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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 1997
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ESSEF CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 0-15902 34-0777631
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(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
220 Park Drive, Chardon, Ohio 44024
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(Address of principal executive offices) (Zip Code)
(216) 286-2200
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
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On May 1, 1997, General Aquatics Corporation ("GAC"), a wholly-owned
subsidiary of Pac-Fab, Inc., which is a wholly-owned subsidiary of the
Registrant, acquired substantially all of the assets (the "Acquired Assets") of
General Aquatics, Inc. and its wholly-owned subsidiaries, Anthony and Sylvan
Pools, Inc., KDI American Products, Inc., and KDI Paragon, Inc. (collectively,
the "Sellers"). This purchase was consummated on the terms specified in a
certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated March
24, 1997 by and among GAC, the Sellers, and GAI Acquisition Corp., which is a
wholly-owned subsidiary of EQ Corporation and parent company of General
Aquatics, Inc.
The Acquired Assets consist of equipment, inventory, receivables, real
property, and intellectual property used in connection with the manufacture and
sale of swimming pool equipment and accessories, and the sale and construction
of in-ground swimming pools. The purchase price was approximately $68 million in
cash and the assumption of $8 million in working capital debt, which amount was
negotiated between the parties as the fair market value for the Acquired Assets.
The acquisition was financed pursuant to a Credit Agreement dated April 28, 1997
among ESSEF Corporation, National City Bank as Administrative Agent, and ABN
Amro Bank N.V. as Syndication Agent.
GAC intends to use the Acquired Assets in connection with the
construction of pools and spas and the manufacture and sale of accessories and
equipment used in connection therewith.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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Financial statements complying with the requirements of Regulation S-X
are not available, but will be filed within the time period required by law.
<TABLE>
<CAPTION>
EXHIBIT LIST
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Location of
Document in
Sequential
Exhibit Numbering
Number Description System
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<S> <C> <C>
2(a) Asset Purchase Agreement dated March 24, 1997
by and among General Aquatics Corporation,
General Aquatics, Inc., Anthony and Sylvan Pools, Inc.,
KDI American Products, Inc., KDI Paragon, Inc. and GAI
Acquisition Corp.
</TABLE>
SIGNATURE
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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.
ESSEF Corporation
Registrant
Dated: May 14, 1997 By: /s/ Stuart D. Neidus
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Stuart D. Neidus
Executive Vice President and
Chief Financial Office
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Exhibit 2(a)
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ASSET PURCHASE AGREEMENT
among
GM ACQUISITION CORP.
GENERAL AQUATICS CORPORATION
GENERAL AQUATICS, INC.
ANTHONY AND SYLVAN POOLS, INC.
KDI AMERICAN PRODUCTS, INC.
and
KDI PARAGON, INC.
Dated as of March 24, 1997
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of March 24, 1997, is by and
among GENERAL AQUATICS CORPORATION, an Ohio corporation (the "Purchaser"), GM
ACQUISITION CORP., a Delaware corporation ("GAI"), GENERAL AQUATICS, INC., a
Delaware corporation (the "Parent"), and the Parent's wholly-owned subsidiaries
ANTHONY AND SYLVAN POOLS, INC., a Delaware corporation ("A&S"), KDI AMERICAN
PRODUCTS, INC., a Delaware corporation ("American Products"), and KDI PARAGON,
INC., a Delaware corporation ("Paragon" and, together with A&S and American
Products, the "Subsidiaries"). Parent and the Subsidiaries are sometimes
hereinafter referred to collectively as either the "Company" or the "Sellers,"
and each of them is sometimes hereinafter referred to individually as a
"Seller."
WHEREAS, the Sellers collectively own the Assets (as defined below), and
GAI proposes to merge with and into the Parent (the "Merger") pursuant to that
certain Agreement and Plan of Merger, dated as of March 23, 1997, among EQ
Corporation, a Delaware corporation ("EQ"), GAI and the Parent (the "Merger
Agreement"); and
WHEREAS, immediately following the closing pursuant to the Merger
Agreement, GAI desires to cause the Parent, as the surviving entity in the
Merger, and the Subsidiaries to sell, and the Purchaser desires to purchase, the
Assets and, as part of such sale and purchase, the Purchaser is willing to
assume the Assumed Liabilities (as defined below).
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1. DESCRIPTION OF ASSETS. Upon the terms and subject to the
conditions and in reliance on the representations, warranties and covenants set
forth in this Agreement, each Seller agrees to sell and transfer to the
Purchaser, and the Purchaser agrees to purchase from each Seller, as of the
Closing, all of the assets of such Seller (other than those assets identified in
Section 1.2 hereof as being Retained Assets of such Seller), including, without
limitation:
(a) REAL PROPERTY. All right, title and interest of such Seller in
and to the land, buildings and improvements thereon and appurtenant thereto,
except for any such land, buildings or improvements included in the Retained
Assets of such Seller.
(b) MACHINERY AND EQUIPMENT. All machinery, equipment (including
office equipment), computers, furniture, fixtures owned, leased, or otherwise
used by such Seller.
(c) RECEIVABLES. All receivables owned by such Seller on the
Closing Date, including but not limited to accounts receivable and notes
receivable.
(d) INVENTORY. All inventories of raw materials, work-in-progress
and finished products and all replacement and spare parts and fuel of such
Seller on the Closing Date, wherever located.
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(e) SUPPLIES. All factory and office supplies owned by such Seller
on the Closing Date.
(f) INTELLECTUAL PROPERTY. All (i) patents or patent applications
owned by such Seller, all licenses and other rights granted to such Seller
relating to any patent or patent application owned by any other person or
entity, all trademarks, service marks, copyrights, software or trade names owned
by such Seller, all licenses and other rights granted to such Seller to use any
such trademark, service mark, copyright, software or trade name owned by any
other person or entity, whether registered or unregistered (collectively, the
"Intellectual Property") and (ii) trade names, trade secrets and know-how, if
any, belonging to such Seller, including such Seller's rights with respect to
the use of the names "General Aquatics," "Anthony & Sylvan," "American
Products," and "Paragon," but excluding any such Seller's rights with respect to
the use of the name "Poolsaver."
(g) PERMITS. All interests (to the extent transferable) of such
Seller in all permits, licenses, orders and approvals of all Governmental
Entities (as defined below).
(h) RECORDS. All books and records of such Seller on the Closing
Date, including without limitation customer files, customer lists, supplies
lists, sales literature, sales records, and inventory records, and all computer
applications and programs owned, licensed, or otherwise used by such Seller.
Notwithstanding the foregoing, the books and records of any Seller related to
any Retained Assets or Retained Liabilities shall be retained by such Seller,
PROVIDED that copies of any such books and records shall be deemed to be Assets
and shall be delivered to the Purchaser.
(i) CONTRACTS. All contracts in force and effect (including any
deposits related thereto), leases, agreements, purchase and sales orders of
such Seller.
All of the Assets of all of the Sellers being transferred pursuant this
Agreement shall be hereinafter collectively referred to as the "Assets."
1.2. RETAINED ASSETS. Notwithstanding anything to the contrary in
Section 1.1 above, each Seller shall retain all right, title and interest in and
to those, and only those, of its assets specifically identified on Schedule 1.2.
All of the assets of all of the Sellers being retained pursuant to this
Agreement shall be hereinafter collectively referred to as the "Retained
Assets."
1.3. ASSET TRANSFER. On the Closing Date, each Seller shall deliver to
the Purchaser a General Conveyance, Assignment and Bill of Sale in the form
attached hereto as Schedule 1.3, conveying such Seller's Assets to the Purchaser
as well as such specific assignments of any of such Assets as the Purchaser or
the Purchaser's counsel may deem reasonably necessary or desirable to effect or
evidence the transfers contemplated hereby.
1.4. LIABILITIES.
(a) ASSUMED LIABILITIES. As of the Closing, the Purchaser shall
assume and be responsible for any and all liabilities and obligations of the
Sellers of any and every kind
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(whether known or unknown, absolute or contingent, matured or unmatured, accrued
or unaccrued, liquidated or unliquidated, due or to become due), including,
without limitation, those liabilities specified on Schedule 1.4(a); PROVIDED
that the Sellers shall each be responsible for their respective Retained
Liabilities (as defined below). All of the liabilities of all of the Sellers
being assumed by the Purchaser pursuant to this Agreement shall be hereinafter
collectively referred to as the "Assumed Liabilities."
(b) ASSUMPTION OF LIABILITIES. On the Closing Date, the Purchaser
shall deliver to the Sellers an Assumption of Liabilities in the form attached
hereto as Schedule 1.4(b) with respect to the Assumed Liabilities as well as
such specific assumptions and/or undertakings with respect to any of the Assumed
Liabilities as any Seller or Sellers' counsel may deem necessary or desirable to
effect or evidence the assumption contemplated hereby.
(c) RETAINED LIABILITIES. Notwithstanding anything to the contrary
in Section 1.4(a) and (b) above, those, and only those, liabilities specified on
Schedule 1.4(c) shall be retained by the Sellers, as applicable (the "Retained
Liabilities").
1.5. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Article I shall take place at the offices of Latham &
Watkins, 885 Third Avenue, New York, New York, 10022, at such time and date as
may be agreed upon in writing by the Purchaser and the Sellers. (Hereinafter,
the date on which the Closing shall take place is referred to as the "Closing
Date".)
1.6. PURCHASE PRICE. The aggregate purchase price for the Assets shall
be Sixty Eight Million Three Hundred And Fifty Thousand Dollars ($68,650,000),
PLUS, (a) the Debt Increase Amount (as defined in the Merger Agreement), LESS
(b) all amounts paid by the Sellers' on or prior to the Closing to (i) the
holders of options exercisable for common stock of the Parent or any such
Subsidiary for the purpose of repurchasing or redeeming such options and (ii)
officers or directors of the Company for the purpose of satisfying the Company's
obligation to make the payments set forth in the minutes of the November 1996
meeting of the Parent's Board of Directors, less (c) an amount equal to the
Company Costs (as defined in the Merger Agreement), other than those Company
Costs paid by GAI or EQ pursuant to Section 2.2(d) of the Merger Agreement.
1.7. FUNDS TRANSFER AT CLOSING. At the Closing, the Purchaser shall
deliver the Purchase Price to the Sellers by wire transfer of immediately
available funds to such bank or accounts as are specified in written instruction
of the Sellers delivered to the Purchaser at least one business day prior to
Closing.
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1.8. ALLOCATION OF THE PURCHASE PRICE. The Purchaser and each Seller
shall each use its best efforts to coordinate the completion of all filings
regarding the Purchase Price as required by Section 1060(e) of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, upon their execution and delivery of this Agreement, are
making the following representations and warranties on a joint and several
basis. Wherever the term "material," "material adverse effect," "in any material
respect" or other similar term is used in the representations and warranties
with regard to the Company such determination of materiality shall be made with
respect to the Company taken as a whole unless otherwise specified. In addition,
all of the representations and warranties are qualified in their entirety by the
disclosure schedule attached hereto (the "Disclosure Schedule").
2.1. CORPORATE ORGANIZATION. Each Seller is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold all of its properties and assets and to carry on its
business as it is now being conducted, except for governmental franchises,
licenses, permits, authorizations and approvals, the absence of which would not
have a material adverse effect on the Company.
2.2. FOREIGN QUALIFICATION. Each Seller is duly licensed or qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which its ownership or leasing of property or the conduct of its
business requires such qualification.
2.3. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Each Seller has
the corporate power and authority to execute and deliver this Agreement and all
instruments to be delivered pursuant hereto and to consummate the transactions
contemplated hereby. The execution and delivery by each Seller of this Agreement
and the consummation by each Seller of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of such
Seller. Each Seller has duly executed and delivered this Agreement, and this
Agreement constitutes the legally valid and binding obligation of each Seller,
enforceable against each of them in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
2.4. NO CONFLICTS; CONSENTS. Except as set forth in Schedule 2.4, the
execution and delivery by each Seller of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any mortgages,
liens, security interests, charges, easements, leases,
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subleases, covenants, rights of way, options, claims or encumbrances of any kind
(collectively, "Liens") upon any of the Assets under any provision of (i) the
Certificate of Incorporation or By-Laws of any Seller or (ii) any judgment,
order or decree ("Judgment") or statute, law (including common law), ordinance,
rule or regulation ("Applicable Law") applicable to any Seller or any of their
respective properties or assets, except, in the case of clause (ii), for any of
the foregoing which, in the aggregate, would not have an adverse effect on the
Company in excess of Seventy-Five Thousand Dollars ($75,000). Except as set
forth on Schedule 2.4, no Consent of, or registration, declaration or filing
with, any federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity") is
required to be obtained or made by or with respect to any Seller in connection
with (a) the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby or (b) the conduct by the
Purchaser of the Business, other than compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act");
2.5. FINANCIAL CONDITION. The Purchaser has been delivered the audited
consolidated balance sheets of the Parent as of, and the audited consolidated
statements of operations and cash flows of the Parent for, the fiscal years
ended December 31, 1995 and 1996, together with the notes thereto and the
opinions of Arthur Andersen LLP (collectively, the "Financial Statements"). The
Financial Statements are true, correct and complete in all material respects,
are in accordance with the books and records of the Parent and its Subsidiaries,
have been prepared in conformity with generally accepted accounting principles,
as in effect from time to time ("GAAP"), which GAAP have been consistently
applied, and on that basis fairly present the financial condition, results of
operations and cash flows of the Parent and its Subsidiaries for the periods
presented. Additionally, the Purchaser has been delivered the unaudited monthly
financial statements of the Parent and its Subsidiaries for the years ended
December 31, 1996 and 1995 and January 31, 1997; Such monthly financial
statements are in accordance with the books and records of the Parent and the
Subsidiaries and have been prepared in accordance with GAAP, consistently
applied, and are true, correct and complete in all material respects except for
adjustments and accruals which are normally made at year end, and except for the
effects of the purchase accounting adjustments relating to the acquisition of
the Anthony Pools division of K-2, Inc, which were recorded at year end. Also,
the Purchaser has been delivered the 1997 budgets of the Parent and the
Subsidiaries which have been prepared in good faith based on assumptions which
are believed to be reasonable and prepared in accordance with GAAP consistently
applied.
2.6. ABSENCE OF CHANGES OR EVENTS. Except as set forth on Schedule 2.6,
since December 31, 1996, there has not occurred any change in the condition
(financial or other) of the Company that could have a material adverse effect on
the Company, taken as a whole, and the Company has no knowledge of any threat or
intention by any of its significant customers, suppliers, or subcontractors to
modify materially its business relationship with the Company. Since December 31,
1996, except with respect to the capital improvements described in the capital
budget of the Parent and except for certain asset dispositions set forth on
Schedule 2.6, the Company has been operated in the ordinary course and in
substantially the same manner as previously operated and all reasonable efforts
have been made consistent with past practices to
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preserve the relationships of the Company with customers, suppliers and others
with whom each deals. Since December 31, 1996, except as set forth on Schedule
2.6, the Company has not taken any action that, if taken after the date of this
Agreement, would constitute a breach of any of the covenants set forth in
Section 4.1.
2.7. LEGAL PROCEEDINGS. Except as set forth on Schedule 2.7, no Seller
is a party to any, and there are no pending or, to the best knowledge of the
Company, threatened, legal, administrative, arbitral or other proceedings,
claims (including, without limitation, product liability claims), actions or
governmental or regulatory investigations of any nature ("Proceedings") against
any Seller, or challenging the validity or propriety of the transactions
contemplated by this Agreement. There is no injunction, order, judgment, decree,
or regulatory restriction imposed upon any Seller or any of the Assets that has
had, or could reasonably be expected to have, an adverse effect in excess of One
Hundred Thousand Dollars ($100,000).
2.8. TAX AUDITS AND PAYMENT OF TAXES. The following representations,
warranties and agreements are made with respect to tax matters:
(a) All federal, state, local and foreign returns (by or on behalf
of the Company) and reports of the Company concerning Taxes (as defined in
subsection (h)) that are required by Applicable Law to be filed with any taxing
authority prior to the Closing ("Returns") have been or will be filed when due
(including extensions). The U.S. corporation income tax return (Form 1120) and
all foreign and state corporation franchise and income tax returns for the
taxable years of the Company through the taxable year ending on December 31,
1996 were filed on or before their respective due dates as extended. The Company
has at no time executed or filed with any taxing authority any agreement
extending the period for assessment or collection of any Taxes to a period
beyond the Closing. Parent has no actual knowledge of any pending examination,
audit, claim, asserted deficiency or assessment for additional Taxes, with
respect to any Returns that are open for examination under applicable statutes
of limitation.
(b) All income tax and state corporation franchise Tax Returns
have been prepared in accordance with the Parent's or the respective
Subsidiary's, as applicable, books and records in all material respects, and
all such Returns are correct and accurate in all material respects and all Taxes
shown on such Returns have been paid when due. The provision for Taxes of the
Parent and each of the Subsidiaries reflected in the Financial Statements for
the fiscal year ended December 31, 1996 is sufficient to provide (i) for all
Taxes which, as of the date of such Financial Statements, were due and unpaid,
and (ii) for an appropriate reserve or accrual for other Taxes of the Parent and
each of the Subsidiaries that are properly the subject of a reserve or accrual
under GAAP as of the date of such Financial Statements.
(c) The Parent has never been included in a group of corporations
filing a consolidated federal income tax return other than the group of which
the Parent is the common parent, and other than the group of which EQ or its
affiliate is the common parent. As of the Closing, neither the Parent nor any of
the Subsidiaries will have any outstanding liabilities under any tax sharing
agreement, and will not be a party to any tax sharing agreement that will then
be in effect.
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(d) None of the property owned or leased by the Company constitutes
tax-exempt bond financed property or tax-exempt leased property within the
meaning of Section 168 of the Code, and none of the property owned by the
Company is subject to a lease, safe harbor lease or other arrangement as a
result of which the Company is not treated as the owner of the property for
federal income tax purposes.
(e) Neither the Parent nor any Subsidiary has made or become obligated
to make, nor will as a result of any event connected with the transactions
contemplated in this Agreement become obligated to make, any "excess parachute
payment "as defined in Section 280G of the Code (without regard to subsection
(b)(4) thereof).
(f) Neither the Parent nor any Subsidiary has made an election under
Section 341(f) of the Code.
(g) None of the Sellers is or has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of
the Sellers is a "foreign person" (as that term is defined in Section 1445 of
the Code), and each of the Sellers shall provide an affidavit to this effect in
the form attached as Schedule 2.8(g).
(h) "Tax" or "Taxes" means any and all taxes, charges, fees, duties,
levies and other assessments, including additions to tax, interest or penalties
related thereto, which may be imposed by any taxing authority upon or against
the Company, including without limitation federal, state, local and foreign
income taxes and any tax measured by income, franchise taxes, alternative or
add-on minimum taxes, gross receipts taxes, use, sales, value added, mineral,
land transfer taxes or charges, personal or real property taxes, taxes imposed
on capital, excise taxes, employment and unemployment taxes and withheld taxes
and interest or penalties relating thereto pursuant to wage withholding,
withholding pursuant to the federal Insurance Contributions Act or withholding
with respect to certain payments made to non-resident persons and payments in
lieu of taxes.
2.9. BENEFIT PLANS.
(a) Schedule 2.9 contains a list and brief description of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("Company Pension
Plans")), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA), bonus, incentive, stock option, stock purchase, life (including any
individual life insurance policy as to which the Parent or any ERISA Affiliate
is owner, beneficiary, or both of such policy), deferred compensation plans or
arrangements, excess benefit plans, severance pay, holiday pay, vacation pay,
"cafeteria" or "flexible benefit" plans, fringe benefits, perquisites, and other
employee benefit plans, arrangements, agreements, trusts, contracts, policies,
or commitments (all the foregoing, including the Company Pension Plans, being
herein called "Company Benefit Plans") now or during the five years prior to the
Effective Time maintained, or contributed to, by the Parent or by any current or
former ERISA Affiliate for the benefit of any present or former employees,
officers, directors, or other persons. As used herein, "ERISA Affiliate" means
any subsidiary of the Parent and any trade
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or business (whether or not incorporated) that is or was during the five years
prior to the Effective Time part of the same controlled group, or under common
control with, or part of an affiliated service group that includes, the Parent
within the meaning of Code Sections 414(b), (c), (m) or (o). The Company has
delivered to the Purchaser, or by the Closing will have delivered to the
Purchaser, to the extent that the following items exist, true, complete and
correct copies of (i) each Company Benefit Plan (or, in the case of any
unwritten Company Benefit Plans, descriptions thereof) and all amendments
thereto, (ii) the three (3) most recent annual reports on Form 5500 (including
all schedules and attachments thereto, and financial statements and accountant's
opinion, if applicable) filed with the Internal Revenue Service with respect to
each Company Benefit Plan, if any such report was required, (iii) the three (3)
most recent actuarial valuations and PBGC-1 premium reports for each Company
Pension Plan that is a defined benefit plan, (iv) the most recent summary plan
description for each Company Benefit Plan for which such a summary plan
description is required, (v) each trust agreement, group annuity contract or
other funding and financing arrangement relating to any Company Benefit Plan, if
any such arrangement was required or maintained, (vi) the most recent
determination letters received from and applications pending with the Internal
Revenue Service ("IRS") with respect to Company Benefit Plans, and (vii) all
prohibited transaction applications made and exemptions received from the
Department of Labor with respect to Company Benefit Plans.
(b) Except as disclosed on Schedule 2.9, with respect to the
Company Benefit Plans: (i) there are no Company Benefit Plans that are
multiemployer plans as defined in Section 3(37) of ERISA; (ii) except as listed
on Schedule 2.9, there are no Company Benefit Plans that promise or provide
health, life or other benefits to retirees or former employees of the Parent or
any ERISA Affiliate other than as required by Section 602 of ERISA or Section
4980B of the Code; (iii) each Company Benefit Plan has at all times been
operated and administered in material compliance with the applicable
requirements of ERISA, the Code and any other Applicable Law (including
regulations and rulings thereunder), and its terms; (iv) each Company Pension
Plan has received a favorable determination letter from the IRS stating that
such Company Pension Plan meets all the requirements of Section 401(a) of the
Code, and that any trust or trusts associated with such Company Pension Plan are
tax exempt under Section 501(a) of the Code; (v) to the knowledge of the
Company, there is no reason why the tax-qualified status of any such Company
Pension Plan should be revoked, whether retroactively or prospectively, by the
IRS and, to the knowledge of the Company, nothing has occurred since the date of
any such determination letter that could adversely affect any Company Pension
Plan's qualification or any trust's tax exempt status; (vi) all amendments to
the Company Pension Plans that are required to be made through the date hereof
and the Effective Time under Section 401(a) of the Code, and any other
Applicable Law, subsequent to the issuance of each such Company Pension Plan's
IRS determination letter have been made; (vii) no actual or, to the knowledge of
the Company, threatened disputes, lawsuits, claims (other than routine claims
for benefits), investigations, audits, complaints or requests for relief due to
document defects or operational compliance violations, to, or by, any person or
Governmental Entity have been filed or are pending or, to the knowledge of the
Company, threatened with respect to any Company Benefit Plan or its sponsor or
any ERISA Affiliates, or the fiduciaries responsible for such Company Benefit
Plan, and, to the knowledge of the Company, no state of facts or conditions
exist that reasonably could be expected to subject the Parent, any ERISA
Affiliate, any officer, director
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or employee of the Parent to any material fiduciary or other liability (other
than routine claims for benefits) in accordance with the terms of such Company
Benefit Plan or pursuant to Applicable Laws; (viii) to the knowledge of the
Company, all filings, notices, and disclosures to government agencies, plan
participants and beneficiaries, required by ERISA, the Code or any other
Applicable Laws (including, without limitation, Form 5500 Annual Returns audited
financial statements and schedules, summary plan descriptions, summary annual
reports, summary of material modifications, participant notices concerning
funding status and PBGC-1 premium reports) have been timely filed and made;
(ix) the Parent and its ERISA Affiliates have not made, nor have they committed
to make, whether in writing or orally, any representation, payment, contribution
or award to or under any Company Benefit Plan (other than as required by its
terms, the Code or ERISA); (x) to the knowledge of the Company, all
contributions and payments made or accrued with respect to each Company Benefit
Plan are deductible in full as an income tax deduction under the Code; all
contributions, premiums or payments required to be made with respect to each
such Company Benefit Plan for any period ending on or before the Closing Date
have been paid on or before their due date(s) to each such Company Benefit Plan
or, if not yet due, accrued in accordance with past practices of the Parent; and
all premiums or other payments due for all periods ending on or before the
Closing Date have been or will be paid with respect to each Company Benefit Plan
which is an "employee welfare benefit plan" except for claims for benefits
submitted in the ordinary course of administration of such " employee welfare
benefit plans"; (xi) except as disclosed in Schedule 2.9(b), the Parent has not,
and no ERISA Affiliates have, incurred any liability to, or adopted any Company
Benefit Plan or other arrangement that may expose it to liability of any nature
whatsoever, to (1) the Pension Benefit Guaranty Corporation under Title IV or
Section 502 of ERISA, or (2) the IRS under Chapter 43 of the Code, or (3) the
Department of Labor and neither the Parent nor any ERISA Affiliate has had
asserted against it any claim for excise taxes under Chapter 43 of Subtitle D or
Section 5000 of the Code, or for penalties under ERISA Section 502(c), (i) or
(1), nor to the knowledge of the Parent are there any facts which would give
rise to or could reasonably be expected to give rise to, any such claim; (xii)
with respect to each Company Benefit Plan, to the knowledge of the Company,
there has not occurred, and no person or entity is contractually bound to enter
into, any nonexempt "prohibited transaction" within the meaning of Section 4975
of the Code or Section 406 of ERISA; (xiii) except as reported in the Financial
Statements or as disclosed on Schedule 2.9(b), no payment is owed or may become
due to any current or former director, officer, employee or agent of the Parent
and its ERISA Affiliates except as disclosed on Schedule 2.9; (xiv) the
consummation of the transactions contemplated by this Agreement will not
accelerate or terminate, nor does there exist any basis for the acceleration or
termination of, (1) benefits payable to current or former employees of the
Parent or an ERISA Affiliate under any Company Benefit Plan, (2) a participant's
vesting credits or years of service under any Company Benefit Plan (except as
otherwise set forth in Section 4.10), or (3) accruals with respect to any other
benefits or amounts reserved under any such plan or arrangement; and (xv) only
current and former employees (excluding "leased employees" as defined in Code
Section 414(n)(2)) of the Parent and its ERISA Affiliates participate in, and
are entitled to receive benefits from, the Company Benefit Plans.
(c) Except as set forth on Schedule 2.9, the Company has not
entered into any agreement or taken any action causing any employee, former
employee or director of Parent or
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any Subsidiary to become entitled to any bonus, retirement, severance, job
security or similar benefit or any enhanced benefit solely as a result of the
transactions contemplated hereby.
(d) As of January 1, 1997, the current value of all vested accrued
benefits (based upon actuarial assumptions which have been furnished to the
Purchaser) under each Company Pension Plan which is a defined benefit plan
("Defined Benefit Plan") exceeded the fair market value of all assets of each
such plan by no greater than the respective amount shown on Schedule 2.9(d).
Since January 1, 1997, with respect to each Defined Benefit Plan, there has been
(1) no material adverse change in its financial condition, (2) no material
change in its actuarial assumptions, and (3) no increase in its benefits.
(e) To the knowledge of the Company, there have been no material
adverse changes in the funding status of any Defined Benefit Plan since the date
of the latest annual report, actuarial valuation or financial statement for such
plan which was delivered to the Purchaser. No accumulated funding deficiency
within the meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred with respect to any Defined Benefit Plan and no waiver of a funding
deficiency has been requested for any such plan. No Defined Benefit Plan has
been completely or partially terminated or the subject of a Reportable Event
(as defined in ERISA) as to which notices would be required to be filed with
the PBGC either before or after such Reportable Event, except as disclosed to
the Purchaser and listed on Schedule 2.9(e). No proceeding by the PBGC to
terminate any Defined Benefit Plan has been instituted or, to the knowledge of
the Parent, threatened. The Parent has not incurred any liability to the PBGC
(and, to its knowledge, there is no reasonable basis to expect that any will be
incurred) other than in respect of PBGC premium payments, if any, or otherwise
under Title IV of ERISA (including any withdrawal liability) or under the Code
with respect to any Defined Benefit Plan.
No events have occurred (and there is no reasonable basis to expect that
any will occur) that might give rise to any liability of the Parent to the PBGC
under Title IV of ERISA or that would reasonably be expected to result in any
material claims being made against the Purchaser by the PBGC in the future.
2.10. COMPLIANCE WITH APPLICABLE LAWS. The Company is in compliance in
all material respects with all Applicable Laws (including, without limitation,
all Environmental Laws (as defined in Section 2.16) and all laws, rules and
regulations enforced or promulgated by the U.S. Immigration and Naturalization
Service), and Schedule 2.10 identifies, to the best knowledge of the Company,
all violations of any Applicable Laws. The Company has not received any written
communication during the past three years from a Governmental Entity that
alleges that the Company is not in compliance in any material respect with any
Applicable Law. The Company has not received any written notice, nor does the
Company have knowledge, that any investigation or review by any Governmental
Entity with respect to the Company or any asset thereof is pending or threatened
or that any such investigation or review is contemplated.
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<PAGE> 12
2.11. CERTAIN CONTRACTS.
(a) Except as set forth on Schedule 2.11, none of the Parent nor
any Subsidiary is a party to or bound by any contract, lease, license,
indenture, agreement, commitment or other legally binding arrangement, whether
oral or written (collectively, "Contracts"), that is:
(i) an employment agreement or employment contract;
(ii) a collective bargaining agreement or other Contract with
any labor organization, union or association;
(iii) a covenant not to compete or other covenant of the
Company restricting the development, manufacture, marketing or
distribution of the products and services of the Company;
(iv) a lease, sublease or similar Contract with any person
under which (A) the Company is lessee of, or holds or uses,
any machinery, equipment, vehicle or other tangible personal
property owned by any person or (B) the Company is a lessor or
sublessor of, or makes available for use by any person, any
tangible personal property owned or leased by the Company,
which in any such case has an aggregate future liability or
receivable, as the case may be, in excess of Fifty Thousand
Dollars ($50,000);
(v) a lease, sublease or similar Contract with any person
under which (A) the Company is lessee of, or holds or uses,
any real property owned by any person or (B) the Company is a
lessor or sublessor of, or makes available for use by any
person, any real property owned or leased by any Seller;
(vi) (A) a continuing Contract for the future purchase of
materials, supplies or equipment, (B) a management, service,
agency, consulting or other similar Contract or (C) an
advertising agreement or arrangement, in any such case that
has an aggregate future liability to any person in excess of
One Hundred Thousand Dollars ($100,000);
(vii) a license, option or other Contract relating in whole or
in part to Intellectual Property (including any license or
other contract under which the Company is licensee or licensor
of any Intellectual Property);
(viii)a Contract granting a Lien upon any of the Assets, other
than Liens incurred in connection with the Merger financing,
which Liens shall be released upon the sale of Assets
contemplated hereby.
(ix) a confidentiality agreement;
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<PAGE> 13
(x) a Contract (including a purchase order) involving payment
by the Company of more than Fifty Thousand Dollars ($50,000)
or extending for a term more than 180 days from the date of
this Agreement (unless terminable without payment or penalty
upon no more than 60 days' notice), other than purchase orders
entered into in the ordinary course of the Business and which,
if entered into after the date of this Agreement, would not be
in violation of this Agreement;
(xi) a Contract (including a sales order) involving the
obligation of the Company to deliver products or services for
payment of more than Fifty Thousand Dollars ($50,000) or
extending for a term more than 180 days from the date of this
Agreement (unless terminable without payment or penalty upon
no more than 60 days' notice), other than sales orders entered
into in the ordinary course of the Business and which, if
entered into after the date of this Agreement, would not be in
violation of this Agreement;
(xii) a Contract for the sale of any of the Assets (other than
inventory sales in the ordinary course of business) or the
grant of any preferential rights to purchase any Assets or
requiring the consent of any party to the transfer thereof,
other than this Agreement and any agreements contemplated
hereby;
(xiii) a Contract with or license, permit, certificate,
authorization or approval (collectively, "Permits") by or from
any Governmental Entity;
(xiv) a Contract for any joint venture, partnership or similar
arrangement;
(xv) a Contract with or obligating the Company to any
director, officer, shareholder or affiliate of the Company,
excluding employment contracts;
(xvi) a Contract providing for the services of any dealer,
distributor, sales representative, franchisee or similar
representative involving the payment or receipt over the life
of the contract in excess of One Hundred Thousand Dollars
($100,000) by any Seller; or
(xvii) a Contract other than as set forth above to which any
Seller is a party or by which it or any of its assets or
businesses is bound or subject that was not made in the
ordinary course of business involving the payment or receipt
over the life of the contract in excess of Fifty Thousand
Dollars ($50,000) by any Seller.
(b) To the best of the Company's knowledge except as set forth on
Schedule 2.11:
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<PAGE> 14
(i) all Contracts are valid, binding and in full force and
effect and are enforceable by the Company in accordance with their
respective terms;
(ii) the Company has performed all obligations required to be
performed by them to date under each Contract, and each is not (with or
without the lapse of time or the giving of notice, or both) in breach
or default in any respect thereunder and no other party to any Contract
is (with or without the lapse of time or the giving of notice, or both)
in breach or default in any respect thereunder; and
(iii) the Company has not, except as disclosed on Schedule 2.11,
received any notice of the intention of any parry to terminate any
Contract nor has the Company knowledge of the intention of any party to
terminate any Contract.
Complete and correct copies of all Contracts listed on Schedule 2.11,
together with all modifications and amendments thereto, have been delivered, or
by the Effective Time will have been delivered, to the Purchaser.
(c) Schedule 2.11 sets forth each Contract with respect to which the
Consent of the other party or parties thereto must be obtained by virtue of the
execution and delivery of the Merger Agreement or the consummation of the Merger
to avoid the invalidity of the transfer of such Contract, the termination
thereof, a breach, violation or default thereunder or any other change or
modification to the terms thereof.
2.12. UNDISCLOSED LIABILITIES. The Company has not incurred any
liability of a type that would be required by GAAP to be reflected or reserved
against on the consolidated balance sheet of the Parent and its Subsidiaries,
except (a) as set forth on Schedule 2.12, (b) for those liabilities that are
reflected or reserved against on the consolidated balance sheet of the Parent
and its Subsidiaries as of December 31, 1996, (c) for liabilities incurred since
December 31, 1996 in the ordinary course of business consistent with past
practice and (d) for liabilities that, either alone or when combined with all
similar liabilities, do not exceed One Hundred Thousand Dollars ($100,000).
2.13. PROPERTY. Each Seller has good and valid title to, or a valid
leasehold interest in or license or other right to use, all of the properties
and assets, real and personal, tangible or intangible, that are used in
connection with the businesses conducted by such Seller, including all
properties and assets that are reflected on the audited consolidated balance
sheet of the Parent as of December 31, 1996 or acquired after such date,
excluding only those properties and assets that have been disposed of in the
ordinary course of business after such date, in each case free and clear of all
Liens, except (i) such as are set forth on Schedule 2.13, (ii) mechanics',
carriers', workmen's, repairmen's or other like Liens arising or incurred in
the ordinary course of business, Liens arising under original purchase price
conditional sales contracts and equipment leases with third parties entered into
in the ordinary course of business and liens for Taxes that are not due and
payable or that may thereafter be paid without penalty, and (iii) other
imperfections of title or encumbrances, if any, that do not, individually or in
the aggregate, materially impair the continued use and operation of the assets
to which they relate in the
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<PAGE> 15
conduct of the Business as presently conducted (the Liens described in clauses
(i), (ii) and (iii) above are referred to collectively as "Permitted Liens").
2.14. INSURANCE. The Company maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses as are, in the Company's judgment, reasonable
for their business. The material insurance policies maintained by the Company
are listed on Schedule 2.14. The business of the Company has been conducted in a
manner so as to conform in all material respects to all applicable provisions of
such insurance policies. All premiums due, for which invoices have been
received, have been currently paid or provided for and none of the policies
contains retroactive premium adjustment provisions.
2.15. INTELLECTUAL PROPERTY. Schedule 2.15 sets forth any and all
Intellectual Property owned by the Company. Except as set forth on Schedule
2.15, all of the Intellectual Property listed on Schedule 2.15 has been
registered (to the extent capable of registration), duly issued and is owned by
the Company, and the Company has the exclusive rights to use all such patents,
patent applications, trademarks, service marks, copyrights, software and trade
names in its business and operations. The Company owns or is licensed under
valid licenses for all patents, patent applications, copyrights, trademarks,
trade names, service marks, software, know-how, trade secrets and other
proprietary rights necessary to manufacture and sell its products and to conduct
its business and operations, and the operations of the Company, as currently
conducted or conducted since such entity's incorporation, to the best of the
Company's knowledge, do not and have not infringed any patent, copyright,
trademarks, trade name, service mark, software, know-how, trade secret or other
proprietary right of any other person or entity. The Company is not required to
pay any royalty, license fee or similar type of compensation in connection with
the conduct of its business as it is now or heretofore has been conducted.
Except as specified on Schedule 2.15, to the best knowledge of the Sellers,
there is no person or entity that is infringing any patent, trademark, service
mark, copyright, software or tradename owned or used by the Company.
2.16. ENVIRONMENTAL MATTERS. To the Sellers' knowledge, except as
described on Schedule 2.16:
(a) (i) The activities, operations and business carried out at or
on the Sites by the Company, are, and have been at all times, in compliance with
all Environmental Laws, (ii) Hazardous Substances have not been Released on, at,
under or about the Sites or transported to or from the Sites and (iii) the
Company is not required by any Governmental Entity to take any action to remedy
any condition caused by or in any way connected with the presence, Release,
Threat of Release, use, handling, manufacturing, generation, production,
storage, treatment, processing, transportation or disposal of Hazardous
Substances.
(b) The Sellers are not aware of any pending or threatened
litigation or proceedings before any administrative agency in which any person
or entity alleges the violation of, or any liability under, any Environmental
Law or the Release or Threat of Release of Hazardous Substances on, at, under or
from any of the Sites, nor has the Company (i) received any notice of and has no
actual or constructive knowledge that any third party, Governmental
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<PAGE> 16
Entity or any employee or agent thereof, has determined that there exists any
violation of any Environmental Law or the Release or Threat of Release of
Hazardous Substances on, at, under or from the Sites, (ii) received any notice
under the citizen suit provision of any Environmental Law; or (iii) received any
request for inspection or request for information, notice, demand,
administrative inquiry or any formal or informal complaint or claim with respect
to or in connection with any Environmental Law.
(c) No Lien has been imposed on any of the Sites by any
Governmental Entity in connection with Environmental Laws.
(d) The Company has all permits necessary for the activities and
operations of the Business and for any past or ongoing alterations or
improvements at any Sites,
(e) No storage tanks presently exist on, at, under or about any
Sites or previously existed on, at, under or about any Sites.
(f) Schedule 2.16 identifies all locations to which Hazardous
Substances have been sent by the Company for storage, treatment, or disposal
that are also identified in any publicly available document as a candidate for
cleanup or remediation.
(g) Schedule 2.16 specifies the Sites used for (i) the storage,
maintenance or repair of vehicle or (ii) the storage or distribution of
Hazardous Substances.
For purposes of this Agreement, "ENVIRONMENT" means soil, surface
waters, ground waters, land, stream sediments, surface or subsurface strata,
ambient air, and any environmental medium.
For purposes of this Agreement, "ENVIRONMENTAL LAWS" means (a) any
federal, state, or local law, regulation, ordinance, rule, guideline or by-law
regulating or referring to the Environment; and (b) any present or previously
enforced law, ordinance, regulation, rule, guideline or by-law of any federal,
state, local, administrative agency, or any other Governmental Entity that
asserts or may assert jurisdiction over the Company or the Sites, or the
operations or activities at the Sites, that regulates or refers to the presence,
Release, Threat of Release, use, handling, manufacturing, generation,
production, storage, treatment, processing, transportation or disposal of any
Hazardous Substances.
For purposes of this Agreement, "HAZARDOUS SUBSTANCES" means (a) any
pollutant, toxic substance, contaminant, chemical, hazardous waste, hazardous
material, petroleum product, oil, radioactive material; (b) any substance, gas
material or chemical that is or may be defined as or included in the definition
of "Hazardous substances," "toxic substances," "hazardous materials," "hazardous
wastes," or words of similar import under any Environmental Law; (c) radon gas,
asbestos in any form that could or does become friable, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent; and (d) any other
chemical, material, gas, or substance, the exposure or Release
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<PAGE> 17
of which is or may be prohibited, limited or regulated by any Governmental
Entity that asserts or may assert jurisdiction over the Company, the Sites or
the operations or activities at the Sites.
For purposes of this Agreement, "RELEASE" means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the Environment.
For purposes of this Agreement, "SITES" mean all locations owned or used
by the Company at any time prior to the Closing in connection with the Business.
For purposes of this Agreement, "THREAT OF RELEASE" means a substantial
likelihood of a Release that requires action to prevent or mitigate damage to
the Environment that may result from such Release.
2.17. EMPLOYEE AND LABOR MATTERS. Except as set forth on Schedule 2.17,
(i) there is not any, and during the past twelve months there has not been any,
labor strike, work stoppage or lockout pending, or, to the knowledge of the
Sellers, threatened, against the Company, (ii) to the knowledge of the Sellers,
no union organizational campaign is in progress with respect to the employees of
the Company and no question concerning representation exists respecting such
employees; (iii) the Company is not engaged in any unfair labor practice or
action that could reasonably be expected to constitute an unfair labor practice;
(iv) there are not, to the knowledge of the Company, any unfair labor practice
charges or complaints against the Sellers pending or threatened, before the
National Labor Relations Board; (v) there are not any pending or to the
knowledge of the Sellers, threatened, union grievances against the Company; (vi)
there are not, to the knowledge of the Sellers, any pending or threatened
charges against the Company or any current employee of the Company before the
Equal Employment Opportunity Commission or any state or local agency responsible
for the prevention of unlawful employment practices or unlawful discrimination
practices or discrimination on the basis of disability; and (vii) the Company
has not received written or oral notice during the past twelve months of the
intent of any Governmental Entity responsible for the enforcement of labor or
employment laws to conduct an investigation of and, to the knowledge of the
Sellers, no such investigation is in progress. Schedule 2.17 contains a complete
and accurate list of all labor arbitration and unfair labor practice charges, if
any, between the Company and its employees, that occurred at any time since
January 1, 1994.
2.18 CONDITION OF ASSETS. The machinery and equipment necessary for the
conduct of the Business, together with all real property and improvements
thereon, are in adequate condition for their current use taking into account
their age and normal wear and tear, PROVIDED, HOWEVER, that the Sellers make no
representation or warranty with respect to gunite rigs and related vehicles.
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<PAGE> 18
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES OF GAI
GAI hereby represents and warrants to the Purchaser as follows:
2.1A. CORPORATE ORGANIZATION. GAI is duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold all of its properties and assets and to carry on its
business as it is now being conducted.
2.2A. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. GAI has the
corporate power and authority to execute and deliver this Agreement and all
instruments to be delivered pursuant hereto and to consummate the transactions
contemplated hereby. The execution and delivery by GAI of this Agreement and the
consummation by GAI of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of GAI. GAI has duly
executed and delivered this Agreement, and this Agreement constitutes the
legally valid and binding obligation of GAI, enforceable against GAI in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding in equity or at law).
2.3A. NO CONFLICTS. The execution and delivery by GAI of this Agreement
does not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or to increased, additional, accelerated or
guaranteed rights or entitlements of any person under, or result in the creation
of any Liens upon any of the Assets under any provision of (i) the Certificate
of Incorporation or By-Laws of GAI, or (ii) any Judgment or Applicable Law
applicable to GAI or any of its properties or assets, or (iii) any contract,
agreement, understanding, or other obligation to which GAI is a party prior to
the Merger. No consent of, or registration, declaration or filing with, any
Governmental Entity or any third party is required to be obtained or made by or
with respect to GAI in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby,
other than compliance with and filings under the HSR Act and applicable
securities laws and stock exchange rules.
2.4A. LEGAL PROCEEDINGS. GAI is not a party to any, and there are no
pending or, to the knowledge of GAI, threatened, Proceedings against GAI
challenging the validity or propriety of the transactions contemplated by this
Agreement. Prior to the Merger, there is no injunction, order, judgment, decree,
or regulatory restriction imposed upon GAI.
2.5A. LIENS ON ASSETS. No action or omission of GAI or any of its
affiliates has resulted in the imposition of any Lien on any Assets that did not
encumber such Assets prior to the Merger, other than Liens incurred in
connection with the Merger financing which Liens shall be released upon the sale
of Assets contemplated hereby.
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<PAGE> 19
2.6A. EQ FINANCIAL STATEMENTS. GAI has furnished the Purchaser (a) the
audited consolidated balance sheet of EQ as of December 31, 1995, and (b) the
audited consolidated statements of income and cash flows of EQ for the fiscal
year ended December 31, 1995, in each case together with the notes thereto,
together with the report of Dworken, Hillman, LaMorte & Sterczala, P.C. thereon
(the "EQ Financial Statements"). The EQ Financial Statements have been prepared
in accordance with GAAP and present fairly, in all material respects, the
financial condition, results of operation and cash flows of EQ for the periods
stated. Since December 31, 1995, to the knowledge of GAI, there has not occurred
any change in the financial condition of EQ that could reasonably be expected to
have a material adverse effect on EQ.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as follows
(wherever the term "material," "material adverse effect," "in any material
respect" or other similar term is used in the representations and warranties
with regard to the Purchaser such determination of materiality shall be made
with respect to the Purchaser and its affiliates taken as a whole unless
otherwise specified):
3.1. CORPORATE ORGANIZATION. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and has the corporate power and authority and possesses all governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to own, lease or otherwise hold all of its properties and assets and to carry
on its business as it is now being conducted.
3.2. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. The Purchaser
has the corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
by the Purchaser of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser. The Purchaser has duly executed
and delivered this Agreement, and this Agreement constitutes its legally valid
and binding obligation, enforceable against it in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding in equity or at
law).
3.3. NO CONFLICTS; CONSENTS. The execution and delivery by the Purchaser
of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any Lien upon any of the Purchaser's assets
under, any provision of (i) the Articles of Incorporation or Regulations of the
Purchaser, or the Certificate of Incorporation or By-Laws
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<PAGE> 20
of the Purchaser, or (ii) any Judgment or Applicable Law applicable to the
Purchaser or its properties or assets, or (iii) any contract, agreement,
understanding, or other obligation to which the Purchaser is a party. No consent
of, or registration, declaration or filing with, any Governmental Entity or any
third party is required to be obtained or made by or with respect to the
Purchaser in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, other
than compliance with and filings under the HSR Act and applicable securities
laws and stock exchange rules.
3.4. ESSEF FINANCIAL STATEMENTS. The Purchaser has furnished EQ (a) the
audited consolidated balance sheet of ESSEF Corporation and its subsidiaries
("ESSEF") as of September 30, 1996, (b) the audited consolidated statements of
income and cash flows of ESSEF for the fiscal year ended September 30, 1996, and
(c) the unaudited balance sheet of ESSEF as of December 31, 1996, in each case
together with the notes thereto, and in the case of clauses (a) and (b) above,
together with the report of Deloitte & Touche, LLP thereon (the "ESSEF Financial
Statements"). The ESSEF Financial Statements have been prepared in accordance
with GAAP and present fairly, in all material respects, the financial condition,
results of operation and cash flows of ESSEF for the periods stated. Since
December 31, 1996, to the knowledge of the Purchaser, there has not occurred any
change in the financial condition of ESSEF that could reasonably be expected to
have a material adverse effect on ESSEF.
ARTICLE IV
COVENANTS
4.1. COVENANTS OF THE SELLER RELATING TO CONDUCT OF THE BUSINESS.
(a) Except as otherwise expressly permitted by the terms of this
Agreement, from the Effective Time (as defined in Section 8.11) to the Closing,
each Seller agrees that it shall conduct the Business in the ordinary course in
substantially the same manner as presently conducted and shall make all
reasonable efforts consistent with past practices to preserve its relationships
with customers, suppliers and others with whom it deals. In addition, except as
otherwise expressly permitted by the terms of this Agreement, from the Effective
Time to the Closing, none of the Sellers shall do any of the following without
the prior written consent of the Purchaser:
(i) pay, declare or set aside any dividend or make any other
distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital stock
(except for dividends or distributions paid by any Subsidiary to
the Parent or another Subsidiary);
(ii) adopt or amend any Company Benefit Plan (or any plan that
would be a Company Benefit Plan if adopted) except as required by
Applicable Law;
(iii) enter into, adopt, extend, renew or amend any collective
bargaining agreement or other Contract with any labor
organization, union or association, except as required by
Applicable Law;
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<PAGE> 21
(iv) grant to any director, executive officer or employee any
increase in compensation or benefits, except under existing
agreements and except, in the case of any non-executive employee,
in the ordinary course of business consistent with past practice;
(v) permit, allow or suffer any Asset of such Seller to become
subjected to any Lien of any nature other than Permitted Liens;
(vi) cancel any material indebtedness (individually or in the
aggregate) or waive any claims or rights of substantial value;
(vii) make any change in any method of accounting or
accounting practice or policy other than those required by GAAP;
(viii) acquire any assets (other than inventory) that are
material, individually or in the aggregate, to the Company;
(ix) make any capital commitments that in the aggregate are in
excess of Twenty Five Thousand Dollars ($25,000);
(x) sell, lease or otherwise dispose of any Assets of the
Business that in the aggregate are in excess of Fifty Thousand
Dollars ($50,000), other than sales of inventory and product in
the ordinary course;
(xi) terminate (except for cause) or hire any executive
officer of such Seller; or
(xii) agree, whether in writing or otherwise, to do any of the
foregoing.
(b) AFFIRMATIVE COVENANTS. From the Effective Time until the Closing,
each Seller shall:
(i) maintain its Assets in the ordinary course of business in
good operating order and condition, reasonable wear and tear
excepted;
(ii) upon any damage, destruction or loss to any of its
Assets, as promptly as possible provide the Purchaser with written
notice thereof and, after consultation with the Purchaser, either
(x) apply any and all insurance proceeds received with respect
thereto to the prompt repair, replacement and restoration thereof
to the condition of such asset before such event or (y) retain any
and all insurance proceeds received with respect thereto; and
(iii) maintain its level and quality of supplies, raw
materials and spare parts in the ordinary course in a manner
consistent with its practices in place as of December 31, 1996.
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4.2. NO SOLICITATION. Each Seller and GAI agrees that it shall not, nor
shall it authorize or permit any officer, director or employee of or any
investment banker, attorney, accountant or other representative retained by it
to, (i) solicit, initiate or encourage any "other bid," (ii) enter into any
agreement with respect to any other bid or (iii) participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any other
bid. Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any executive officer of GAI
or any Seller or any investment banker, attorney or other advisor or
representative of GAI or any Seller, whether or not such person is purporting to
act on behalf of GAI or such Seller or otherwise, shall be deemed to be a breach
of this Section 4.2 by GAI or such Seller, as the case may be. The Sellers and
GAI shall immediately terminate in writing all such discussions and negotiations
that are ongoing, if any.
4.3. ACCESS TO INFORMATION. Each Seller and GAI agrees that it shall
afford to the Purchaser and its accountants, counsel and other representatives
reasonable access during normal business hours during the period prior to the
Closing to all the properties, books, contracts, commitments, tax returns and
records of such Seller or GAI, as the case may be, and, during such period,
shall furnish promptly to the Purchaser any information concerning such Seller
or GAI, as the case may be, as the Purchaser may reasonably request.
4.4. REASONABLE EFFORTS.
(a) CLOSING. On the terms and subject to the conditions of this
Agreement, each party shall use its reasonable efforts to cause the Closing to
occur, including taking all reasonable actions necessary to comply promptly with
all legal requirements that may be imposed on it or any of its affiliates with
respect to the Closing.
(b) CONTRACTS. To the extent any Contract requires the Consent of
any party to such Contract if, without such Consent, the consummation of the
transactions contemplated by this Agreement would constitute a breach of, or
cause a loss of contractual benefits under, any such Contract, the Purchaser
agrees that neither GAI nor any Seller shall have any liability whatsoever to
the Purchaser arising out of or relating to the failure to obtain any such
Consent (or because of the default, acceleration or termination of any Contract
as a result of thereof). Each Seller and GAI, prior to the Closing, shall use
its reasonable efforts to obtain any Consents required to assign such Contracts
to the Purchaser or otherwise required under such Contracts in connection with
consummation of the transactions contemplated by this Agreement; PROVIDED,
HOWEVER, that neither GAI nor any Seller shall be required to commence any
litigation or offer or grant any accommodation (financial or otherwise) or pay
any money or other consideration (other than nominal filing or application fees)
or incur any liability or obligation to any person in connection therewith. If
any such Consent is not obtained, or any such assignment does not occur, prior
to Closing, each Seller shall cooperate with the Purchaser in any lawful
arrangement designed to provide the Purchaser with the rights and benefits
(subject to the obligations) under such Contract. In the case of any Contract as
to which any Consent or assignment is required, the Purchaser agrees to perform
fully under any such Contract until
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such Consent is obtained, or such assignment is consummated, or until the
expiration of the term of such Contract, whichever is later.
(c) HSR FILINGS. Each Party shall as promptly as practicable, but
in no event later than five business days following the execution and delivery
of this Agreement, file with the United States Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") the notification
and report form required for the transactions contemplated hereby and any
supplemental information requested in connection therewith pursuant to the HSR
Act. Any such notification and report form and supplemental information shall be
in substantial compliance with the requirements of the HSR Act. Each party shall
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of any filing or submission
that is necessary under the HSR Act. Each party shall keep the other apprised of
the status of any communications with, and any inquiries or requests for
additional information from, the FTC and the DOJ and shall comply promptly with
any such inquiry or request. Each party shall use its reasonable efforts to
obtain any clearance required under the HSR Act for the consummation of the
transactions contemplated by this Agreement.
4.5. EXPENSES. Whether or not the Closing takes place, and except as
otherwise specifically set forth in this Agreement, GAI and the Sellers shall
bear all costs and expenses incurred by GAI and the Sellers in connection with
this Agreement and the transactions contemplated hereby, including, without
limitation, the fees of Latham & Watkins, and the Purchaser shall bear all costs
and expenses incurred by the Purchaser in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, the fees of
Squire, Sanders & Dempsey L.L.P.
4.6. BROKERS OR FINDERS. Each of the Purchaser, GAI and each Seller
represents and covenants, as to itself and its affiliates, that no agent,
broker, investment banker or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement.
4.7. FINANCIAL STATEMENTS. From the Effective Time until the Closing,
the Sellers shall provide to the Purchaser, as soon as practicable after they
are available, the monthly management books and financial statements of the
Sellers, prepared in accordance with past practice.
4.8. ADVISE OF CHANGES. The Purchaser, GAI and each Seller shall
immediately advise the other parties of any change or event of which such party
has knowledge having a material adverse effect on the Company or a material
adverse effect on the Purchaser, as applicable, or that it believes would or
would be reasonably likely to cause or constitute a material breach of any of
its representations, warranties or covenants contained herein. From time to time
prior to the Closing, each party will promptly supplement or amend the Schedules
delivered in connection with the execution of this Agreement to reflect any
matter that, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Schedules or that
is necessary to correct any information in such Schedules that has been rendered
inaccurate thereby. No supplement or amendment to such Schedules shall have any
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effect for the purpose of determining the compliance by the Sellers or the
Purchaser, as the case may be, with the respective terms of this Agreement.
4.9. PUBLICITY. No public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
consent of the other parties (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by law or the rules or
regulations of any United States or foreign securities exchange, in which case
the party required to make the release or announcement shall allow the other
party reasonable time to comment on such release or announcement in advance of
such issuance.
4.10. EMPLOYEE BENEFITS. The Purchaser agrees to use its best efforts to
provide all eligible employees of the Company who become employees of the
Purchaser or its affiliates following the Closing employee welfare and pension
benefits substantially equivalent (in the aggregate) to either, at the
discretion of the Purchaser, (i) those uniformly provided from time to time to
similarly situated employees of the Purchaser and its subsidiaries or (ii) those
currently provided by the Company.
4.11. INSURANCE. Either (a) prior to the Closing the Purchaser shall
obtain a "tail" insurance policy for the benefit of the officers and directors
of the Company, which insurance policy shall cover the period from the Closing
Date through the sixth anniversary of the Closing Date and shall have
substantially the same coverage and deductibles as the Parent's Directors and
Officers Liability Insurance Policy in effect immediately prior to the Closing
Date or (b) for six years after the Closing Date, the Purchaser shall indemnify,
to the fullest extent permitted under the Delaware General Corporation Law, any
current or former director or officer of the Parent against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding brought by or in the right of the Parent or otherwise, to
which he was or is a party or is threatened to be made a party by reason of his
current or former position with the Parent or by reason of the fact that he is
or was serving, at the request of the Parent, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise. If any of such claims is asserted or made within such
six-year period, all rights to indemnification in respect of any such claim
shall continue until disposition of any such claim. After the Closing Date, the
Purchaser shall advance expenses incurred with respect to any such claim, as
they are incurred, to the fullest extent permitted under applicable law.
ARTICLE V
CLOSING DELIVERIES
5.1. SELLERS' DELIVERIES TO THE PURCHASER. At the Closing, the Sellers
shall deliver to the Purchaser:
(a) OFFICER'S CERTIFICATE. A certificate of an executive officer
of each Seller, dated the Closing Date, certifying that:
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(i) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by such Seller contained in Article II hereof are true and
correct in all material respects in each case at and as of the Closing as though
such representations and warranties were made by such Seller at and as of such
time, except for those representations and warranties that are expressly made as
of a specified earlier date; and
(ii) COVENANTS. Each Seller has performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or at the Closing.
(b) OPINION OF COUNSEL. An opinion of counsel for the Sellers, dated
the Closing Date, in customary form and reasonably satisfactory as to substance
to the Purchaser.
(c) CONSENTS. All Consents obtained by the Sellers as of the Closing
pursuant to Section 4.4(b) hereof.
(d) DEEDS, BILLS OF SALE, ETC.
(i) A General Conveyance, Assignment and Bill of Sale of each
Seller, dated the Closing Date, in the form attached hereto as Schedule 1.3; and
(ii) Such other deeds, bills of sale, endorsements, assignment,
affidavits and other good and sufficient instruments of sale, assignment,
conveyance and transfer, in form and substance reasonably satisfactory to the
Purchaser and its counsel, as are required to vest in the Purchaser such right,
title and interest in and to all of the Assets as was vested in such Seller
immediately prior to the Closing.
(e) K2 RELEASE AND WAIVER. A copy of the release from the Sellers'
obligations and the waiver by K2, Inc. ("K2") with respect to K2's rights
pursuant to Sections 10.08 and 10.09 of that certain Asset Purchase Agreement
dated February 16, 1996 between General Aquatics, Inc., KDI Sylvan Pools, Inc.,
and K2.
(f) OTHER CERTIFICATES. ETC. All such documents and instruments, or
copies thereof, certified if requested, as may reasonably be requested by the
Purchaser to determine to the Purchaser's reasonable satisfaction that all
corporate proceedings of the Sellers in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, and all documents incident thereto, are in order.
5.2. PURCHASER'S DELIVERIES TO THE SELLERS. At the Closing, the
Purchaser shall deliver to the Sellers:
(a) OFFICER'S CERTIFICATE. A certificate of an executive officer of the
Purchaser, dated the Closing Date, certifying that:
(i) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Article III hereof are true and correct in all material
respects in each case at and
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as of the Closing as though such representations and warranties were made at and
as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date; and
(ii) COVENANTS. The Purchaser has performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or at the Closing.
(b) OPINION OF COUNSEL. An opinion of counsel for the Purchaser, dated
the Closing Date, in customary form and reasonably satisfactory as to substance
to the Sellers.
(c) ASSUMPTION OF LIABILITIES, ETC.
(i) The Assumption of Liabilities, dated the Closing Date, in the
form attached hereto as Schedule 1.4(b); and
(ii) Such other assumptions, undertakings and agreements, in form
and substance reasonably satisfactory to the Sellers and their counsel, as are
required to effect the full and unconditional assumption of the Assumed
Liabilities by the Purchaser.
(d) OTHER CERTIFICATES, ETC. All such documents and instruments, or
copies thereof, certified if requested, as may reasonably be requested by the
Sellers to determine to the Sellers' reasonable satisfaction that all corporate
proceedings of the Purchaser in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, and
all documents incident thereto, are in order.
ARTICLE VI
TERMINATION AND AMENDMENT
6.1. TERMINATION. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated by
this Agreement abandoned at any time prior to the Closing:
(a) by mutual consent of GAI, on the one hand, and the Purchaser,
on the other hand, in a written instrument;
(b) by the Purchaser, on or before 3:00 p.m., New York City time,
on the 19th day following the execution of this Agreement by GAI and the
Purchaser, by prior written notice to GAI, which notice shall state that the
Purchaser is terminating this Agreement pursuant to this Section 6.1(b) because
either (i) it has not completed to its satisfaction its environmental
investigation and assessment of the Sites or (ii) the estimated aggregate cost
of remediation of the Sites exceeds Two Million Dollars ($2,000,000); PROVIDED,
HOWEVER, that the Purchaser shall be deemed to have waived the right of
termination set forth in this Section 6.1(b) if GAI shall not have received such
notice prior to 3:00 p.m., New York City time, on the 19th day following the
execution of this Agreement by GAI and the Purchaser; and PROVIDED FURTHER, that
the Purchaser shall indemnify and hold harmless GAI and its affiliates from any
and all liabilities
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arising from the termination by GAI or any of its affiliates of the Merger
Agreement following the exercise by the Purchaser of its termination rights
under this Section 6.1(b).
If the exercise by the Purchaser of its right to terminate this
Agreement pursuant to this Section 6.1(b) causes GAI to have any right of
termination with respect to any agreement with a third party and GAI exercises
such right, such third party shall be deemed to be a third-party beneficiary of
this Section 6.1(b) and may enforce the provisions hereof against the Purchaser.
(c) by either the Purchaser or GAI (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) at any time prior to the Effective Time if
there shall have been a material breach of any of the representations or
warranties set forth in this Agreement on the part of the other party, which
breach is not cured within three business days following written notice to the
party committing such breach, or which breach, by its nature, cannot be cured
prior to the Effective Time; or
(d) by the Purchaser, at any time prior to the Effective Time, in
the event there shall have been any amendment, supplement or other modification
of any provision of the Merger Agreement (including, without limitation, the
schedules thereto and the form of Escrow Agreement included as an exhibit
thereof), or waiver of any condition to the closing of the transactions
contemplated by the Merger Agreement, without the prior consent of the
Purchaser.
6.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Purchaser or GAI as provided in Section 6.1, this
Agreement shall forthwith become void and have no effect except that Sections,
4.5 (expenses), 4.9 (publicity), 6.1 (termination), 6.2 (effect of termination)
8.3 (notices), 8.14 (confidentiality) and Article VII (indemnification) shall
survive any such termination of this Agreement.
6.3. AMENDMENTS AND WAIVERS. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto. By an
instrument in writing the Purchaser, on the one hand, or GAI or any Seller, on
the other hand, may waive compliance by the other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform.
6.4. TERMINATION PAYMENT.
(a) In the event the Board of Directors of the Purchaser reasonably
concludes prior to the Effective Time that it has a fiduciary duty that it
believes would preclude the transactions contemplated by this Agreement, the
Purchaser may, by written notice to GAI, elect not to proceed with the Closing,
and shall, within three (3) days after giving such notice, transfer Four Million
Dollars ($4,000,000) PLUS the amount of actual costs incurred by GAI in
connection with the execution and delivery of this Agreement (provided that in
no event shall the amount of such costs exceed $400,000) to GAI as the exclusive
remedy for the termination of this agreement. Notwithstanding the foregoing, if
the exercise by the Purchaser of its right to terminate this Agreement pursuant
to this Section 6.4(a) causes GAI to have any right of termination with
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respect to any agreement with a third party and GAI exercises such right, such
third party shall be deemed to be a third-party beneficiary of this Section
6.4(a) and may enforce the provisions hereof against the Purchaser.
(b) If the Merger Agreement is terminated at any time prior to the
Effective Time, this Agreement shall automatically terminate without any action
on the part of any party hereto; PROVIDED, that GAI shall remit to the Purchaser
any payments received by EQ or GAI in connection with the termination of the
Merger Agreement, up to a maximum payment of (i) FIRST, $3,600,000 LESS the
amount of actual costs incurred by GAI and its affiliates (including, without
limitation, the reasonable costs of counsel) in connection with the collection
of such amounts, PLUS (ii) SECOND, $400,000 LESS the amount of actual costs
incurred by GAI and its affiliates in connection with the execution and delivery
of this Agreement.
(c) In the event of termination of this Agreement by either the
Purchaser or GAI as provided in this Section 6.4, this Agreement shall forthwith
become void and have no effect except that Sections 4.5 (expenses), 4.9
(publicity), 6.4 (termination payment), 8.3 (notices), 8.14 (confidentiality)
and Article VII (indemnification) shall survive any such termination of this
Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. LIMITATION ON SURVIVAL; INDEMNIFICATION. (a) the representations
and warranties made by (i) the Sellers in Sections 2.1, 2.3, 2.4, and 4.6, (ii)
GAI in Article IIA and (iii) the Purchaser in Sections 3.1, 3.2, 3.3 and 4.6,
and (b) the covenants made by the Purchaser in Section 4.10 and 4.11 shall
survive the Closing for the respective indemnity period set forth in Section
7.4. All other representations and warranties contained in this Agreement and
in the certificates, instruments, agreements and other documents and writings
contemplated hereby or delivered pursuant hereto or in connection herewith
shall not survive, and shall be deemed to be extinguished upon, the Closing and
no claim, action, suit or proceeding may be asserted or pursued based thereon.
The obligations to indemnify and hold harmless any party under this Article VII
shall terminate in accordance with Section 7.4(a) below; PROVIDED, HOWEVER,
that such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which the person to be indemnified shall have, before
the expiration of the applicable period, previously made a claim by delivering
a notice of such claim pursuant to Section 8.3 to the party to be providing the
indemnification.
7.2. INDEMNIFICATION BY GAI AND THE SELLERS.
(a) The Sellers shall, jointly and severally, indemnify the Purchaser
and its affiliates, officers, directors, employees, stockholders, agents and
representatives against, and shall hold each of them harmless from, any and all
losses, liabilities, claims, damages or expenses (including reasonable legal
fees and expenses) ("Losses"), as incurred (payable promptly upon written
request), arising from, relating to or otherwise in respect of:
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(i) any and all breaches of the representations or warranties of any
Seller contained in (A) Sections 2.1, 2.3 and 2.4 and (B) Section 4.6 (to the
extent applicable to the Sellers), of this Agreement; and
(ii) any and all Losses arising from or in connection with the
Retained Liabilities.
(b) GAI shall indemnify the Purchaser and its affiliates, officers,
directors, employees, stockholders, agents and representatives against, and
shall hold each of them harmless from, any and all Losses as incurred (payable
promptly upon written request), arising from, relating to or otherwise in
respect of any and all breaches of the representations or warranties of GAI
contained in (i) Article IIA and (ii) Section 4.6 (to the extent applicable to
GAI), of this Agreement.
7.3. INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify the
Sellers and their respective officers, directors, employees, stockholders,
agents and representatives against, and shall hold each of them harmless from,
any and all Losses, as incurred (payable promptly upon written request), for or
on account of or arising from or in connection with or otherwise with respect
to:
(a) any and all breaches of the representations or warranties of the
Purchaser contained in (i) Article III and (ii) Section 4.6 (to the extent
applicable to the Purchaser), of this Agreement;
(b) any and all Losses arising from or in connection with the
Assumed Liabilities; and
(c) any breach by the Purchaser of the covenants set forth in
Sections 4.10 and 4.11 hereof.
7.4. LIMITATION OF LIABILITY. Subject to the proviso contained in
Section 7.1 above, the obligation of each party to indemnify any other party
shall survive (a) indefinitely, with respect to the obligations set forth in
Sections 7.2 (a)(i)(A), 7.2(a)(ii), 7.2(b), 7.3(a)(i), 7.3(b) and 7.3(c), and
(b) for a period of two (2) years following the Closing, with respect to the
obligations set forth in Sections 7.2(a)(i)(B) and 7.3(a)(ii). No claim for
indemnification by an Indemnified Party pursuant to Article VII shall be
asserted until the aggregate amount of all Losses incurred by such Indemnified
Party exceeds Two Hundred and Fifty Thousand Dollars ($250,000), at which point
only Losses in excess of such first Two Hundred and Fifty Thousand Dollars
($250,000) shall be paid.
7.5. PROCEDURES.
(a) In order for a party (the "Indemnified Party") to be entitled to any
indemnification provided for under this Agreement in respect of, arising out of
or involving a claim made by any person against the Indemnified Party (a "Third
Party Claim"), such Indemnified Party must notify the party that has agreed to
indemnify the Indemnified Party (the "Indemnifying Party") in writing of the
Third Party Claim promptly following receipt by such Indemnified Party of
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written notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure; and PROVIDED, FURTHER, that any such
notice delivered to the Parent, or to such other party as the Sellers shall
designate in writing from time to time, shall constitute notice to the Sellers.
Thereafter, the Indemnified Party shall deliver to the Indemnifying Party copies
of all notices and documents (including court papers) received by the
Indemnified Party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
Indemnifying Party. Should the Indemnifying Party so elect to assume the defense
of a Third Party Claim, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the fees and expenses of counsel employed
by the Indemnified Party for any period during which the Indemnifying Party has
not assumed the defense thereof. If the Indemnifying Party chooses to defend or
prosecute a Third Party Claim, all the Indemnified Parties shall cooperate in
the defense or prosecution thereof. Such cooperation shall include the retention
and (upon the Indemnifying Party's request) the provision to the Indemnifying
Party of records and information that are reasonably relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Whether or not the Indemnifying Party assumes the defense of a Third
Party Claim, the Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent (which consent shall not be
unreasonably withheld). If the Indemnifying Party assumes the defense of a Third
Party Claim, the Indemnified Party shall agree to any settlement, compromise or
discharge of a Third Party Claim that the Indemnifying Party may recommend and
that by its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and which releases the
Indemnifying Party completely in connection with such Third Party Claim.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to
assume the defense of any Third Party Claim (and shall be liable for the fees
and expenses of counsel incurred by the Indemnified Party in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnified
Party that the Indemnified Party reasonably determines, after conferring with
its outside counsel, cannot be separated from any related claim for money
damages. If such equitable relief or other relief portion of the Third Party
Claim can be so separated from that for money damages, the Indemnifying Party
shall be entitled to assume the defense of the portion relating to money
damages.
(c) In the event any Indemnified Party should have a claim against any
Indemnifying Party under Section 7.2 or 7.3 that does not involve a Third Party
Claim being asserted against or sought to be collected from such Indemnified
Party, the Indemnified Party shall deliver notice
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of such claim with reasonable promptness to the Indemnifying Party. The failure
by any Indemnified Party so to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any liability that it may have to such Indemnified
Party under Section 7.2 or 7.3, except to the extent that the Indemnifying Party
demonstrates that it has been materially prejudiced by such failure.
7.6. EXCLUSIVITY. After the Closing, the indemnities set forth in this
Article VII shall be the exclusive remedies of the parties hereto, their
affiliates and their respective officers, directors, employees and agents for
any misrepresentation, breach of any representation or warranty or breach of any
covenant or agreement contained in this Agreement, and the parties shall not be
entitled to a rescission of this Agreement or to any further indemnification
rights or claims of any nature whatsoever in respect thereof, all of which the
parties hereto hereby waive.
ARTICLE VIII
GENERAL PROVISIONS
8.1. ASSIGNMENT. This Agreement and the rights and obligations hereunder
shall not be assignable or transferable by the Purchaser, GAI or any Seller
(including by operation of law in connection with a merger, or sale of
substantially all the assets, of the Purchaser, GAI or any Seller) without the
prior written consent of the other party hereto. Any attempted assignment in
violation of this Section 8.1 shall be void.
8.2. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VII,
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
8.3. NOTICES. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by facsimile or sent, postage prepaid, by registered, certified or express mail
or reputable overnight courier service and shall be deemed given when so
delivered by hand or facsimile, or if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service), as
follows:
(a) if to the Purchaser, to:
General Aquatics Corporation
c/o ESSEF Corporation
220 Park Drive
Chardon, Ohio
Attn: Chief Operating Officer
Telephone No.: (216) 286-2200
Facsimile No.: (216) 286-2206
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<PAGE> 32
with copies to: ESSEF Corporation
220 Park Drive
Chardon, Ohio
Attn: Chief Operating Officer
Telephone No.: (216) 286-2200
Facsimile No.: (216) 286-2206
and
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Attn: Daniel F. Roules
Telephone No.: (216) 479-8500
Facsimile No.: (216) 479-8793
(b) if to GAI, Parent or any of the Subsidiaries,
(i) Prior to the Closing, to:
GAI Acquisition Corp.
206 Danbury Road
Wilton, CT 06897
Attn: President
Telephone No.: (203) 834-6363
Facsimile No.: (203) 834-6360
(ii) After the Closing, to:
General Aquatics, Inc.
206 Danbury Road
Wilton, CT 06897
Attn: President
Telephone No.: (203) 834-6363
Facsimile No.: (203) 834-6360
(iii) With a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attn: Steven Della Rocca
Telephone No.: (212) 906-1200
Facsimile No.: (212) 751-4864
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<PAGE> 33
8.4. INTERPRETATION.
(a) The headings contained in this Agreement, in any Exhibit or Schedule
hereto and in the table of contents to this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. All Exhibits and Schedules annexed hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Any capitalized term used in any Schedule or Exhibit but not otherwise
defined therein, shall have the meaning assigned to such term in this Agreement.
When a reference is made in this Agreement to an Article or a Section, Exhibit
or Schedule, such reference shall be to an Article or Section of, or an Exhibit
or Schedule to, this Agreement unless otherwise indicated.
(b) For all purposes hereof:
"affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person.
"Business" means the swimming pool construction and swimming
pool and spa manufacturing and sales operations business conducted by the
Company.
"Company Material Adverse Effect" means a material adverse effect on the
business, properties, assets, liabilities, results of operations or financial
condition of the Sellers, taken as a whole.
"Consent" means, with respect to any party, the consent, approval, license,
permit, order or authorization of such party.
"including" means including, without limitation.
"knowledge" means to the actual knowledge of the specified person or entity.
"Purchaser Material Adverse Effect" means a material adverse effect on the
business, properties, assets, liabilities, results of operations or financial
condition of the Purchaser and its subsidiaries, taken as a whole.
"person" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, Governmental Entity or other entity.
(c) The following terms are defined in this Agreement in the Sections
set forth below:
Term Section
---- -------
affiliate 8.4(b)
Applicable Law 2.4
Assumed Liabilities 1.4
Business 8.4(b)
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<PAGE> 34
Closing 1.5
Closing Date 1.5
Code 1.8
Company Preamble
Company Benefit Plan 2.9
Company Material Adverse Effect 8.4(b)
Company Pension Plans 2.9
Confidentiality Agreement 8.14
Consent 8.4(b)
Contract 2.11
Debt Increase Amount 1.6(a)
DOJ 4.4(c)
Effective Time 8.11
Environment 2.16
Environmental Laws 2.16
EQ Preamble
EQ Financial Statements 2.6A
ERISA 2.9(a)
ERISA Affiliate 2.9(a)
ESSEF 3.4
ESSEF Financial Statements 3.4
Financial Statements 2.5
FTC 4.5(c)
GAAP 2.5
GAI Preamble
Governmental Entity 2.4
Hazardous Substances 2.16
HSR Act 2.4
including 8.4(b)
Indemnified Party 7.5
Indemnifying Party 7.5
Intellectual Property 1.1(f)
IRS 2.9(a)
Judgment 2.4
K2 5.1(e)
knowledge 8.4(b)
Liens 2.4
Losses 7.2
Merger Agreement Preamble
other bid 4.2
Permits 2.11
Permitted Liens 2.13
person 8.4(b)
Proceedings 2.7
Purchaser Preamble
Purchaser Material Adverse Effect 8.4(b)
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<PAGE> 35
Release 2.16
Retained Assets 1.2
Retained Liabilities 1.4
Returns 2.8
Seller Preamble
Sites 2.16
Taxes 2.8
Third Party Claim 7.5
Threat of Release 2.16
8.5. COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
8.6. ENTIRE AGREEMENT. This Agreement (including the documents, the
Schedules, the Exhibits and the instruments referred to herein) and the
Confidentiality Agreement contain the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings relating to such subject matter. Neither
party shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein or in the Confidentiality Agreement.
8.7. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law principles thereof.
8.8. SEVERABILITY. Wherever possible, the terms of this Agreement shall
be construed and interpreted so as to be valid and effective under Applicable
Law. If any provision of this Agreement or any document contemplated hereby
shall be deemed invalid, unenforceable or prohibited under Applicable Law, such
provision shall be invalid or prohibited only to the extent of such invalidity,
unenforceability or prohibition, and the Purchaser and the Sellers shall consult
and attempt in good faith to agree on a legally acceptable modification that
gives effect to the commercial objectives of the invalid, unenforceable or
prohibited provision, and every other provision of such document shall remain in
full force and effect.
8.9. WAIVER.
(a) In any proceeding by or against any GAI or Seller, (x) wherein the
Purchaser asserts or prosecutes any claim under, or otherwise seeks to enforce,
this Agreement or any document, instrument or agreement executed and delivered
in connection herewith or (y) wherein GAI or any Seller asserts or prosecutes
any claim under, or otherwise seeks to enforce this Agreement or any document,
instrument or agreement executed and delivered in connection herewith, the
Purchaser agrees in connection with such proceeding (i) that neither the
Purchaser nor its counsel will move to seek disqualification of Latham & Watkins
and (ii) to consent to the representation of GM or such Seller or Sellers by
Latham & Watkins, notwithstanding that Latham & Watkins
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<PAGE> 36
has or may have represented GAI or such Seller or Sellers as counsel in
connection with any matter, including, without limitation, any transaction
(including, without limitation, the transaction contemplated by this Agreement),
negotiations, investigation, proceeding or action, prior to the Closing.
(b) In any proceeding by or against the Purchaser, (x) wherein GAI or
any Seller asserts or prosecutes any claim under, or otherwise seeks to enforce,
this Agreement or any document, instrument or agreement executed and delivered
in connection herewith or (y) wherein the Purchaser asserts or prosecutes any
claim under, or otherwise seeks to enforce this Agreement or any document,
instrument or agreement executed and delivered in connection herewith, GAI and
the Sellers agree in connection with such proceeding (i) that none of GAI, any
Seller or their respective counsel will move to seek disqualification of Squire,
Sanders & Dempsey L.L.P. and (ii) to consent to the representation of the
Purchaser by Squire, Sanders & Dempsey L.L.P., notwithstanding that Squire,
Sanders & Dempsey L.L.P. has or may have represented the Purchaser as counsel in
connection with any matter, including, without limitation, any transaction
(including, without limitation, the transaction contemplated by this Agreement),
negotiations, investigation, proceeding or action, prior to the Closing.
8.10. FURTHER ASSURANCES. The Purchaser, GAI and the Sellers shall each
execute and deliver any and all further agreements, documents, or instruments
reasonably requested by the other or necessary to effectuate the transactions
contemplated by this Agreement.
8.11. EFFECTIVE DATE. Notwithstanding anything to the contrary set forth
herein, neither the Parent nor any Subsidiary shall be deemed to be a party to
this Agreement until it shall have executed and delivered to the Purchaser a
signature page to this Agreement, and GAI agrees that it shall cause the Parent,
as the surviving entity in the Merger, and each Subsidiary to execute and
deliver such signature page immediately following the effective time of the
Merger (the " Effective Time"). Without limiting the generality of the
foregoing, all representations, warranties, covenants or other obligations of
any kind made or incurred by any Seller as a result of the execution and
delivery of this Agreement shall be deemed to have been made as of, and such
Seller shall deliver its Disclosure Schedules applicable to the representations
and warranties it is making at, the time of such Seller's delivery of a
signature page hereto. For informational purposes, GAI has PROVIDED the
Purchaser with copies of the disclosure schedules to the Merger Agreement,
which GAI believes will be delivered by the Sellers upon their execution of
this Agreement, subject to any amendments thereto prior to the date of such
execution; provided that there shall have been no material change to the
content of such disclosure schedules from the Effective Time until the Closing,
except to conform section references and defined terms to the references and
terms set forth in this Agreement.
8.12. SIGNATURES. The parties hereby agree and acknowledge that the
delivery on behalf of any party of the signature of any person via telecopy who
is duly authorized by such party to execute this Agreement on behalf of such
party shall be binding upon such party with the same force and effect as though
such person had delivered a manually executed signature page.
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<PAGE> 37
8.13. AMENDMENTS AND WAIVERS TO MERGER AGREEMENT. This Agreement is not
intended by the parties to be, nor shall it be construed to be, an amendment,
supplement or modification of the Merger Agreement.
8.14. CONFIDENTIALITY. GAI hereby reaffirms the obligations specified in
that certain letter agreement between the Purchaser and The Stamford Capital
Group, Inc. dated March 4, 1997 with respect to confidentiality (the
"Confidentiality Agreement").
8.15. CONSENT TO JURISDICTION. GAI, each of the Sellers and the
Purchaser irrevocably submits to the exclusive jurisdiction of (a) the Courts
of the State of New York and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated
hereby. GAI, each of the Sellers and the Purchaser agrees to commence any such
action, suit or proceeding in the United States District Court for the Southern
District of New York or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Supreme Court of the
State of New York. GAI, each of the Sellers and the Purchaser further agrees
that service of any process, summons, notice or document by U.S. registered
mail to such party's respective address set forth above shall be effective
service of process for any action, suit or proceeding in New York with respect
to any matters to which it has submitted to jurisdiction in this Section 8.15.
GAI, each of the Sellers and the Purchaser irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby and
thereby in (i) the Supreme Court of the State of New York or (ii) the United
States District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
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<PAGE> 38
IN WITNESS WHEREOF, the Purchaser, GAI Acquisition Corp. and each
Seller have caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first above written.
GENERAL AQUATICS CORPORATION GAI ACQUISITION CORP.
By: /s/ Stuart D. Neidus By: /s/ Scott Dunn
--------------------------- ---------------------------
Name: Stuart D. Neidus Name: Scott Dunn
Title: Vice President Title: Treasurer
By: /s/ Douglas J. Brittelle GENERAL AQUATICS, INC.
---------------------------
Name: Douglas J. Brittelle
Title: Vice President
By: /s/ Scott Dunn
----------------------------
Name: Scott Dunn
Title: Treasurer
ANTHONY AND SYLVAN POOLS, INC.
By: /s/ Scott Dunn
----------------------------
Name: Scott Dunn
Title: Treasurer
KDI AMERICAN PRODUCTS, INC.
By: /s/ Scott Dunn
----------------------------
Name: Scott Dunn
Title: Treasurer
KDI PARAGON, INC.
By: /s/ Scott Dunn
----------------------------
Name: Scott Dunn
Title: Treasurer
