law as "besloten vennootschap met beperkte
aansprakelijkheid" (private company with limited liability).
(c) There has been no proposal made or resolution
adopted (by the competent corporate body(ies)) for the dissolution or
liquidation of any of the Principal Corporations, nor do any circumstances
exist which may result in the dissolution or liquidation of any of the
Principal Corporations, and no proposal has been made or resolution adopted (by
the competent corporate body(ies)) for the statutory merger ("juridische
fusie") of any of the Principal Corporations with any other entity or for a
split ("splitsing") of any of the Principal Corporations.
(d) None of the Principal Corporations has been
declared bankrupt or been granted a moratorium of payments, nor has any applied
for a declaration of bankruptcy or a moratorium of payments.
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<PAGE> 5
(e) The articles of association of Gamko and Gamko
Operating read in conformity with the copies thereof attached hereto as
Schedule 4.2(e).
(f) Gamko and Gamko Operating, respectively, are
registered in the Trade Register at Breda (number 44156) and Breda (number
16069).
(g) Neither Gamko nor Gamko Operating has any managing
directors ("statutair directeuren"), supervisory directors ("commissarissen")
or proxyholders ("procuratiehouders") other than the persons named in the
extract(s) referred to in Section 4.1(f).
(h) Both Gamko and Gamko Operating have fully complied
with all obligations set forth in Articles 2:252 et seq Dutch Civil Code to the
extent that such Articles apply to them.
(i) The Corporations are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation and are qualified to do business as a foreign
corporation in all other jurisdictions in which the failure to qualify would
have a material adverse effect on the business; financial condition; operating
results; employee, customer or supplier relations; assets; operations or
business prospects of either of the Corporations. The Corporations have all
requisite corporate power and authority and all authorizations, licenses and
permits necessary to own and operate their properties and to carry on the
Business as now conducted. Copies of the Corporations' Articles of
Incorporation, By-laws and other similar corporate governance documents have
been furnished to Purchaser and reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
(j) Gamko Operating has no branches and has over the
past three years owned no branches.
4.2 Capital Stock; Coolpart Loans. (a) The authorized
capital stock of the Corporations is set forth in the balance sheet. All of
the issued and outstanding capital stock of Gamko is owned of record and
beneficially by the Corporate Shareholders, in all cases, free and clear of all
liens, charges, security interests, options, proxies, pledges, voting trusts or
agreements, rights of first refusal or other encumbrances or restrictions. All
of the outstanding capital stock of the Corporations has been duly authorized
and is validly issued, fully paid and nonassessable. There are no rights,
subscriptions, warrants, options, conversion rights or agreements of any kind
outstanding to purchase or otherwise acquire any shares of capital stock of the
Corporations or securities or obligations of any kind convertible into or
exchangeable for any shares of capital stock of the Corporations. There are no
agreements or other obligations (contingent or otherwise) which may require the
Corporations to repurchase or otherwise acquire any shares of their capital
stock. There are no outstanding or authorized stock appreciation rights,
phantom stock or similar rights with respect to the Corporations. There are no
grounds on the basis whereof any issue of the Shares may be invalidated.
4
<PAGE> 6
(b) No Corporation has issued any founders' shares,
which do not form part of the Purchased Shares.
(c) No Corporation has issued any profit sharing
certificates ("winstbewijen") or granted any other rights under its articles of
association to share in the profits ("statutaire winstrechten") or the general
reserves of the Company, nor issued any other rights to third parties
(including employees) entitling such third parties to share in the profits or
the general reserves of such Corporation.
(d) No proposal has been made respecting any
Corporation and no resolution has been adopted to issue additional shares; no
rights, including options, have been granted, relating to unissued shares or
shares which have been repurchased by the Corporation.
(e) No depository receipts of shares in any
Corporation have been issued with the cooperation of the Corporation.
(f) No restrictions on the transfer of the Shares
("blokkeringsbepalingen") other than those set forth in the articles of
association of the Company are in effect.
4.3 Authorization; No Breach. The execution, delivery and
performance of this Agreement by the Shareholders and the consummation of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or result in any breach of any of the provisions of, (ii) constitute a
default under, (iii) result in a violation of, (iv) give any third party the
right to terminate or to accelerate any obligation under, (v) result in the
creation of any lien, security interest, charge or encumbrance upon any of the
capital stock or any assets of the Corporations, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Articles of
Incorporation or By-laws of the Corporations or any indenture, mortgage, lease,
loan agreement or other agreement or instrument to which the Company is bound
or affected or any law, statute, rule or regulation to which the Corporations
or the Shareholders are subject, except such which have been obtained or shall
be obtained prior to the date of the Closing.
4.4 Closing Time. For the purposes of indemnification, all
of the representations and warranties of the Shareholders in this Article IV
and elsewhere in this Agreement and all information set forth in any Schedule
attached hereto or in any certificate delivered to Purchaser are true and
correct at the Closing Time.
4.5 Annual Accounts; Accounts Receivable.
(a) The Shareholders have delivered to Purchaser
financial statements for Gamko and its consolidated subsidiaries for 1994, 1995
and 1996 audited by BDO ("Annual Accounts"). Such Annual Accounts:
5
<PAGE> 7
(i) unless explicitly disclosed in the explanatory
notes, have been prepared in accordance with all
applicable GAAP requirements applied on a consistent
basis;
(ii) give a true and fair view of the assets and
liabilities and of the net asset value, the financial
position, solvency, liquidity and results of the
companies reported on at the date and for the period
indicated;
(iii) are not distorted by items of an unusual or
non-recurring nature nor are they affected by the
results of transactions with persons or entities
directly or indirectly related to the Shareholders
[save as explicitly disclosed in the explanatory
notes]; and
(iv) use valuation bases ("waarderingsgrondslagen")
that are accepted under all applicable GAAP
requirements and can equally be used in the future.
(b) None of the Corporations has any liability
for any refunds, allowances, returns or discounts in respect of products
manufactured, processed, distributed, shipped or sold by or for the account of
the Corporations except to the extent of the reserves and liabilities therefor
reflected on the applicable Balance Sheet in accordance with GAAP and except as
otherwise incurred in the ordinary course of business. Where receivables arose
out of secured transactions, all financing statements and other instruments
required to be filed or recorded to perfect the title or security interest of
the Corporations have been properly filed and recorded. After the Effective
Time, no Corporation shall have any obligation pursuant to any Rule of any
Governmental Authority (whether in bankruptcy or insolvency proceedings or
otherwise) to repay any receivables collected by the Corporation prior to the
Effective Time or any receivables reflected on the Closing Balance Sheet which
the Corporation collects after the Effective Time.
4.6 Absence of Certain Changes or Events.
(a) Since December 31, 1996, there has not been, nor
does any Shareholder know (or have reason to know) of any development or
threatened development which may reasonably be expected to cause any material
adverse change in the financial condition, net worth, assets, liabilities,
personnel, prospects or operations of the Corporations, taken as a whole, or
the ability of any Shareholder to execute, deliver and perform this Agreement
and the other Transaction Documents to which such party is a signatory or bound
(collectively, "Material Adverse Effect").
(b) Except as set forth in the Annual Report for 1996,
except for compensation for services paid to employees in the ordinary course
of business, consistent with past practices, since January 1, 1997, no dividend
or other distribution (whether in cash, stock or otherwise) has been or shall
be made, declared or set aside by any Corporation to or for the benefit of any
Holder.
6
<PAGE> 8
(c) Since December 31, 1996, each Corporation has conducted
its' business only in the ordinary course using its best efforts to maintain
that business and, without limiting the foregoing, no Corporation has:
(i) created or suffered to exist any Liens (except for Liens
for taxes not yet delinquent) or restrictions with respect to
any of its assets;
(ii) incurred or assumed any Indebtedness for Borrowed
Money or become bound to repay prematurely any
Indebtedness for Borrowed Money;
(iii) forgiven or canceled any debts or claims, waived
any rights or discharged or satisfied any Lien or paid
any liability or obligation, other than current
liabilities in the ordinary course of business;
(iv) changed its credit or collection policies or practices;
(v) increased the rate or terms of compensation (including
termination and severance pay) payable or to become payable to
any of its directors, officers, employees or independent
contractors, or increased the rate or terms of any bonus,
insurance, pension or other employee benefit plan, program or
arrangement made to, for or with any such directors, officers or
employees, except increases occurring in the ordinary course of
business consistent with past practice or as required by
applicable law, or entered into any employment, consulting,
severance or termination agreement with any such Person or made
any promises with respect thereto or disclosed the terms of the
Letter of Intent to any Gamko or Coolpart employee affected
thereby;
(vi) made any loan or advance to any of its Shareholders,
officers, directors, employees, consultants, agents or other
representatives, or made any other loan or advance otherwise
than in the ordinary course of business;
(vii) waived any significant rights relating to its
business;
(viii) experienced any significant damage, destruction
or loss to the properties or assets owned, leased or
used by the Corporation, whether or not covered by
insurance;
(ix) changed its financial or tax accounting
principles or methods, except insofar as may be
required by a change in GAAP (or other applicable
generally accepted accounting principles);
(x) changed, or authorized any change, in its charter
documents or bylaws;
7
<PAGE> 9
(xi) purchased, redeemed, issued, sold, pledged,
encumbered or otherwise acquired or disposed of any
shares of capital stock or other equity securities of a
Corporation, or granted any options, warrants or other
rights to purchase, or convert any obligation into,
shares of capital stock or any evidence of a
indebtedness or other securities of the Corporation;
(xii) changed any of its business policies, including
advertising, licensing, investment, marketing, pricing,
purchasing, production, personnel, sales, returns,
budget and product acquisition policies, in each case,
other than in the ordinary course of business and where
such change, singly or together with other such
changes, will not have a Material Adverse Effect;
(xiii) sold, leased, licensed, abandoned or made any
other disposition of any of its properties or assets or
made any acquisition (by merger, consolidation or
acquisition of stock or assets) of all or any part of
the properties, assets or business of, or any equity
interest in, any other Person, in each case, other than
in the ordinary course of business and where such
change, singly and together with other such changes,
will not have a Material Adverse Effect;
(xiv) amended, terminated or failed to renew, or
received any threat to terminate or fail to renew, any
Contract (as hereinafter defined) or other agreement
other than in the ordinary course of business and where
such amendment, termination, failure to renew or
threat, singly and together with other such actions,
shall not have a Material Adverse Effect;
(xv) failed to pay trade payables of its business in
the ordinary course of business or done anything to
affect adversely its relationship with customers,
suppliers or employees; (xvi) amended or modified any
Plans, or adopted any employee benefit plan, agreement,
arrangement, commitment, policy or practice;
(xvii) agreed, in writing or orally, to do any of the
foregoing; or
(xviii) without limiting the foregoing, entered into
any material transactions affecting any of their
assets, their business, or the operations, prospects or
financial condition of the Corporations, taken as a
whole, other than in the usual and ordinary course of
business.
4.7 Compliance with Laws.
(a) There are no licenses, permits, franchises,
authorizations, registrations and approvals (the "Licenses") issued or granted
to the Corporations by any Governmental Authority other than as set forth in
Section 4.23.
8
<PAGE> 10
(b) Since January 1, 1992, no Corporation has
received any notification of any asserted present or past failure by the
Corporation to comply with any Rules, and no Corporation failed to comply with
any Rule prior to January 1, 1992, which failure could interfere with its
business (before or after the Closing) or result in the imposition of any
penalty or fine or the assessment of any damages against the Corporation.
(c) To the best knowledge of the Shareholders,
none of (i) the Corporations, or any of their respective officers or employees
nor (ii) any supplier, distributor, licensee or agent or any other Person
acting on behalf of a Corporation has, with respect to a transaction between
any of the aforementioned Persons and a Corporation, (x) made or received any
payments in violation of any Rule, including any contribution, payment, or gift
of funds or property to any governmental official, employee or agent where
either the contribution, payment, or gift, or the purpose thereof, was illegal
under the laws of any federal, state, local or foreign jurisdiction, (y)
provided or received any services in violation of any Rule, or (z) since
January 1, 1992, made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to any candidate for
federal, state, local or foreign public office in an amount in excess of
$2,500. No Shareholder has, and to the best knowledge of the Shareholders, no
officer, agent or employee of a Corporation has, directly or indirectly,
requested, directed or authorized any Person to take any of the actions
described in the foregoing clauses (x) through (z).
(d) Neither Gamko nor Gamko Operating is a
party to any agreement or arrangement which contravenes the Act on Economic
Competition ("Wet Economische Mededinging") or which is or should have been
registered under the aforementioned Act or was or should have been noted to the
European Commission under Article 85 of the EC Treaty; and neither has received
any notice, summons or official request of any kind from the European
Commission or from the authorities in the Netherlands or in any other country,
competent in anti-trust matters, with respect to any aspect of the Company's
activities.
(e) The works council of the Corporations has
rendered positive advice on the transactions contemplated hereby in accordance
with Article 25 of the Netherlands Works Councils Act, and Shareholders have
delivered satisfactory evidence thereof;
(f) Consultation with the trade unions of the
Corporations and the Netherlands Social Economic Council ("Sociaal- Economische
Raad": "SER") pursuant to the SER Merger Code has been completed in a
satisfactory manner.
4.8 Taxes.
(a) Each Corporation has accurately prepared
and timely filed all required national, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes relating or attributable to the Corporation or its operations and
such Returns are true and correct in all material respects and have
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<PAGE> 11
been completed in accordance with applicable law in all material respects. For
the purposes of this Agreement, a "Tax" or, collectively, "Taxes," means any
and all national, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other Person with
respect to such amounts. Each Corporation and Subsidiary has timely paid all
Taxes required to be paid with respect to such Returns and has withheld with
respect to its employees all national and state income taxes, all health and
unemployment compensation taxes, and other Taxes it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other
third party and has remitted the same to the applicable governmental authority.
The accruals for Taxes on the books and records of each Corporation are
sufficient to discharge the Taxes for all periods (or the portion of any
period) ending on or prior to the Closing Date. No Corporation has been
delinquent in the payment of any Tax, nor is there any Tax deficiency
outstanding, proposed or assessed against any Corporation, nor since January 1,
1992, has any Corporation executed any waiver of any statute of limitations on
or extending the period for the assessment or collection of any Tax. No audit
or other examination of any Return of any Corporation is presently in progress
nor, since January 1, 1992, has Corporation received written notice from a
Governmental Authority indicating an intent to open any such audit or other
examination. No Corporation has any liabilities for unpaid Taxes, whether
asserted or unasserted, known or unknown, contingent or otherwise, and the
Shareholders have no knowledge of any basis for the assertion of any such
liability attributable to any Corporation or their respective assets or
operations. No Corporation is a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement. Gamko has provided, or made available, to
Purchaser copies of all national, state, local and foreign income, employment
and all sales and use Tax Returns of each Corporation for all periods since
1991 as well as for any other period that remains open. There are (and as of
immediately following the Closing there shall be) no Liens on the assets of the
Corporations relating to or attributable to Taxes, except for Liens for Taxes
not yet delinquent. The Shareholders have no knowledge of any basis for the
assertion of any Claim which, if adversely determined, would result in Liens on
the assets of any Corporation or Subsidiary. There is no Contract, including
the provisions of this Agreement, covering any employee or former employee of
any Corporation that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Dutch income tax
law. No Corporation shall be required: (A) as a result of a change in method
of accounting for a taxable period ending on or prior to the Closing Date, to
include any adjustment in taxable income for any taxable period (or portion
thereof) ending after the Closing Date; (B) as a result of any agreement with a
taxing authority, to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date; (C) as a result of any sale occurring on or
prior to the Closing Date and reported on the installment method, to include
any item of income in, or exclude any item of deduction from, taxable income
for any taxable period (or portion thereof) ending after the Closing Date; or
(D) as a result of any prepaid amount received on or prior to the Closing Date,
to
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include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing
Date.
(b) None of the Corporations nor any
Subsidiary is subject to any penalty by reason of a violation of any order,
rule or regulation of, or a default with respect to any return, report or
declaration required to be filed with, any Governmental Authority to which it
is subject, which violations or defaults, individually or in the aggregate,
would have a Material Adverse Effect on its business.
4.9 Undisclosed Liabilities. Notwithstanding any
limitations or qualifications of, or exceptions to (whether in a Schedule
attached hereto or otherwise) any other representation and warranty contained
in this Article IV, (a) no Corporation has any obligation or liability,
absolute, or contingent, known or unknown, liquidated or unliquidated, whether
due or to become due, accrued or unaccrued and regardless of when or by whom
asserted (collectively "Liability") which is not fully shown or provided for in
the Year End Balance Sheet of each Corporation and its consolidated
Subsidiaries (or the notes thereto) and (b) as of the Closing Date, no
Corporation shall have any Liability not shown or provided for in the Closing
Balance Sheet, except, in each case: (i) under the executory portion of any
Contract by which the Corporation is bound on the date of the applicable
Balance Sheet and (A) which was made in the usual and ordinary course of
business, (B) which, if required by this Agreement, is disclosed in a Schedule
hereto, and (C) the existence of which does not otherwise constitute or result
from a breach of any representation, warranty or covenant of this Agreement or
a breach or default by the Corporation under any Contract; (ii) current
liabilities incurred in the usual and ordinary course of business subsequent to
the date of the applicable Balance Sheet, the existence of which does not (and
will not) otherwise constitute or result from a breach of any representation,
warranty or covenant of this Agreement or from a breach or default under any
Contract; and (iii) liabilities for returns incurred in the ordinary course of
business consistent with amounts incurred during similar periods in prior
years. Disclosure of any Liability on any Schedule to this Agreement shall not
in itself relieve any Shareholder from obligations of a Corporation or one or
more Shareholders under this Agreement, whether pursuant to Article VII or
otherwise.
4.10 Real Estate.
(a) There is no real property owned by any of
the Corporations. All real property utilized by the Corporations is leased or
subleased.
(b) An accurate, correct and complete list of
all real property leased or subleased by any Corporation, including
identification of the lease or sublease, street address and list of contracts,
agreements, leases, subleases, options and commitments, oral or written,
affecting such real estate or any interest therein to which the Corporation is
a party or by which its interest in real property is bound (collectively the
"Real Estate Leases") has been shown during due diligence and handed over in
copy. The relevant Corporation has been in peaceable possession of the real
property covered by each Real Estate Lease (the "Rental Real Estate," together
with the Owned Real Estate, the "Real Estate") since the commencement of the
original term of such lease, and has performed all
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obligations required to be performed by it to date under such lease. Gamko has
delivered to Purchaser accurate, correct and complete copies of each Real
Estate Lease. Neither the Real Estate Leases nor the leasehold interest of a
Corporation with respect to the Rental Real Estate is subject to any Liens that
have arisen out of any action or omission taken by the Corporation; and none of
such Rental Real Estate is subject to any easements, rights of way, licenses,
grants, building or use restrictions, exceptions, reservations, limitations or
other impediments which adversely affect the value to the Corporation (as
applicable) of the leasehold interest therein or which interfere with or impair
the present and continued use thereof in the usual and normal conduct of its
business as presently conducted.
(c) To the best knowledge of the Shareholders,
the corporations (including their predecessors) have owned, leased or subleased
no parcel of real property since 1985, other than that which is currently
owned, leased or subleased. The buildings, structures and improvements
situated on each such parcel which is currently owned, leased or subleased by
any Corporation and appurtenances thereto are in good condition (subject to
normal wear and tear), and as such are adequate to conduct its business as
presently conducted. Neither the whole nor any portion of any Real Estate has
been condemned, requisitioned or otherwise taken by any public authority, and
no notice of any such condemnation, requisition or taking has been received.
To the best knowledge of the Shareholders, no such condemnation, requisition or
taking of the Real Estate is threatened. There are no public improvements
pending or threatened which may result in special assessments against or
otherwise affect the Real Estate.
(d) The Owned Real Estate and, to the best
knowledge of the Shareholders, the portions of the Rental Real Estate leased or
otherwise possessed or used by the Corporations, are in compliance with and
include all rights necessary to assure compliance with, and all buildings,
structures, other improvements and fixtures on such Real Estate and the
operations of the Corporations in or about any Real Estate therein conducted,
conform in all material respects to all applicable health, fire, environmental,
safety, zoning and building Rules. The Real Estate includes all rights to any
off-site facilities necessary to ensure compliance with all applicable Rules.
The zoning of each parcel of Owned Real Estate permits the existing
improvements and the continuation following the Closing of the business as
presently conducted thereon. The Corporations have all easements and rights
necessary or appropriate to conduct their operations. The execution, delivery
and performance of this Agreement and the transactions contemplated hereby will
not result in the imposition of any transfer or other tax with respect to the
Real Estate.
(e) None of the Owned Real Estate and, to the
best knowledge of the Shareholders, the portions of the Rental Real Estate
leased or otherwise possessed or used by the Corporations, in either case only
to the extent located in the Netherlands:
(i) is affected by any governmental measures
promulgated or announced in writing pursuant to
the Housing Act ("Woning Wet") which have not
yet been implemented, and such Real Estate
includes no vacant buildings within the meaning
of the Vacant Property Act ("Leegstand Wet");
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(ii) has been placed on a list of historical
buildings or any such list of a provisional
character;
(iii) has been granted any government subsidy
which would or does impose conditions which
must still be fulfilled in connection with the
use and general classification of the property;
(iv) has been improved without the necessary
licenses or permits.
(v) needs to be offered for sale to the
municipality in which it is located or is
affected by any urban renewal plan or any
ordinance under the Act on Urban and Village
Renewal ("Wet op de stads-endorpsvernieuwing")
affecting such Real Estate; or
(vi) is the subject of any present plans
involving a plan or ordinance of the type
referred to in the preceding paragraph for the
expropriation or (if applicable) that could
result in premature termination of a lease
agreement.
4.11 Ownership of Assets; Liens. Except as set
forth in the 1996 Annual Report, all properties and assets owned by any
Corporation are free and clear of all Liens except for Liens (a) for taxes not
yet delinquent or the validity of which are being contested in good faith by
appropriate actions, (b) in an amount which, together with all other Liens
excluded pursuant to this Section 4.11(b), is less than DFL 50,000, and (c) on
assets leased or licensed by any Corporation as described in any Schedule, in
which case the Corporation holds a leasehold or licensed interest free and
clear of all other Liens except for the lessor's or licensor's interest
therein. All of the assets of the Corporations are owned or leased by them and
are in good condition in accordance with industry practice (subject to normal
wear and tear) and as such are adequate to conduct their business as presently
conducted. The Shareholders do not have an ownership interest in any of the
assets of the Corporations and no assets or properties used in or by the
business of any Corporation are held by any Corporation on consignment or other
title retention arrangement. Following the Effective Time, the Corporations
will have good and marketable title to all of the assets of the Corporations,
free and clear of all Liens, except as set forth in the 1996 Annual Report.
4.12 Personal Property.
(a) Intentionally omitted.
(b) An accurate, correct and complete list of
all leases of personal property used in the operations of any Corporation which
require aggregate payments by any Corporation during the life of such lease in
excess of DFL 50,000 (the "Personal Property Leases") has been handed over to
Purchaser. The relevant Corporation has been in peaceable possession of the
property covered by each Personal Property Lease since the commencement
thereof. Gamko has delivered to Purchaser an accurate, correct and complete
copy of each Personal Property Lease.
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(c) The machinery, equipment, tools, dies, die sets,
patterns, designs, molds, hardware, spare parts, computers, motor vehicles,
furniture, appliances, fixtures, leasehold improvements and other personal
property owned, leased or used by each Corporation are sufficient and adequate
to permit it to carry on its business as presently conducted, are in good
operating condition and repair (subject to normal wear and tear), and no such
item or the use thereof violates any Rule in any material respect. No
Corporation holds any personal property of any other Person pursuant to any
consignment or similar arrangement, and no other Person has any right, title or
interest in such personal property except as lessor or licensor. No other
Person holds any personal property of any Corporation pursuant to any lease,
consignment or similar arrangement, and no other Person has any right, title or
interest in such personal property of a Corporation.
4.13 Inventory. All items of Inventory reflected on
the Year End Balance Sheet or acquired by a Corporation after the date thereof
and prior to the Closing (a) are (and shall be) of a quality usable or saleable
in the ordinary course of the business as conducted by the Corporation prior to
Closing and are of a quantity sufficient to enable Gamko to carry on its
business as currently conducted, and (b) are (and will be) carried at amounts
which reflect valuations pursuant to the Corporation's normal inventory
valuation policy.
4.14 Brokers' Fees and Commissions. None of the
Shareholders, and neither any Corporation nor its respective directors,
officers, employees or agents has employed any investment banker, broker or
finder in connection with the transactions contemplated hereby.
4.15 Proprietary Property. Each Corporation owns,
on an exclusive basis free and clear of all Liens, or has, except as set forth
in Schedule 4.15, the exclusive right to use all of the Proprietary Rights,
including the Proprietary Rights identified in Schedule 4.15, that are used in
or necessary for the conduct of such Corporation's business as presently being
conducted. All rights of all Corporations in and to the Proprietary Rights
shall be unaffected by the transactions contemplated by this Agreement,
provided any applicable requirements of the United States Patent and Trademark
Office or the comparable governmental authority in the Netherlands are complied
with. Except as set forth on Schedule 4.15, no Corporation has given or
received any notice of any pending conflict with or infringement of the rights
of others with respect to any Proprietary Rights or with respect to any license
of Proprietary Rights under which that Corporation is licensor or licensee.
Except as set forth on Schedule 4.15, no Claim is pending, nor, to the best
knowledge of any Shareholder, threatened, which involves Proprietary Rights.
No Corporation is subject to any judgment, order, writ, injunction or decree of
any Governmental Authority, or has entered into or is a party to any contract
which restricts or impairs the use of any such Proprietary Rights. To the best
knowledge of the Shareholders, no Proprietary Rights owned, used or under
development by any Corporation, and no services or products sold by any
Corporation, conflict with or infringe upon any proprietary rights of any third
party. No Corporation has entered into any consent, indemnification,
forbearance to sue or settlement agreement with respect to Proprietary Rights
and no Claims have been asserted by any Person with respect to the
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validity of, or the Corporation's ownership of, or right to use, the
Proprietary Rights, and there is no basis for any such Claim. The Proprietary
Rights are valid, have not lapsed and, to the best knowledge of the
Shareholders, are enforceable, and no application, patent or registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of cancellation or other adversarial proceeding, and all pending
applications are in good standing and not opposed. To the best knowledge of
the Shareholders, no Person is infringing on or violating the Proprietary
Rights owned or used by any Corporation or any of the Subsidiaries.
4.16 Products Liability. There are no Claims by or
before any court or Governmental Authority pending or, to the best knowledge of
any Shareholder, threatened against or involving any Corporation relating to
any product alleged to have been processed, manufactured, serviced or sold by
any Corporation and alleged to have been defective, or improperly processed,
manufactured or labeled; nor is there any valid basis for any such Claim.
Third Party Claims after the Closing pursuant to warranties issued in
connection with product manufactured or sold by any Corporation prior to the
Effective Time will not exceed the level of warranty claims historically
experienced by such Corporation for comparable earlier periods.
4.17 Contracts.
(a) No Corporation is a party to any Contract
with any officer, director or employee of any Corporation (i) the benefits of
which are contingent or accelerated, or the terms of which are materially
altered, upon or affected by the occurrence of transactions contemplated by
this Agreement or the other Transaction Documents, or (ii) the value of any of
the benefits of which shall be calculated on the basis of any of the
transactions contemplated by this Agreement.
(b) Each of the contracts, instruments,
mortgages, notes, security agreements, guarantees, leases, agreements or
understandings, whether written or oral, express or implied (collectively the
"Contracts"), to which any Corporation is a party which relates to or affects
its business or the assets, properties or operations of the Corporation or to
which the Corporation or its assets, properties or operations may otherwise be
bound or subject is, to the extent such Contract is a Material Contract (as
defined below), listed in the Annual Report of December 31, 1996. All
Contracts are valid and binding upon the relevant Corporation, and, to the best
knowledge of the Shareholders, except as set forth in listed in the Annual
Report of December 31, 1996, enforceable against the other parties thereto in
accordance with their respective terms. Each Corporation has performed all
obligations required to be performed by it under all Material Contracts to
which it is a party or otherwise bound. No Corporation is in default under any
Material Contracts to which it is a party or otherwise bound, nor to the best
knowledge of any Shareholder is any other party to any Material Contract in
default thereunder, nor does any condition exist which, with notice or lapse of
time or both, would constitute a default by a Corporation, or, to the best
knowledge of the Shareholders, by any other party thereunder. The Annual
Report of December 31, 1996 further sets forth all Material Contracts currently
in negotiation or proposed by a Corporation of a type which, if entered into,
would be required to be listed in the Annual Report of December 31, 1996 or in
any Schedule to this Agreement. True
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and complete originals or copies of all written Material Contracts have been
delivered by Gamko to Purchaser or its representatives and accurate summaries
of all oral Material Contracts have been prepared by Gamko and delivered to
Purchaser. For purposes of this Agreement, a "Material Contract" shall mean a
Contract other than (i) Contracts (excluding Supply and Purchase Contracts) for
the purchase of raw materials, packaging materials and supplies and the sale of
finished goods, by-products and used machinery and used equipment made in the
ordinary course of business, (ii) Contracts not otherwise required to be
disclosed in this Article IV involving annual payments, individually or in the
aggregate, of DFL 50,000 or less, or (iii) Contracts terminable by a
Corporation upon 30 days' notice without penalty, payment or other obligation.
The term "Supply and Purchase Contracts" means (a) any oral or written
Contracts involving the purchase of raw materials, packaging materials and
supplies, which either (i) provide for purchasing on an exclusive basis, or
(ii) pursuant to which payment (whether in cash or other property) will exceed,
in the aggregate, DFL 50,000 during any twelve-month period, or (iii) which
cannot be cancelled without Liability to the Corporation or its Subsidiaries on
30 days' notice, and (b) any oral or written Contracts for the sale of finished
goods, by-products, used machinery or used equipment which are either (i)
requirements contracts, or (ii) involve receipt by a Corporation of cash or
other property in excess of DFL 50,000, in the aggregate, in any twelve-month
period, or (iii) which cannot be cancelled without Liability to a Corporation
on 30 days' notice.
(c) Neither Gamko nor Gamko Operating is a
party to any cartel agreement or arrangement or other agreement or arrangement
restricting or potentially restricting competition, nor is either Gamko nor
Gamko Operating bound by any regulation or decision issued or taken by any
branch organization which leads or may lead to a restriction of competition.
(d) Neither Gamko nor Gamko Operating has
granted any powers of attorney to third parties (including any of its
employees) authorizing such third parties to represent such Corporation in
general or for any special purpose other than those handed over during due
diligence and registered with the Chamber of Commerce.
4.18 Litigation. There are no claims, actions,
suits, proceedings or disputes pending or, to the best knowledge of the
Shareholders, threatened, nor, to the best knowledge of the Shareholders, are
there any pending or threatened investigations (any pending or threatened
claims, actions, suits, proceedings, disputes or investigations being
collectively called "Claims"), before any Governmental Authority, or before any
arbitrator of any nature, brought by or against any Corporation, any of their
officers, directors, stockholders, employees or agents, or a Shareholder
involving, affecting or relating to the business of that Corporation, or the
transactions contemplated by this Agreement or the other Transaction Documents,
nor to the best knowledge of the Shareholders is there any basis for any such
Claim. Neither the Corporation, the Shareholders, nor any of their respective
businesses, assets or properties is subject to any rule, award, injunction or
decree of any Governmental Authority.
4.19 Employee Plans.
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(a) Gamko has delivered to Purchaser an
accurate, correct and complete copy of each employee pension, welfare or
benefit plan ("Plan").
(b) All Plans (and related trusts and
insurance contracts) comply in form and in operation with the applicable
requirements of applicable Dutch and EU law. Plans are "tax qualified," if
relevant, and the relevant tax authority has taken no action to revoke any such
letter and, to the best knowledge of the Shareholders, there is nothing that
would cause the relevant tax authority to take action to revoke any such
letter.
(c) All required reports and descriptions with
respect to all Plans have been properly filed with the appropriate government
agency and distributed as required by law to employees and/or their
beneficiaries and the Corporation and the Subsidiaries have complied with the
relevant requirements of Dutch Law.
(d) With respect to all Plans, all
contributions which are due (including all employer contributions and employee
salary reduction contributions) have been paid to such Plans, and all
contributions for periods prior to the Closing Date which are not yet due have
been made or accrued. With respect to all Plans, all premiums and/or
contributions, whether or not due, for prior plan years and the current plan
year for the period ending on the Closing Date have been paid or accrued. None
of the Plans maintained by the Corporation or the Subsidiaries has any
Liabilities which are not funded or otherwise accrued.
(e) Intentionally omitted.
(f) With respect to each Plan, (i) there have
been no prohibited transactions as defined in relevant Dutch or EU law or
regulation, (ii) no fiduciary (as defined in relevant Dutch or EU law or
regulation) has any Liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or investment of the
assets of the Plan, (iii) no fiduciary has engaged in any transactions with
respect to the Plan which could subject any Corporation, any fiduciary, any
plan administrator or any party dealing with any such Plan to either a civil
penalty assessed pursuant to relevant Dutch or EU law or regulation or the tax
or penalty on prohibited transactions imposed by relevant Dutch or EU law or
regulation, and (iv) no Claims with respect to the assets thereof are pending
or, to the Shareholders' best knowledge, threatened, and, to their best
knowledge, there are no facts which would give rise to or could reasonably be
expected to give rise to any such Claims against any Plan, any fiduciary with
respect to such Plans or the assets of such Plans.
(g) With respect to each Plan, to the extent
applicable, Gamko has furnished to Purchaser true and complete copies of (i)
the current Plan documents, summary plan descriptions, any other document filed
or required to be filed with a governmental agency since January 1, 1996 or any
document distributed since January 1, 1996 to any employee, participant or
beneficiary of such Plan pertaining to benefits provided under such Plan, (ii)
the most recent determination letter received from the tax authority,
indicating that the Plans satisfy the requirements of relevant Dutch or EU law
or regulation and a copy of the most recent determination letter received from
the tax
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authority, (iii) the most recent annual report and, with respect to any defined
benefit pension Plan, or any Plan which provides post-retirement medical
benefits, a copy of the most recent actuarial report, and (iv) all related
trust agreements, insurance contracts or other funding agreements which
implement the Plans.
(h) Without limiting the foregoing, no Plans
are subject to any foreign Rules.
4.20 Labor and Employee Matters.
(a) No present or former employee or
independent contractor performing services for any Corporation (and no agent or
representative of any such employee or independent contractor) has a Claim
pending or, to the best knowledge of any Shareholder, has threatened to make a
Claim against any Corporation (under any Rule of any Governmental Authority or
otherwise).
(b) Each Corporation is and has been in
compliance in all material respects with all applicable Rules respecting
employment and employment practices, terms and conditions of employment, wages
and hours, occupational health and safety, severance, termination or discharge,
collective bargaining and the payment of employee welfare and retirement and
other taxes, and is not engaged in any unfair labor practice.
(c) No Corporation is a signatory or party to,
or otherwise bound by, a collective bargaining agreement (or any other
agreement with any labor organization) which covers employees of any
Corporation, and there is no activity or proceeding of any labor organization
(or representative thereof) to organize any unorganized employees of any
Corporation except for the C.A.O. for the metallurgical industry. Since
January 1, 1992, no Corporation has experienced any material work stoppage, and
there is not any labor dispute, grievance, slowdown, lockout, strike, work
stoppage or other collective labor action in effect, pending or threatened
against or affecting the business of any Corporation.
(d) Gamko has furnished to Purchaser true and
correct copies of all labor contracts and documents.
(e) The Corporation is currently not obligated
to any severance, compensation or other remuneration or benefit to any former
directors, employees and independent contractors.
(f) Intentionally omitted.
(g) The Corporations have no obligation,
whether legally or established by custom, to pay to any of their current or
former employees, managing directors or supervisory directors any salary,
fringe benefit or premium, or to make any pension contribution with respect to
such person save as reflected in the Annual Accounts. The pensions for
employees of the Corporations are insured. After the Closing, the pensions can
continue to be insured through this company. All premiums on pension insurance
that
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have fallen due have been fully and timely paid. The funding of this pension
insurance is sufficient to enable the Corporations to meet their obligations to
the beneficiaries.
4.21 Intentionally omitted.
4.22 Insurance. All Insurance has been issued under valid
and enforceable policies or binders, and all such policies or binders are in
full force and effect and are in amounts and for risks, casualties and
contingencies customarily insured by enterprises with similar operations and
are adequate to protect the properties and business of the Corporations. There
are and have been no inaccuracies in any application for Insurance policies,
nor any failure to pay premiums thereon when due. There are no pending or
asserted claims against any Insurance as to which any insurer has denied
liability, and there are no claims under any Insurance that have been
disallowed or improperly filed. Gamko shall, to the knowledge of the
Shareholders, have no Liability for any healthcare, medical, disability, death
benefit or similar expenses of any director, officer or employee of any
Corporation or any other Person which are the result of injuries or illnesses
which occurred prior to the Effective Time (regardless of when such expenses
are incurred), except to the extent of the reserves therefor reflected on the
Closing Balance Sheet in accordance with GAAP; provided, however, that no
breach of this representation shall relieve Gamko of obligations expressly
undertaken by it under any Transaction Document to provide employee benefits.
4.23 Hazardous Substances.
(a) The Corporations are and have been at all times in
compliance with the relevant environmental laws, and all other applicable
national, state, local and foreign laws, statutes, ordinances, judgments,
rulings and regulations relating to any matter of pollution or of environmental
regulation or control or protection of the environment, including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of toxic or hazardous substances or hazardous wastes or other
pollutants, contaminants, petroleum products or chemicals (collectively,
"Hazardous Substances") into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or sub-surface strata)
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances
(the "Environmental Laws").
(b) Except as reflected in the Nuisance Act permits,
the Environmental Control permits and the STEK permit handed over during due
diligence, the Corporations are not required to obtain or maintain any permits,
licenses or other authorization with respect to the operation of their
businesses under the Environmental Laws, including, without limitation, those
which are required (i) to operate or install any equipment or facilities and
(ii) to generate, store, handle, transport, discharge, emit or dispose of
Hazardous Substances used or generated by the business and the assets of the
Corporations (the "Environmental Permits").
(c) There are no polychlorinated biphenyls ("PCBs")
nor asbestos products or by products generated, treated, stored, disposed of,
or otherwise deposited in
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or located on any of the Real Estate of the Corporation or its Subsidiaries and
there are no above ground or underground storage tanks located on any of the
Real Estate.
(d) There has been no "release" of Hazardous
Substances on, from or under any of the Real Estate or to the best of the
Shareholders' best knowledge any other property from which the business of the
Corporations has been or is being conducted.
(e) No Corporation has received any notice or other
information that it has any potential liability with respect to the cleanup of
any site at which Hazardous Substances have been generated, treated, stored,
discharged, emitted or disposed of, and there are no past or present events,
conditions or circumstances which may interfere with or prevent compliance or
continued compliance by Gamko, conducting, after the Closing, its business in a
manner similar to that of the Corporations in accordance with applicable
current Environmental Laws or with any order, decree, judgment, injunction,
notice or demand issued, entered, promulgated or approved thereunder, or which
may give rise to any common law or other legal liability, including, without
limitation, liability under any current Environmental Laws or which otherwise
form the basis under the current law of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study or investigation, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of Hazardous Substances by any of the
Corporations or as a result of any act or omission of any of the Corporations.
(f) The Corporation has made available, and Purchaser
has had access to, a materially correct summary of all information in the
possession or control of any Corporation on Hazardous Substances used in the
conduct of its business.
(g) No Corporation has entered into any commitment
(binding or otherwise) with any authority or any third party for the removal of
Hazardous Substances present at any of the Owned Real Estate or the Rental Real
Estate at any period of time owned, leased or used by such Corporation or for
the remediation or containment of pollution of the soil and ground water
(including deep ground water) forming part of such real properties. All waste
generated by the Corporations has been and will continue to be transported,
stored, treated or disposed in such a way that the Corporation is and shall not
become liable for damages, fines, penalties or any environmental response costs
(including costs of environmental investigation and/or clean up or other
mitigation by or through any authority) or any other costs or expenses under or
pursuant to any Environmental Law. All waste generated by the operations of
the Corporations in the Netherlands are exclusively delivered to a holder of a
valid license under the Chemical Waste Act ("Wet Chemische Afvalstoffen"). The
Corporations have implemented adequate precautions to avoid the release into
the environment of any Hazardous Substances, and the Corporations have taken
such other precautions as are prescribed by the Environmental Laws.
(h) All written environmental assessments or impact
reports on the Real Estate done for or received by any Corporation within the
last five years of the date of this Agreement have been delivered in the course
of due diligence.
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4.24 Transactions with Insiders. Except for the Coolpart
loans, no Insider: (a) owns, directly or indirectly, any debt, equity or other
interest or investment in any corporation, association or other entity which is
a competitor, lessor, lessee, customer, supplier or advertiser of any
Corporation (excluding ownership of less than one percent of the outstanding
securities of an entity whose equity securities are publicly traded); (b) has
any cause of action or other claim whatsoever against or owes any material
amount to, or is owed any material amount by, any Corporation; (c) has any
interest in or owns any property or right used in the conduct of the operations
of any Corporation; (d) has lent or advanced any money to, or borrowed any
money from, or guaranteed or otherwise become liable for, any outstanding
indebtedness or other outstanding obligations of, or acquired any capital
stock, obligations or securities of, any Corporation; or (e) is a party to any
Contract used in the operations of any Corporation (other than employment
contracts, obligations to directors and other similar matters in the ordinary
course of business which do not have a Material Adverse Effect); or (f)
received from or furnished to any Corporation any material goods or services
(with or without consideration) since December 31, 1994, other than as a past
or present officer, director or employee of such Corporation. The term
"Insider" shall mean any Shareholder, as well as any member of the immediate
family (including spouse, brother, sister, descendant, ancestor or in-law) of
any officer, director or stockholder of a Corporation or any corporation,
partnership, trust or other entity in which the Corporation or any such family
member has a 5% or greater interest or is a director, officer, partner or
trustee. The term Insider shall also include any entity which controls, or is
controlled by, or is under common control with any of the individuals or
entities described in the preceding sentence.
4.25 Names; Certificates. Since January 1, 1992 no
Corporation has operated under any names other than those listed in the Trade
Register at the Chamber of Commerce, referred to in Section 4.1(f).
4.26 Bank Accounts; Investments. The 1996 Annual Report sets
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Corporation or a
Subsidiary maintains an account, deposit, safe deposit box, lock box or line of
credit or other loan facility relationship or accounts of any nature and the
names of all Persons authorized to draw thereon, make withdrawals therefrom or
have access thereto. The 1996 Annual Report sets forth an accurate and
complete list of all certificates of deposit, debt and other investments
(except in Subsidiaries or Coolpart Holdings) owned, beneficially or of record,
by any Corporation and all letters of credit in favor of any Corporation.
4.27 Non-Compete Agreements. No Corporation and no
Shareholder is a party to any Contract pursuant to which any of them has agreed
to refrain from or in any way be restricted from owning, possessing or using
its assets or conducting the Gamko Business in any geographic area, or from
hiring or soliciting any Person.
4.28 Intentionally omitted.
4.29 Information and Opportunity to Inquire. Each of the
Shareholders has been furnished and carefully read this Agreement and the other
Transaction Documents.
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Each of the Shareholders has been given access to all other documents and
information it has requested in connection with making a decision to approve
this Agreement. Each Shareholder has had the opportunity to ask questions of
representatives of Purchaser and has had all of its questions answered to its
satisfaction.
4.30 Disclosure; Accuracy. All documents, agreements and
other papers and materials delivered by or on behalf of any Corporation in
connection with this Agreement and the transactions contemplated hereby are
true, complete and accurate in all material respects. None of the
representations, warranties or statements of the Shareholders contained in this
Agreement, or in any other Transaction Document contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the representations, warranties or statements
made, in the context in which made, not false or misleading. There is no fact
that the Shareholders have not disclosed to Purchaser in writing that causes a
Material Adverse Effect or could reasonably be expected to result in a Material
Adverse Effect. The Shareholders acknowledge that the statements contained in
this Section shall not be deemed to limit or qualify any of the other
representations or warranties contained in this Agreement or in any other
Transaction Document. The statements contained in the Recitals concerning the
Corporations and in the Schedules and Annexes to this Agreement are true,
complete and accurate.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to the Shareholders to enter into this
Agreement, Purchaser represents and warrants to the Shareholders that:
5.1 Corporate Organization and Power. Purchaser is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to enter
into this Agreement and perform its obligations thereunder.
5.2 Authorization. The execution, delivery and performance
of this Agreement by Purchaser and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Purchaser, and no other corporate proceedings
on the part of Purchaser are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement constitutes a valid and binding
obligation of Purchaser, enforceable in accordance with its terms except to the
extent that such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally, and the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
5.3 No Violation. Purchaser is not required to obtain any
consent or waiver under its certificate of incorporation, its by-laws, any
applicable law, or rule or regulation of any governmental authority, or any
agreement or instrument, or any license, franchise or permit, or subject to any
order, writ, injunction or decree in connection with its
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<PAGE> 24
execution, delivery or performance of this Agreement. Purchaser shall comply
with all applicable laws and with all applicable rules and regulations of all
governmental authorities in connection with its execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
5.4 Governmental Authorities and Consents. Purchaser is
not required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of this Agreement
or the consummation of the transactions contemplated hereby. No permit,
consent, approval or authorization of any governmental or regulatory authority
or any other party or person is required of Purchaser in connection with the
execution, delivery and performance of this Agreement by Purchaser or the
consummation of the transactions contemplated hereby.
5.5 Developments. From the date hereof to the Closing,
Purchaser shall promptly inform the Shareholders in writing of any material
variance from the representations and warranties contained in this Article V.
5.6 Closing Time. For the purposes of indemnification, all
of the representations and warranties of the Purchaser in this Article V and
elsewhere in this Agreement and all information set forth in any Schedule
attached hereto or in any certificate delivered to Shareholders are true and
correct on the date hereof and shall be true and correct at the Closing Time
(as though the Closing Time were substituted for the date of this Agreement).
5.7 Disclosure. All documents, agreements and other papers
and materials delivered by or on behalf of Purchaser in connection with this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby are true, complete and accurate. None of the
representations, warranties or statements of Purchaser contained in this
Agreement, in the Schedules or Exhibits hereto, or in any other Transaction
Documents executed or delivered by it contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the representations, warranties or statements made, in the
context in which made, not false or misleading.
ARTICLE VI. INTENTIONALLY OMITTED
ARTICLE VII. INTENTIONALLY OMITTED
ARTICLE VIII. COVENANTS
8.1 Intentionally omitted.
8.2 Intentionally omitted.
8.3 Intentionally omitted.
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<PAGE> 25
8.4 Intentionally omitted.
8.5 All Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done as promptly as practicable, all things necessary, proper and
advisable under applicable laws and regulations to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement. If at any time after the Closing Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
8.6 Consents and Approvals. Each party hereto shall (a)
use reasonable efforts to obtain all necessary permits, consents, waivers,
approvals, orders and authorizations of all Governmental Authorities and other
Persons required to be obtained by such party hereto in connection with the
execution, delivery and performance of this Agreement, the other Transaction
Documents and the consummation of the transactions contemplated hereby or
thereby by such party, (b) diligently assist and cooperate with the other
parties hereto in preparing and filing all documents required to be submitted
by the other parties hereto to any Governmental Authority in connection with
the execution, delivery and performance of this Agreement, the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, and in obtaining any permits, consents, waivers, approvals,
orders and authorizations which may be required to be obtained by Purchaser in
connection therewith and (c) keep the other parties hereto apprised of the
status of any inquiries made by any Governmental Authority with respect to this
Agreement, the other Transaction Documents or the transactions contemplated
hereby or thereby.
8.7 Intentionally omitted.
ARTICLE IX. INTENTIONALLY OMITTED
ARTICLE X. INDEMNIFICATION
10.1 Survival. The representations, warranties, covenants
and agreements set forth in this Agreement will survive the Closing Time and
the consummation of the transactions contemplated hereby but can be affected by
any examination made for or on behalf of Purchaser, or the knowledge of
Purchaser or its officers, directors, stockholders, employees or agents, except
as has been specifically disclosed in the Schedules attached hereto. Unless
notice of a claim for indemnification due to a breach of a representation and
warranty is given prior to the time periods specified in Section 10.2(b) with
respect to the sections referred to therein (in which case the representation
and warranty shall survive with respect to such claim), the representations and
warranties shall terminate following the applicable period, if any, specified
in Section 10.2(b).
10.2 Indemnification.
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<PAGE> 26
(a) Subject to subsections (b), (c) and (h) below, the
Shareholders shall each jointly and severally indemnify Purchaser and the
Corporations and hold them harmless against any loss, liability, deficiency,
damage or expense (including reasonable legal expenses and costs) (collectively
"Losses") which Purchaser or the Corporations may suffer, sustain or become
subject to, as a result of the breach by any Shareholder of any representation,
warranty, covenant or agreement contained in this Agreement.
(b) Purchaser and the Corporations shall not be
entitled to indemnification for any Losses relating to breaches of the
representations and warranties set forth in Article IV unless written notice of
the claim is given to the Shareholders prior to December 31, 1998; except that
in the case of claims arising under Section 4.8 notice may be given prior to
December 31, 2001.
(c) Purchaser shall indemnify the Shareholders and
hold them harmless against any Losses which the Shareholders may suffer,
sustain or become subject to, as the result of a breach of any representations,
warranty, covenant or agreement by purchaser contained in this Agreement;
provided that Purchaser shall be liable for losses resulting from a breach of
the representations and warranties set forth in Article V hereof only if the
aggregate amount of all such losses relating to all such breaches exceeds DFL
20,000 in which case Purchaser shall be liable to the Shareholders for only
such Losses which exceed DFL 20,000.
(d) In the event of any third party claim subject to
indemnification hereunder, Purchaser or the Corporations shall promptly notify
the Shareholders; provided, however, that no delay by the Purchaser or the
Corporations in notifying the Shareholders shall relieve the Shareholders from
any liability or obligation hereunder unless (and then solely to the extent)
the Shareholders thereby are damaged. The Shareholders shall be entitled to
undertake the defense of any third party claim once the Shareholders have
acknowledged in writing that the Shareholders are indemnifying the Purchaser or
the Corporations with respect to any such third party claim, whether or not
involving litigation; provided that Purchaser or the Corporations may at their
election participate (at their own expense) in such defense to the extent that
in their reasonable discretion they believe that such claim will or may affect
their business. The Shareholders shall not settle any such claim for
consideration other than money which the Shareholders will pay without the
prior written consent of Purchaser. Purchaser shall, at the Shareholders'
expense, provide to the Shareholders any information available to Purchaser
which relates to any claim to indemnification and which is reasonably requested
by the Shareholders.
(e) All amounts paid pursuant to this Section 10.2 by
one party to another party shall be treated as an adjustment to the Purchase
Price. All claims for indemnification under this Agreement shall be net of any
actual Tax savings realized by the indemnified party in connection therewith
and net of any insurance proceeds which the indemnified party has received with
respect to third party claims. If, contrary to the intent of the parties as
expressed in the first sentence of this paragraph (e), any payment to the
Purchaser and the Corporations is treated as income for income tax purposes,
then the indemnifying party shall indemnify and hold harmless the recipient
from any liability for Tax attributable to the receipt of such payment.
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(f) Any claim for indemnification shall be paid in
cash within 10 days following a determination that indemnification is owed and
the amount of such claim (whether by agreement, court judgment or other third
party mechanism mandated on, or agreed to by, the parties hereto) and shall
bear interest at a rate of 10% per annum (compounded semi-annually) from the
date such indemnification claim arose until the date such claim is paid or any
offset is effective; provided that if payment of a third party claim is payable
over time, the Shareholders may, instead of immediately paying such amount,
assume such payments on terms reasonably satisfactory to Purchaser. Without
limiting Purchaser's or the Corporations' rights or remedies, Purchaser or the
Corporations shall be entitled to offset indemnification obligations of the
Shareholders hereunder against any amount due to the Shareholders under the
Potential Operations Incentive referred to in Section 1.4 or from the escrow
account referred to in Section 1.3(e); except that Purchaser shall not set off
any amounts due to any Shareholder for a breach of an Employment and
Non-Competition Agreement by a Person who was not the owner of such Shareholder
at the time of this Agreement. The rights of set off granted under this
Agreement are in addition to all other rights and remedies available to
Purchaser.
(g) In the event of any indemnification claim owed by
the Shareholders to Purchaser or the Corporations, each Shareholder shall only
be liable for the proceeds received by each (and any permitted transferee of
such person) under this Agreement.
(h) In the event of any indemnification claim owed to
Purchaser by the Shareholders, the Shareholders shall only be liable for the
amount in the escrow account of $2,200,000. The sum of (potential) claims can
never exceed this amount. The two preceding sentences shall not limit the
personal obligation of the individual Shareholders of Coolpart with respect to
their representations in Section 4.1(a).
ARTICLE XI. POST-CLOSING OBLIGATIONS
11.1 Disposal of Records. Purchaser shall maintain records
to the extent reasonably required to achieve the purposes of this Agreement.
11.2 Press Release and Announcements. No press releases or
public announcement related to the transactions contemplated by this Agreement,
or other announcements to the employees, customers and suppliers of the
Corporations shall be issued without the joint approval of Purchaser and the
Shareholders, which approval shall not be unreasonably withheld.
11.3 Expenses. Each party hereto shall pay all of its own
expenses (including attorneys and accountants fees) in connection with the
negotiation and execution of this Agreement, the performance of its obligations
hereunder and the consummation of the transactions contemplated by this
Agreement.
11.4 Further Assurances. From and after the Closing, the
Shareholders will, at Purchaser's expense, execute and deliver such further
instruments of conveyance and transfer and take such additional action as
Purchaser may reasonably request to effect, consummate or evidence the transfer
to Purchase of the Shares.
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11.5 Shareholder Actions. From the date hereof, the
Shareholders shall not take or cause to be taken any action which is intended
to discourage suppliers, lessors, and other business associates from
maintaining the same business relationships with Purchaser or the Corporations
after the date of this Agreement as were maintained with the Corporations prior
to the date of this Agreement.
11.6 Tax Cooperation. After the Closing, Shareholders shall
cooperate in the preparation of all Returns for the Corporations relating to
1997 and in connection with any investigation of any returns for any of the
Corporations for any prior year.
ARTICLE XII. NON-COMPETITION.
12.1 Restrictions. The Shareholders (a term which for the
purposes of this Article XII also includes Messrs. A.C.M. van Gils, P.W. Van
Den Dries and J.C.B. Broos as individuals) acknowledge that Purchaser has paid
valuable consideration to acquire the stock of Gamko and Coolpart, and that the
value of the Purchased Stock depends on the value of the business and assets of
the Corporations, particularly customer and supplier lists, Know-how, goodwill
and other proprietary business information and trade secrets of the
Corporations. The use by any Shareholder of these relationships and such
confidential information in a business or activity which competes with the
Corporations' operation of their business would provide the competing business
with an unfair advantage over the Corporations. Accordingly, Purchaser wishes
to restrict the Shareholders' use of such information and their ability to
compete with Gamko and its Related Affiliates. The Shareholders acknowledge
that the restrictions set forth in each Section of this Article XII are
distinct and independent restrictions and agree, for the Purchase Price
described in Article I, to comply with the terms of this Article XII, all of
which are reasonable and necessary to protect the confidential business
information and trade secrets of the Corporations and to prevent any unfair
advantage from being conferred upon a competing business. Without limiting the
foregoing, the Shareholders acknowledge and agree that Purchaser's desire to
acquire the Purchased Shares is based, among other things, on the Shareholders'
knowledge of trade secrets, customer relationships and expertise and that the
experience, expertise and relationship of the Shareholders with the
Corporation's suppliers and customers and the Shareholders' knowledge of trade
secrets provide a unique, competitive advantage to the Corporations which
materially and favorably benefit the business and prospects of the
Corporations.
12.2 Non-competition. No Shareholder shall, during the
period from the Closing through December 31, 1999 ("Non-Comp Period"), directly
or indirectly, either by himself, or as a stockholder, partner, associate,
consultant, owner, agent, licensor, creditor, coventurer of any other Person or
in any other capacity, engage (except on behalf of Gamko or Coolpart) in the
business of manufacturing, sourcing, distributing, marketing and/or selling any
other product manufactured, distributed or sold or similar to products
manufactured, distributed or sold by any Corporation on the Closing Date or
within a two year period prior to the Closing Date (each a "Prohibited
Business" and such products being individually and collectively called
"Products") within the Prohibited Area; provided that nothing herein shall
prohibit any Shareholder from being an owner of not more than 5% of the
outstanding stock or debt of any class of a corporation which is publicly
traded,
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so long as such Shareholder does not actively participate in the business of
such corporation. The term "Prohibited Area" means the countries of the
European Union plus the Czech Republic, Slovakia, Poland and Thailand. Each
Shareholder further agrees that he shall not directly or indirectly engage in
any business at any time under a trademark or trade name that is confusingly
similar to or may connote an association with any Trademark or Trade Name of
any Corporation.
12.3 Non-Interference with Business Relations.
Notwithstanding anything to the contrary contained herein, during the Non- Comp
Period, no Shareholder shall, without the prior written consent of Gamko,
solicit, induce or attempt to solicit or induce any supplier or other business
relation of Gamko's to terminate or otherwise alter its relationship with Gamko
or any other Corporation, or in any other way interfere with the relationship
with any customer or business relation of any of them.
12.4 Solicitation of Customers and Employees.
Notwithstanding anything to the contrary contained herein, during the Non- Comp
Period, no Shareholder shall, directly or indirectly, on behalf of itself, or
as a stockholder, partner, employee, consultant, adviser, owner, associate,
agent, licensor, creditor, coventurer of any other person (other than Gamko or
another Corporation), or in any other capacity, (i) sell to or solicit sales of
products (as defined above) from any customer or account which was a customer
or account of any Corporation as of the Closing Time or within one year prior
thereto, or (ii) solicit, hire, attempt to solicit or hire, or participate in
any attempt to solicit or hire any Person who was an employee of any
Corporation as of the Closing Time or within the six month period prior
thereto.
12.5 Confidential Information. Each Shareholder recognizes
that Gamko's business interests require the fullest practical protection and
confidential treatment of all information, not generally known within the
relevant trade group or by the public, including all documents, writings,
memoranda, business plans, illustrations, designs, plans, processes, programs,
inventions, computer software, reports, sources of supply, customer lists,
supplier lists, trade secrets, and all other valuable or unique information and
techniques acquired, developed or used by any Corporation relating to their
respective businesses, operations, employees, suppliers and customers
(hereinafter collectively termed "Protected Information"). Each Shareholder
expressly acknowledges and agrees that Protected Information constitutes trade
secrets and confidential and proprietary business information of Gamko.
Protected Information shall not include information which is or becomes part of
the public domain through no breach of this Agreement by any Shareholder. Each
Shareholder acknowledges that Protected Information is essential to the success
of the Business presently conducted by Gamko and the other Corporations, and it
is the policy of Gamko to maintain as secret and confidential Protected
Information which gives Gamko a competitive advantage over those who do not
know the Protected Information, and Protected Information is expressly and
implicitly protected by Gamko from unauthorized disclosure. Accordingly, each
Shareholder agrees to hold such Protected Information in a fiduciary capacity,
to keep secret and to treat confidentially, and not to permit any other Person
to, directly or indirectly, appropriate, divulge, disclose or otherwise
disseminate to any other Person nor use in any manner for any Shareholder's or
any other Person's purposes or benefit any Protected Information, and not to
use or aid
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others in using any such Protected Information, except to the extent that
disclosure is required by law. This obligation of non-disclosure of
information shall continue to exist for so long as such information remains
Protected Information.
12.6 Scope. If, at the time of enforcement of this Article
XII, a court shall hold that the duration, penalty, scope or area restrictions
stated herein are unreasonable, the parties agree that the maximum duration,
penalty, scope or area which is reasonable shall be substituted for the stated
duration, scope or area.
12.7 Remedies. (a) Each Shareholder agrees that if it shall
commit or threaten to commit a breach of any of the covenants and agreements
contained in this Article XII, then Gamko (including any successor or assign of
its Business) shall have the right to seek and obtain all appropriate
injunctive and other equitable remedies therefor, in addition to any other
rights and remedies that may be available at law, it being acknowledged and
agreed that any such breach would cause irreparable injury and that money
damages would not provide an adequate remedy therefor.
(b) Without limiting any other remedies of Gamko and
the Purchaser hereunder, if any of the Shareholders breach any of their
obligations contained in the preceding Sections of this Article XII, each such
Shareholder shall immediately, without any action or formality then being
required to be taken or fulfilled, forfeit for the benefit of Purchaser (or, at
its discretion, for the benefit of Gamko), from the escrow account created
pursuant to Section 1.3(e) or otherwise, an immediately payable penalty of DLF
300,000 for each infringement and of DLF 5,000 for each day such infringement
continues, without any damages or losses being required to be proven and
without prejudice to the right of each of the Purchaser and Gamko to claim full
compensation of damages if there are grounds for doing so. Such penalties
shall not be capable of mitigation.
ARTICLE XIII. INTENTIONALLY OMITTED
ARTICLE XIV. MISCELLANEOUS PROVISIONS
14.1 Amendment and Waiver. This Agreement may be amended, or
any provision of this Agreement may be waived; provided that any such amendment
or waiver shall be binding on a Shareholder only if such amendment or waiver is
set forth in a writing executed by the Shareholders and that any such amendment
or waiver shall be binding upon Purchaser only if such amendment or waiver is
set forth in a writing executed by Purchaser. No course of dealing between or
among the parties to this Agreement shall be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
party to this Agreement.
14.2 Notices. All notices, demands and other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (i) when personally
delivered, sent by telecopy (with receipt confirmed), sent by overnight express
courier or (ii) five days following mailing by
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first class mail, postage prepaid. Notices, demands and communications, shall,
unless another address is specified in writing, be sent to the address
indicated below:
Notices to the Shareholders:
---------------------------
Argil B.V. and A.C.M. van Gils
Voreneindseweg 71
4714 RG Sprundel
The Netherlands
PeWe Beheer and P.W. Van Den Dries
Dennenweg 4A
4041 KN Prinsenbeak
The Netherlands
Professional Management Development Europe B.V.
Takkebijsters 37
4817 BL Breda
The Netherlands
J.B.C. Broos
Strijbeek 1
B--2328 Mierle
Belgium
Notices to Purchaser:
--------------------
Jeffrey P. Rhodenbaugh, President
Specialty Equipment Companies
1245 Corporate Boulevard
Aurora, IL 60504
U.S.A.
With a copy to:
--------------
Donald P. Horwitz
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
U.S.A.
Notices to the Corporations shall, prior to the Closing, be sent to the
Shareholders and, following the Closing, be sent to the Purchaser.
14.3 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided that this
Agreement may not be assigned by a party hereto without
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the other parties' prior written consent, except that no consent shall be
required with respect to an assignment to any lender of Purchaser or its
subsidiaries.
14.4 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
14.5 No Strict Construction. The language used in
this Agreement shall be deemed to be the language chosen by the parties hereto
to express their mutual intent and no rule of strict construction shall be
applied against any person.
14.6 Captions. The captions used in this Agreement
are for convenience of reference only and do not constitute a part of this
Agreement and shall not be deemed to limit, characterize or in any way affect
any provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
14.7 Complete Agreement. The Exhibits and Schedules
attached to this Agreement are hereby incorporated into this Agreement and any
reference to this Agreement shall include the Exhibits and Schedules attached
hereto. This Agreement and the agreements and documents referred to herein
contain the complete agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way. Without limiting the foregoing, this Agreement supersedes the Letter of
Intent, and such Letter of Intent shall have no further force and effect.
14.8 Counterparts. This Agreement may be executed
in one or more counterparts all of which taken together shall constitute one
and the same instrument.
14.9 No Rescission. The parties hereto waive their
rights under Articles 6:265 et seq. of the Netherlands Civil Code to claim
rescission ("ontbinding") of this Agreement.
14.10 Governing Law. This Agreement shall be governed
by and construed in accordance with the domestic laws of the Netherlands. All
disputes arising in connection with this Agreement and/or any of the Exhibits
and Schedules attached thereto or any further agreements arising from this
Agreement shall be exclusively submitted at first instance to the competent
court in Breda, the Netherlands.
14.11 Waivers, Amendments and Remedies. This Agreement
may be amended, superseded, cancelled, renewed or extended, and the
terms hereof may be waived only by a written instrument signed by Purchaser and
the Shareholders. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate
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as a waiver thereof; nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such
right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity.
OFFICIAL SEAL SPECIALTY EQUIPMENT COMPANIES, INC.
KIM DE KRUYFF
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 5-15-98 By: [SIG]
--------------------------------
Its: President & CEO
Sworn before me this ----------------------------
10th day of August, 1997
THE SHAREHOLDERS
Kim de Kruyff
- ----------------------
Notary Public
GAMKO SHAREHOLDERS: COOLPART SHAREHOLDERS:
ARGIL BEHEER B.V.
By:____________________________* __________________________________*
A.C.M. van Gils A.C.M. van Gils
PE WE BEHEER B.V.
By:___________________________* _________________________________*
P.W. Van Den Dries P.W. Van Den Dries
PROFESSIONAL MANAGEMENT DEVELOPMENT EUROPE B.V.
By:__________________________* _________________________________*
J.B.C. Broos J.B.C. Broos
COOLPART B.V. FOR THE PURPOSES OF SECTION 1.3(c)
COOLPART B.V.
By:___________________________________________________
A.C.M. Van Gils
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* By execution of this Agreement, the above signatory hereby (a)
expressly agrees to be individually bound by Article XII of this Agreement and
to perform in accordance therewith, (b) personally guarantees that Gamko is the
holder of all the Capital Stock of Gamko Operating, free and clear of all
liens, charges, security interests, options proxies, pledges, voting trusts or
agreements, rights of first refusal or other encumbrances or restrictions, (c)
confirms that he is jointly and severally liable with the other individual
Shareholders for the guarantee made in Section 4.1(a) (respecting reimbursement
for the missing 25% of SARL shares), and (d) irrevocably appoints and
authorizes J.B.C. Broos to act on his behalf under this Agreement and agrees
that the acts and omissions of J.B.C. Broos shall be the acts and omissions of
the Shareholders hereunder and that Purchaser shall be entitled to rely
thereon. The foregoing shall not affect the joint and several liability of the
Shareholders as provided in this Agreement.
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The undersigned hereby (a) expressly agrees to be individually bound by
Article XII of this Agreement and to perform in accordance therewith and (b)
accepts his irrevocable appointment and authorization to act on behalf of the
other Shareholders under this Agreement.
__________________________________
J.B.C. Broos
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EXHIBIT A
DEFINED TERMS
The following list of some of the terms defined in the Agreement shall
have the meanings ascribed to them or referenced below:
$ shall always mean United States Dollars.
Agreement as defined in the introductory paragraph.
Business as defined in the Recitals.
Closing as defined in Section 1.3.
Closing Time as defined in Section 1.3.
Compensation Plans as defined in Section 8.2.
Contracts as defined in Section 4.17(b).
Controlled Group as defined in Section 4.19(e).
Effective Time as defined in Section 1.5.
Environmental Laws as defined in Section 4.23(a).
Gamko as defined in the Recitals.
Gamko Operating as defined in Section 4.1.
Governmental Authority shall mean any court (national, state, local, foreign or
otherwise), any arbitration or other alternative dispute mechanism, any
national, state, local, foreign or other government or governmental department,
agency, board, commission, bureau or instrumentality and any other regulatory
authority.
Hazardous Substances as defined in Section 4.23(a).
Indebtedness for Borrowed Money shall mean, as to any Person, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business, (iv) all obligations of such Person as
lessee under equipment leases and (v) any of the foregoing guaranteed by such
Person. Indebtedness of a Corporation with respect to Letters of Credit issued
for the benefit of any of them and described on Schedule 4.26 hereto shall not
be deemed to be
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Indebtedness for Borrowed Money provided each such Letter of Credit has been
issued in the ordinary course of the Corporation's business, consistent with
past practices.
Independent Accountant as defined in Section 6.2(iv).
Insider as defined in Section 4.24.
Know-how shall mean specialized knowledge which is proprietary to one or more
Corporations (including product knowledge and use and application knowledge),
formulae, product formulations, processes, product designs, specifications,
quality control, procedures, manufacturing, engineering and other drawings,
computer data bases and software, technology, other intangibles, technical
information, safety information, engineering data and design and engineering
specifications, research records, market surveys and all promotional
literature, customer and supplier lists and similar data.
Letter of Intent as defined in Section 1.6.
Liability as defined in Section 4.9.
License Agreements as defined in Section 4.15(a)
Losses as defined in Section 10.2(a).
Material Adverse Effect as defined in Section 4.6(a).
Material Contract as defined in Section 4.17(b).
Patents shall mean patents (including all reissues, reexaminations, divisions,
continuations in part and extensions thereof), utility models, patent
applications and disclosures docketed and patent continuations.
Person shall mean an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or,
as applicable, any other entity.
Personal Property Leases as defined in Section 4.12(b).
Plan as defined in Section 4.19(a).
Protected Information as defined in Section 12.5.
Real Estate as defined in Section 4.10(b).
Real Estate Leases as defined in Section 4.10(b).
Rental Real Estate as defined in Section 4.10(b).
Returns as defined in Section 4.8(a).
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Rules shall mean any national, state, local or foreign statute, law, code,
ordinance, rule, regulation, judgment, writ, decree, injunction, order,
concession, grant, franchise, permit or license or other governmental or
regulatory authorization or approval applicable to the Corporations or the
Shareholders or any of their respective assets, properties or operations.
Shareholders as defined in the introductory paragraph.
Supply and Purchase Contracts as defined in Section 4.17(b).
Tax or Taxes as defined in Section 4.8(a).
Trade Names shall mean (i) trade names, (ii) brand names, and (iii) logos and
all other names and slogans used in the Business.
Trademarks shall mean trademarks, service marks, brand marks, registrations
thereof, pending applications for registration thereof, and such unregistered
rights which are used in the Business.
Transaction Documents shall mean this Agreement, the Employment Agreements and
all other agreements, certificates and documents required to be delivered in
connection with the foregoing.
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Schedule 1.2
<TABLE>
<CAPTION>
Percentage Share of Percentage Share of Percentage Share of
$18,547,751.77 $2,060,861.31 $936,755.14
<S> <C> <C> <C>
Argil Beheer B.V. 32.757347% 32.757347% 33.333333%
A.C.M. van Gils 0.575986% 0.575986% 0.000000%
Pe We Beheer B.V. 32.757347% 32.757347% 33.333333%
P.W. Van Den Dries 0.575986% 0.575986% 0.000000%
Professional Management
Development Europe B.V. 32.757347% 32.757347% 33.333333%
J.B.C. Broos 0.575986% 0.575986% 0.000000%
Total 100.000000% 100.000000% 100.000000%
</TABLE>
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<TABLE>
<CAPTION>
Sheet 1
Total Down Payment Escrow Payment Earnout
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Agreed Price 23,000,000 22,000,000 19,800,000 2,200,000 1,000,000
Base Exchange Rate 1.9729 1.9729 1.9729 1.9729 1.9729
August 7 rate 2.1061 2.1061 2.1061 2.1061 2.1061
Price equals 21,546,388.22 20,608,613.08 18,547,751.77 2,060,861.31 936,755.14
Schedule 1.2
Calculations:
Final $22 million price in $ after
exchange rate adjustments 20,608,613.08
Same number in DLF at
August 7 exchange rate 43,403,800
DLF allocated to Coolpert 750,000
Coolpert Allocation % 1.727959%
Gamko Allocation % 98.272041%
</TABLE>
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Share of Share of Share of
$18,547,751.77 $2,060,861.31 $936,755.14
-------------------------------------------
<S> <C> <C> <C>
Argil Beheer B.V. 32.757347% 32.757347% 33.333333%
A.C.M. van Gils 0.575986% 0.575986% 0.000000%
Pe We Beheer B.V. 32.757347% 32.757347% 33.333333%
P.W. Van Den Dries 0.575986% 0.575986% 0.000000%
Professional Management
Development Europe B.V. 32.757347% 32.757347% 33.333333%
J.B.C. Broos 0.575986% 0.575986% 0.000000%
Total 100.000000% 100.000000% 100.000000%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 48,479
<SECURITIES> 0
<RECEIVABLES> 66,870
<ALLOWANCES> (4,329)
<INVENTORY> 54,522
<CURRENT-ASSETS> 179,272
<PP&E> 65,353
<DEPRECIATION> (27,515)
<TOTAL-ASSETS> 244,098
<CURRENT-LIABILITIES> 132,516
<BONDS> 159,811
0
0
<COMMON> 183
<OTHER-SE> (50,211)
<TOTAL-LIABILITY-AND-EQUITY> 244,098
<SALES> 107,694
<TOTAL-REVENUES> 107,694
<CGS> 74,532
<TOTAL-COSTS> 74,532
<OTHER-EXPENSES> 17,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,965
<INCOME-PRETAX> 11,212
<INCOME-TAX> 4,037
<INCOME-CONTINUING> 7,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,175
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0
</TABLE>
