SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
[Amendment No. ______]
VALLEY SYSTEMS, INC.
(Name of the Issuer)
VALLEY SYSTEMS, INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $.01 920135100
Title of Class of Securities) (CUSIP Number of Class of Securities)
B. Joseph Alley, Jr., Esq.
Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
(404) 873-8688
(Name, address, and telephone number of person authorized to receive notices and
communications on behalf of person(s)filing statement
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [Section
240.13e-(c)] under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting material or information statement
referred to in checking box (a) are preliminary copies:[x].
Calculation of Filing Fee
Transaction valuation* $29,800,771 Amount of Filing Fee $5,960.15
* Based on the cash value of the fractional shares expected to be
created by the Rule 13e-3 transaction.
[x] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
Amount Previously Paid: $5,960.15
Form or Registration No.: Schedule 14C Information Statement
Filing Party: Valley Systems, Inc.
Date Filed: October 13, 1998
<PAGE>
INTRODUCTION
This Rule 13E-3 Transaction Statement (the "Statement") is being filed
by Valley Systems, Inc. (the "Company") with respect to the class of equity
securities of the Company that is subject to a Rule 13e-3 transaction, (Common
Stock, $.01 par value. Simultaneously with the filing of this Statement, the
Company is filing a Preliminary Information Statement and Schedule 14C with the
Securities and Exchange Commission. The Information Statement is to be furnished
to stockholders of the Company in connection with action to be taken by written
consent of stockholders with respect to the proposed sale of substantially all
of the Company's assets to HydroChem Industrial Services, Inc., a Delaware
corporation.
The cross reference sheet herein is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Preliminary
Information Statement of the information required to be included in response to
the items of this Statement. The information in the Preliminary Information
Statement is hereby expressly incorporated herein by reference and the responses
to each item are qualified in their entirety by the contents thereof.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PRELIMINARY INFORMATION STATEMENT OF INFORMATION
REQUIRED BY ITEMS IN SCHEDULE 13E-3
<TABLE>
<S> <C>
Schedule 13E-3 Item and Caption Location in Information Statement
1. Issuer and Class of Security Subject to the
Transaction
(a)-(d) "Cover Page;" "Available Information and Sources of
Information;" "Market and Market Price for Valley Common
Stock"
(e) Not Applicable
(f) "Common Stock Repurchases"
2. Identity and Background This Preliminary Information Statement is being filed by the Issuer
of the class of equity securities which is the subject of this Rule
13e-3 transaction.
(a)-(g) Not Applicable
3. Past Contacts, Transactions or Negotiations
(a) Not Applicable
(b) "Special Factors - History of the Sale"
4. Terms of the Transaction "The Sale;" "Special Factors;" "The Asset Purchase
Agreement"
5. Plans or Proposals of the Issuer or Affiliate "The Sale;" "Special Factors"
6. Source and Amounts of Funds or Other Consideration "The Sale - Estimated Expenses; Distribution of Sale
Proceeds"
7. Purpose(s), Alternatives, Reasons and Effects "Special Factors"
8. Fairness of the Transaction "Special Factors"
9. Reports, Opinions, Appraisals and Certain No report, opinion or appraisal materially related to
Negotiations this Rule 13e-3 transaction has been received by the Issuer.
10. Interest in Securities of the Issuer "Beneficial Ownership of Voting Securities"
11. Contracts, Arrangements or Understandings with "Special Factors -Interests of Certain Persons in the
Respect to the Issuer's Securities Sale"
12. Present Intention and Recommendation of Certain Not Applicable
Persons with Regard to the Transaction
13. Other Provisions of the Transaction
(a) "No Rights of Dissenting Stockholders"
(b)-(c) Not Applicable
</TABLE>
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<TABLE>
<S> <C>
Schedule 13E-3 Item and Caption Location in Information Statement
14. Financial Information
(a) "Selected Financial Data;" Financial Statements contained
in Issuer's Form 10-K for the fiscal year ended June 30,
1998
(b) Not Applicable
15. Persons and Assets Employed, Retained or Utilized Not Applicable
16. Additional Information Information Statement in its entirety
17. Material to be Filed as Exhibits Separately included herewith
</TABLE>
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Item 1. Issuer and Class of Security Subject to the Transaction.
(a)-(d) The information set forth on the Cover Page and under the
captions "Available Information and Sources of Information" and "Market and
Market Price for Valley Common Stock" of the Preliminary Information Statement
is incorporated herein by reference.
(e) Not Applicable
(f) The information set forth under the caption "Common Stock
Repurchases" of the Preliminary Information Statement is incorporated herein by
reference.
Item 2. Identity and Background.
This Preliminary Information Statement is being filed by the Issuer of
the class of equity securities which is the subject of this Rule 13e-3
transaction.
(a)-(g) Not Applicable
Item 3. Past Contacts, Transactions or Negotiations.
(a) Not Applicable
(b) The information set forth under the caption "Special Factors -
History of the Sale" of the Preliminary Information Statement is incorporated
herein by reference.
Item 4. Terms of the Transaction.
The information set forth under the captions "The Sale," "Special
Factors" and "The Asset Purchase Agreement" of the Preliminary Information
Statement is incorporated herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate.
The information set forth under the captions "The Sale" and "Special
Factors" of the Preliminary Information Statement is incorporated herein by
reference.
Item 6. Source and Amounts of Funds or Other Consideration.
The information set forth under the caption "The Sale - Estimated
Expenses; Distribution of Sale Proceeds" of the Preliminary Information
Statement is incorporated herein by reference.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
The information set forth under the caption "Special Factors" of the
Preliminary Information Statement is incorporated herein by reference.
Item 8. Fairness of the Transaction.
The information set forth under the caption "Special Factors" of the
Preliminary Information Statement is incorporated herein by reference.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
No report, opinion or appraisal materially related to this Rule 13e-3
transaction has been received by the Issuer.
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Item 10. Interest in Securities of the Issuer.
The information set forth under the caption "Beneficial Ownership of
Voting Securities" of the Preliminary Information Statement is incorporated
herein by reference.
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
The information set forth under the caption "Special Factors -
Interests of Certain Persons in the Sale" of the Preliminary Information
Statement is incorporated herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
Not Applicable
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the caption "No Rights of
Dissenting Stockholders" of the Preliminary Information Statement and Financial
Statements contained in Issuer's Form 10-K for the fiscal year ended June 30,
1998 (which is incorporated by reference into the Information Statement) are
incorporated herein by reference.
(b)-(c) Not Applicable
Item 14. Financial Information.
(a) The information set forth under the caption "Selected Financial
Data" of the Preliminary Information Statement is incorporated herein by
reference.
(b) Not Applicable
Item 15. Persons and Assets Employed, Retained or Utilized.
Not Applicable
Item 16. Additional Information.
The information set forth in the Preliminary Information Statement in
its entirety is incorporated herein by reference.
Item 17. Material to be Filed as Exhibits.
(a), (b), (c), (e) and (f) Not Applicable
(d) Preliminary Information Statement
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<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
VALLEY SYSTEMS, INC.
Date: October 13, 1998 By:ED STRICKLAND
Ed Strickland
President and Chief Executive Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
(a), (b), (c), (e) and (f) Not Applicable
(d) Preliminary Information Statement
EXHIBIT
PRELIMINARY COPY
INFORMATION STATEMENT
VALLEY SYSTEMS, INC.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Information Statement is furnished by the Board of Directors of
Valley Systems, Inc., a Delaware corporation ("Valley"), to the holders of
record at the close of business on September 11, 1998 (the "Consent Record
Date") of Valley's outstanding Common Stock, par value $.01 per share (the
"Common Stock"), pursuant to Rule 14c-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The purpose of this
Information Statement is to inform Valley's stockholders of certain action that
will be taken by Valley pursuant to approval of its Board of Directors and by
the written consent of the holders of a majority of the outstanding shares of
Common Stock and Series C Preferred Stock of Valley, voting together as a single
class. This Information Statement is being mailed on or about __________, 1998
to the stockholders of record of Valley as of the Consent Record Date.
As described in more detail in this Information Statement, the proposed
action involves the sale (the "Sale") of substantially all of the assets of
Valley and of its wholly-owned subsidiary, Valley Systems of Ohio, Inc., an Ohio
corporation (the "Subsidiary") (Valley and the Subsidiary are hereinafter
collectively referred to as the "Company"), to HydroChem Industrial Services,
Inc. ("HydroChem"), a Delaware corporation. The Board of Directors believes that
the Sale is fair to the Company's stockholders. The Sale is described in more
detail below under the caption "THE SALE".
The Company is not seeking the consent, authorization or proxy of its
stockholders with respect to the Sale. Pursuant to the Company's Certificate of
Incorporation, there are 12 million shares of Common Stock and 2 million shares
of Preferred Stock authorized for issuance. As of the Consent Record Date, the
Company had outstanding 7,906,617 shares of Common Stock and 55,000 shares of
Series C Preferred Stock. The Common Stock and the Series C Preferred Stock are
the only outstanding issues of the Company's authorized securities.
<PAGE>
The Sale is subject to the approval of a majority of the shares of
Common Stock and a majority of the shares of Series C Preferred Stock, voting
together as a single class. Each share of Common Stock and Series C Preferred
Stock will have one vote. The Sale was approved by the Board of Directors on
September 8, 1998 and was approved by the written consent of Rollins Investment
Fund, the holder of a majority of the outstanding shares of Common Stock, and
Rollins Holding Company, Inc., the holder of all of the outstanding shares of
Series C Preferred Stock, on October __, 1998. This Information Statement serves
as notice of such approval to the Company's stockholders pursuant to Delaware
General Corporation Law ss. 228.
This Information Statement is accompanied by a copy of the Company's
Form 10-K for the fiscal year ended June 30, 1998, filed with the Securities and
Exchange Commission on September 28, 1998.
The date of this Information Statement is October __, 1998.
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<PAGE>
FORWARD-LOOKING INFORMATION
Statements contained in this Information Statement that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning expected future operations and performance and other
developments. Such forward-looking statements are necessarily estimates
reflecting the Company's best judgment based upon current information and
involve a number of significant risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by the Company include, but are not limited to, the Company's
incurring expenses in connection with its winding up, liquidation and
dissolution which are greater than those anticipated, changes in the regulation
of the industrial cleaning industry at either or both of the federal and state
levels, competitive pressures in the industrial cleaning industry and the
Company's response thereto, the general conditions in the economy and capital
markets, and other factors which may be identified from time to time in the
Company's SEC filings and in other public announcements of the Company.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information as of September 1,
1998 with respect to the beneficial ownership of the Common Stock and Preferred
Stock of the Company by each beneficial owner of more than 5% of the outstanding
shares of each class. In addition, this table includes the outstanding voting
securities beneficially owned by the executive officers listed in the Summary
Compensation Table, Directors and Director nominees, and the number of shares
owned by Directors and executive officers as a group. Unless otherwise
indicated, the owners have sole voting and investment power with respect to
their respective shares.
<TABLE>
<S> <C> <C> <C>
Name and Address of Beneficial Position Number of Shares Percentage of
Owner Beneficially Owned Class Owned
COMMON STOCK:
Rollins Investment Fund(1) Stockholder 8,003,945(2)(3) 75.3%
R. Randall Rollins (1) Stockholder 8,003,945(2)(3) 75.3%
Gary W. Rollins(1) Stockholder 8,003,945(2)(3) 75.3%
Ed Strickland(4) (8) President/CEO 192,000 1.8%
Dennis D. Sheets (4) (9) Vice President/CFO 50,000 --(5)
Joe M. Young(1) (6) (10) Director 24,000 --(5)
Allen O. Kinzer(4) (11) Director 17,800 --(5)
All officers and directors as a 8,287,745(2)(3)(6) 78.0%
group (4 persons)
SERIES C PREFERRED STOCK:
Rollins Holding Company, Inc. Stockholder 55,000 100.0%
(1)(7)
</TABLE>
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(1) Addresses are c/o Rollins Investment Fund, P.O. Box 647, Atlanta, Georgia
30301.
(2) Includes 2,314,000 shares that are subject to outstanding warrants
currently exercisable by Rollins Investment Fund (RIF).
(3) RIF beneficially owns an aggregate 8,003,945 shares (including the
2,314,000 shares subject to outstanding warrants currently exercisable by
RIF) of the Company's Common Stock with respect to which RIF has sole
voting and dispositive power. Given his respective interest in RIF as a
general manager thereof, as co-executor of the Estate of O. Wayne Rollins
(the "Estate") (with the power to control the Estate in its entirety), and
as sole trustee of five trusts of which his five children are
beneficiaries, R. Randall Rollins has shared voting and dispositive power
with respect to the entire 8,003,945 shares held by RIF. Given his
respective interest in RIF as a general partner thereof, as co-executor of
the Estate (with the power to control the Estate in its entirety), and as
sole trustee of four trusts of which his four children are beneficiaries,
Gary W. Rollins has shared voting and dispositive power with respect to the
entire 8,003,945 shares held by RIF. Given each individual's ability to
influence the disposition of all of RIF's holdings, they have deemed it
appropriate to report beneficial ownership on a shared basis for the entire
number of shares held by RIF.
(4) Addresses are c/o Valley Systems, Inc., P.O. Box 603, Canal Fulton, Ohio
44614.
(5) Owns less than 1% of the Company's Common Stock.
(6) Joe M. Young, a director of the Company, is General Manager of RIF and was
appointed to the Board of Directors of the Company pursuant to a right
guaranteed to RIF in connection with its purchase of Common Stock of the
Company in December 1991. Mr. Young disclaims beneficial ownership of the
shares held by RIF, although due to his affiliation with RIF, and RIF's
right to name a director of the Company, those shares are included in the
total reported for all officers and directors as a group.
(7) Rollins Holding Company, Inc. is an affiliate of RIF.
(8) Includes 80,000 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
Information Statement. Excludes 20,000 shares subject to options which are
not presently exercisable and will not become exercisable within 60 days
after the date of this Information Statement.
(9) Includes 20,000 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
Information Statement. Excludes 5,000 shares subject to options which are
not presently exercisable and will not become exercisable within 60 days
after the date of this Information Statement.
(10) Includes 24,000 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
Information Statement. Excludes 6,000 shares subject to options which are
not presently exercisable and will not become exercisable within 60 days
after the date of this Information Statement.
(11) Includes 16,000 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
Information Statement. Excludes 4,000 shares subject to options which are
not presently exercisable and will not become exercisable within 60 days
after the date of this Information Statement.
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<PAGE>
SELECTED FINANCIAL DATA
Dollars in thousands, except per share data:
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---------- ----------- ---------- ---------- ----------
Sales $ 24,431 $ 23,088 $ 21,875 $ 24,231 $ 27,494
Gross profit 9,040 8,559 6,853 8,562 6,291
Selling, general and administrative 7,145 7,268 7,254 7,155 8,830
expenses
Litigation settlements and related fees - (752) - - 1,351
Restructuring charges - - - - 3,548
Interest expense 593 592 572 895 1,506
Net income (loss) 1,302 1,451 (973) 512 (8,539)
Earnings (loss) per common share: basic 0.12 0.13 (0.16) 0.02 (1.31)
and diluted
Total assets 15,934 14,568 15,123 15,704 19,740
Total long-term debt 7,585 7,235 7,021 5,858 10,194
Book value per common share $ .68 $ .56 $ .48 $ .64 $ (.03)
Ratio of earnings to fixed charges 3.20 3.45 * * *
*This information is not required to be included herein.
</TABLE>
MARKET AND MARKET PRICE FOR VALLEY COMMON STOCK
Valley Common Stock is listed under the symbol VALE on The Nasdaq
SmallCap Market. Set forth below are the high and low reported sales prices per
share of Valley Common Stock on The Nasdaq SmallCap Market, on (i) September 8,
1998, the last business date preceding the announcement of the signing of the
Agreement, and (ii) October __, 1998, the most recent practicable date such
information could be obtained:
Per Share of
Valley Common Stock
Date High Low
September 8, 1998........................................ $31/32 $31/32
October __, 1998......................................... $ $
The following table sets forth certain information as to the high and
low reported sale prices per share of Valley Common Stock for the periods
indicated. The prices for Valley Common Stock are as reported on The Nasdaq
Small Cap Market. Valley has never paid dividends on its capital stock. Valley's
credit agreements include provisions which restrict the payment of such
dividends.
Per Share of
Valley Common Stock
Quarter Ended High Low
9/30/96............................................... $ 1 9/16 $ 5/8
12/31/96.............................................. $ 1 7/16 $ 15/16
3/31/97............................................... $ 1 9/16 $ 15/16
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6/30/97............................................... $ 1 11/16 $ 7/8
9/30/97............................................... $ 1 3/4 $ 1 15/32
12/31/97.............................................. $ 1 3/4 $ 3/4
3/31/98............................................... $ 1 3/16 $ 7/8
6/30/98............................................... $ 1 1/2 $ 15/16
9/30/98............................................... $ 2 11/16 $ 15/16
As of the Consent Record Date, there were approximately 1,100 record
holders of Valley Common Stock, including those shares held by depository
companies for certain beneficial owners.
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<PAGE>
COMMON STOCK REPURCHASES
Since July 1, 1996, Valley has repurchased 500,000 shares of its Common
Stock on the open market. The purchase prices paid by Valley for the securities
purchased ranged from $1.00 per share to $1.25 per share. All such purchases
were made during the fiscal year ended June 30, 1997, and the average purchase
price paid for such shares of Common Stock during each quarterly period
beginning on or after July 1, 1996 during which such purchases were made is set
forth below:
Quarter Ended Average Purchase Price
9/30/96............................................ $1.078
12/31/96........................................... $1.146
3/31/97............................................ $1.151
6/30/97............................................ $1.051
THE SALE
General
On September 8, 1998, the Company entered into an Asset Purchase
Agreement (the "Agreement") with HydroChem pursuant to which HydroChem has
agreed to purchase substantially all of the Company's assets and assume
substantially all of the Company's outstanding liabilities. A copy of the
Agreement is attached to this Information Statement as Appendix A. The stated
purchase price to be paid by HydroChem is approximately $29.8 million, with
$25.8 million payable in cash at the closing (the "Closing") and the remaining
$4 million to be deposited into escrow and held pursuant to an Escrow Agreement
(the "Escrow Agreement"). In the event that the net assets reflected on the
Company's balance sheet at Closing are greater or less than $5,353,593 (which
was the amount of net assets at June 30, 1998), any excess or deficiency shall
be paid to the Company (in the case of an excess) or to HydroChem (in the case
of a deficiency) as an adjustment to the purchase price.
The Escrow Agreement
Prior to the Closing, the Company and HydroChem will enter into the
Escrow Agreement, pursuant to which HydroChem will, at the Closing, deposit $4
million into an escrow account. The escrowed funds held pursuant to the Escrow
Agreement will secure HydroChem's rights to indemnification under the Agreement,
including indemnification with respect to certain potential environmental
expenses and remediation cost and the collectibility of certain accounts
receivable the collectibility of which are guaranteed by the Company. At such
time as the Company delivers to HydroChem a certificate to the effect that the
Company has completed environmental remediation as required by the Agreement (if
any), an amount equal to $1 million, less the sum of (i) the aggregate cost of
such environmental remediation and (ii) the aggregate amount of other claims of
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HydroChem subject to indemnification under the Agreement in excess of $3
million, shall be released to the Company from escrow. In addition, provided
that any disputes existing on each of the first and second anniversaries of the
Agreement, respectively, do not exceed specified amounts, then an additional $1
million of the escrowed funds will be released following each such anniversary,
reduced in each instance by payments previously made in satisfaction of the
Company's indemnification obligation. If there are no claims by HydroChem
against all or a portion of the escrowed funds on the third anniversary of the
Agreement, then the remaining escrowed funds will be released to the Company. To
the extent disputed claims do exist, an amount equal to the disputed amount will
continue to be held in escrow until the claim is fully resolved. The escrowed
funds will be HydroChem's sole recourse in connection with claims (other than
fraud) under the Agreement. A copy of the Escrow Agreement is attached to this
Information Statement as Appendix B.
Estimated Expenses; Distribution of Sale Proceeds
The Company currently estimates that expenses of effecting the
transaction and liquidating the Company over the next several years, including
legal and accounting fees, income taxes (net of net operating loss
carryforwards), and liabilities not assumed by HydroChem, will be approximately
$3.8 million. As a result, the Company anticipates there will be approximately
$22.0 million (exclusive of escrowed funds) available following payment of such
expenses and liabilities. Of this amount, approximately $600,000 will be
utilized to redeem outstanding employee stock options. Stock options will be
redeemed at a price the Board estimates to be the fair market value of shares
subject to outstanding options less exercise price thereof. In addition, holders
of stock options will receive a termination bonus estimated to bring the
aggregate consideration to be received by option holders to $3.00 per option
held, less the aggregate option exercise price thereof. As of the Consent Record
Date, options to purchase 387,280 shares were outstanding, at a weighted average
exercise price of $1.50 per share. All options, vested and unvested, are
expected to be redeemed. In addition, approximately $5.5 million will be paid as
a liquidation preference to the Company's outstanding preferred stockholder,
Rollins Holding Company, Inc., which is an affiliate of, Rollins Investment
Fund, the Company's largest common stockholder, and Joe Young, a Director of the
Company. The remaining amount, anticipated to be approximately $15.9 million,
will be distributed to the Company's common stockholders as soon after the
Closing as is practicable. Based on 7,906,617 shares of common stock outstanding
on the Consent Record Date, the initial amount expected to be distributed to
shareholders is expected to be approximately $2.01 per share. Because of the
duration of the Escrow Agreement, the Company will not dissolve formally until
all escrowed funds have either been released to the Company or paid to
HydroChem. As a result, the Company expects to maintain its corporate existence
for at least three years following the Closing of the transaction. As escrowed
funds, if any, are released to the Company, they will be distributed to the
common stockholders. After all escrowed funds have been released and
distributed, the Company will dissolve and cease its corporate existence.
SPECIAL FACTORS
Principal Reasons for the Sale
On September 8, 1998, the Board of Directors of the Company unanimously
approved the sale of substantially all of the assets of the Company and
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<PAGE>
unanimously recommended the proposed sale transaction with HydroChem to the
Company's stockholders for their approval as required under the Exchange Act.
The Board's conclusion to approve the sale of the Company's assets was
based on the collective, subjective judgments of its individual members. The
Board of Directors has considered the terms and conditions of the Agreement and
the Escrow Agreement and has determined that the Agreement and the Escrow
Agreement are fair to, and in the best interest of, the Company and its
stockholders. The Board's determination of fairness is a subjective and not
solely an economic determination. In making their respective determinations,
which determinations were the product of the business judgment of the respective
members thereof, exercised in light of their fiduciary duties to the Company and
the stockholders of the Company, the Board of Directors reviewed and considered
information and documentation relating to the Agreement and the Escrow Agreement
and considered a number of other factors including , without limitation, the
following: (i) the recent delisting of the Company's Common Stock from The
Nasdaq National Market and its subsequent listing on The Nasdaq SmallCap Market,
(ii) the recent trading price of the Company's Common Stock on The Nasdaq
SmallCap Market, (iii) the Board's belief that the sale maximizes the per share
price obtainable by the Company's common stockholders given the Company's recent
and expected future financial performance, and (iv) that the purchase price to
be received by the Company in the Sale exceeds the purchase price discussed with
another interested third party. In view of the wide variety of factors
considered, the Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making their determination. No additional factors were considered
by the Board, nor did the Company retain the services of a financial advisor or
any third party to evaluate the terms of the proposed transaction, and no formal
analysis with respect to the value of the assets to be sold was performed.
History of the Sale
In November 1997, Joe Young, a Director of the Company and an officer
of Rollins Investment Fund, the Company's largest common stockholder, received a
telephone call from Mr. Pelham H. A. Smith, Vice President of Corporate
Development for HydroChem. Mr. Smith asked Mr. Young whether or not the Company
might have an interest in being acquired by HydroChem. Mr. Young told Mr. Smith
that the Company had no interest in such a transaction at that time. Between
January 1998 and March 17, 1998, Mr. Smith called Mr. Young several times to
determine whether or not the Company's position had changed. In view of the
Company's Common Stock trading price during the first three months of 1998 and
the Company's being delisted from The Nasdaq National Market and its subsequent
listing on The Nasdaq SmallCap Market, Mr. Young and Rollins Investment Fund
determined that a transaction such as that proposed by HydroChem could be in the
best interests of the Company and its stockholders. As a result, on March 17,
1998, Mr. Young informed Mr. Smith of the Company's potential interest in such a
transaction and forwarded certain limited information regarding the Company to
HydroChem. Between March 18, 1998 and April 29, 1998, Mr. Young and Mr. Smith
had several more discussions and Mr. Young provided additional information
regarding the Company to Mr. Smith. On April 29, 1998, Mr. Young sent a memo to
Mr. Smith informing him that due to unavailability of the principals of Rollins
Investment Fund, he would be unable to have further discussions with Mr. Smith
regarding the proposed transaction prior to May 18, 1998. On May 27, 1998,
Rollins Investment Fund authorized Mr. Young to proceed with negotiations with
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HydroChem. On June 10, 1998, both parties entered into confidentiality
agreements with respect to information disclosed in performing due diligence. On
July 13 and 29, 1998, Mr. Young forwarded additional limited Company due
diligence materials to Mr. Smith. On August 13, 1998, Mr. Young, Mr. Smith, Ed
Strickland, President and Chief Executive Officer of the Company, and B. Tom
Carter, Jr., Chairman and Chief Executive Officer of HydroChem, met in Atlanta
to discuss the Sale. On August 25, 1998, Mr. Young, Mr. Smith, Mr. Carter and
their respective attorneys met in Atlanta to negotiate the Sale. During the
approximately two-week period following August 25, several conference calls were
held among the above referenced parties to finalize the Sale negotiations. On
September 8, 1998, the Board of Directors of the Company, by unanimous consent,
approved the Sale and the Agreement was executed.
Interests of Certain Persons in the Sale
Stockholders of the Company should be aware that certain members of the
management of the Company and its Board of Directors have certain interests in
the Sale in addition to the interests of stockholders generally. Joe M. Young,
presently a director of the Company, is General Manager of Rollins Investment
Fund, the Company's largest common stockholder, and was appointed to the Board
of Directors of the Company pursuant to a right guaranteed to Rollins Investment
Fund in connection with its purchase of Common Stock of the Company in December
1991. Approximately $8.3 million dollars of debt of the Company is currently
guaranteed by Rollins Investment Fund. At the Closing, HydroChem will repay this
$8.3 million and Rollins Investment Fund will be released from its guaranty. Ed
Strickland, President and Chief Executive Officer of the Company since October
1993, is an officer of LOR, Inc., which is owned by affiliates of Rollins
Investment Fund.
Rollins Holding Company, Inc., an affiliate of Rollins Investment Fund
and Mr. Young, are the holders of all of the outstanding shares of the Company's
Series C Preferred Stock. Following the Closing, the Series C Preferred Stock
held by Rollins Holding Company, Inc. will receive a liquidating distribution
from the Company of approximately $5.5 million dollars, plus unpaid, accrued
dividends, estimated to be approximately $64,167, assuming a Closing Date on
November 30, 1998.
Also, executive officers and directors of the Company listed below have
options to purchase an aggregate of 175,000 shares of the Company's Common Stock
which are expected to be redeemed at a price of $3.00 per option share
(including the expected termination bonus) less the exercise price thereof
($1.50 per share in each instance) in connection with the consummation of the
transactions contemplated by the Agreement, as follows: Ed Strickland, President
and Chief Executive Officer, 100,000 shares, Dennis D. Sheets, Vice President
and Chief Financial Officer, 25,000 shares, Joe M. Young, Director, 30,000
shares, Allen O. Kinder, Director, 20,000 shares.
Stockholder Approval
The Company is a Delaware corporation. The Company believes that the
Sale constitutes a sale of substantially all of the assets of the Company under
Delaware law and therefore requires stockholder approval by the affirmative vote
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of a majority of the votes cast by the Company's Common stockholders and Series
C Preferred stockholders, voting together as a group, with each share of Common
Stock and Series C Preferred Stock having one vote. As of the Consent Record
Date, Rollins Investment Fund owned approximately 76% of the outstanding Common
Stock of the Company and Rollins Holding Company, Inc. owned all of the
Company's outstanding Series C Preferred Stock. On October __, 1998, each of
Rollins Investment Fund and Rollins Holding Company, Inc. signed a written
consent voting their shares to approve the Sale in accordance with the
Agreement. These votes, by themselves, are sufficient to achieve stockholder
approval of the Sale. Since stockholder approval has been obtained by written
consent rather than at a meeting of the stockholders of the Company, under the
rules of the Exchange Act, such approval will not be effective until 20 calendar
days from the date of this Information Statement.
No Rights of Dissenting Stockholders
Under Delaware law, dissenting stockholders will not have any rights of
appraisal upon the approval or consummation of the transaction.
Accounting Treatment
In accordance with General Accepted Accounting Principals, any gain or
loss on the sale will be recognized as of the date the Sale is closed.
Regulatory Requirements
Under the Hart-Scott-Rodino-Antitrust Improvements Act of 1976, as
amended ("HSR Act") and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), certain transactions, including the sale of assets, may not
be consummated unless certain filing and waiting period requirements have been
satisfied. On October 6, 1998, the Company and HydroChem filed applicable
documents with the FTC and requested early termination of the waiting period. If
the request for early termination is not granted, the applicable waiting period
will expire on November 5, 1998. At any time before or after the Closing, the
FTC, the Department of Justice or others could take action under the antitrust
laws with respect to the Sale, including seeking to enjoin the consummation of
the Sale or seeking the divestiture by HydroChem of all or any part of the
assets acquired.
Certain Federal Income Tax Considerations
The following describes generally the federal income tax consequences
of the proposed transaction to the Company and to its shareholders. It does not
attempt to provide tax advice to any particular shareholder. It does not address
state or local tax consequences nor does it address tax consequences to
specialized types of shareholders such as foreign investors or tax-exempt
shareholders. Each shareholder is urged to discuss the tax consequences of the
proposed transaction with his or her own tax advisor.
Tax consequences at the corporate level. On the sale of the assets of
the Company and the Subsidiary, the consolidated group of corporations of which
the Company is common parent (the "Group") generally will recognize gain for
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federal income tax purposes to the extent that the amount realized on such sale
of assets exceeds the Group's basis in any assets being sold. Net operating loss
carryforwards of the Group will be used to offset a portion of such gain.
Tax consequences at the shareholder level. Provided the Company
properly adopts a Plan of Liquidation and follows the necessary formalities of
liquidating, the Company may make liquidating distributions to its shareholders
of the proceeds from the sale of Company assets. These distributions will be
tax-free to a shareholder to the extent of the shareholder's basis in the
Company stock owned by the shareholder. Aggregate distributions received by a
shareholder in excess of basis will be taxable as capital gain to a shareholder
who holds his Company stock as a capital asset and who has held these shares for
more than one year. If aggregate liquidating distributions to a shareholder are
less than the basis of such shareholder's shares, any loss recognized by the
shareholder will be recognized in the year in which the shareholder receives the
final liquidating distribution to which such shareholder is entitled.
Delisting from The Nasdaq SmallCap Market
Following the Closing, the Company anticipates that it will be delisted
from The Nasdaq SmallCap Market. Following such delisting, there will be no
trading market for the Company's Common Stock. As a result, stockholders may be
unable to buy or sell shares of the Company's Common Stock and may be required
to maintain their investment in the Company until it has been dissolved.
THE ASSET PURCHASE AGREEMENT
The following is a brief summary of the material provisions of the
Agreement. Such summary is qualified in its entirety by reference to the
Agreement, a copy of which is attached to this Information Statement as Appendix
A.
Assets to be Sold and Liabilities to be Assumed
The assets to be sold by the Company to HydroChem pursuant to the
Agreement ("Assets") constitute substantially all of the assets of the Company
and Subsidiary of every kind, nature and description (wherever located), as the
same shall exist on the Closing date ("Closing Date"), except as specifically
excluded. The assets to be acquired under the Agreement include the following
except as specifically excluded: (i) all real property, interests in real
property (including, without limitation, leases), and structures and
improvements located on real property, and all the easements and uses which
benefit any such real property; (ii) all notes and accounts receivable; (iii)
all machinery, inventories, inventories of parts, computers, furniture,
furnishings, fixtures, office supplies and equipment, automobiles, trucks,
vehicles, returnable containers, tools and parts, and work in process; (iv) all
technology, know-how, designs, devices, processes, methods, inventions,
drawings, schematics, specifications, standards, trade secrets and other
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proprietary information, and all patents and applications therefor and all
trademarks and trade names, trademark and trade name registrations, service
marks and service mark registrations, copyrights and copyright registrations,
the applications therefor and the licenses thereto, together with the goodwill
and the business appurtenant thereto; (v) all drawings, blueprints,
specifications, designs and data of the Company (including drawings, blueprints,
specifications, designs and data of the Company used by or in the possession of
any third party); (vi) all catalogues, brochures, sales literature, promotional
material and other selling material of the Company; (vii) all books and records
and all files, documents, papers, agreements, books of account and other records
pertaining to the assets or to the business of the Company which are located at
the offices, plants, warehouses or other locations used in connection with the
assets; (viii) all rights, title and interest of the Company under all
contracts, agreements, licenses, leases, sales orders, purchase orders and other
commitments HydroChem will assume pursuant to the Agreement; (ix) all laboratory
equipment (including laboratory notes and supplies) and chemical inventories;
(x) all lists of past, present and qualified prospective customers of the
business of the Company; (xi) all goodwill relating to the business of the
Company as a going concern, together with the right to represent oneself to
third parties as the new owner of such business; (xii) all governmental and
product licenses and permits, approvals, license and permit applications and
license and permit amendment applications; (xiii) all claims against third
parties, whether or not asserted and whether now existing or hereafter arising,
related to the business of the Company or the assets (including, without
limitation, all claims based on any indemnities or warranties in favor of the
Company relating to any of the assets); (xiv) all other assets and rights of
every kind and nature, real or personal, tangible or intangible, of the Company;
(xv) all cash on hand, including bank accounts (other than the purchase price
depository account) and temporary cash investments; (xvi) all claims for refunds
of taxes and other governmental charges for periods ending on or prior to the
Closing Date; and (xvii) all safe deposit boxes and lockboxes, as well as the
contents thereof.
The specifically excluded assets include: (i) claims or rights against
third parties relating to liabilities or obligations not expressly assumed by
HydroChem; (ii) rights under insurance policies, including rights to any
cancellation value on the Closing Date, except that the Company shall assign, to
the extent such assignment is enforceable, to HydroChem rights under policies
(or make the proceeds available) with respect to claims arising out of
transactions prior to the Closing Date which HydroChem shall have agreed to
assume pursuant to the Agreement; (iii) the Company stock books, minute books
and other corporate and financial books and records (but the Company shall, upon
request by HydroChem and, after Closing, at HydroChem's expense, provide copies
of such financial books and records to HydroChem); (iv) all shares of capital
stock of the Subsidiary; and (v) funds held in respect of the Company's 401(k)
plan.
Substantially all liabilities of the Company will be assumed by
HydroChem ("Assumed Liabilities"). The Assumed Liabilities are: (i) those
liabilities or obligations of the Company which are listed on the balance sheet
included in the Company's financial statements dated June 30, 1998 and included
in its Form 10-K for the fiscal year ended June 30, 1998, such balance sheet to
be updated to the Closing Date; and (ii) those liabilities and obligations of
the Company which arise under the terms of a contract, agreement, license,
lease, sales order, purchase order or other commitments which are listed on a
disclosure schedule to the Agreement or are not required by the terms of the
Agreement to be so listed.
The Assumed Liabilities do not include any liability or obligation of
the Company: (i) under any employee benefit plan of the Company other than any
accrued liabilities specifically assumed by HydroChem pursuant to the Agreement;
(ii) with respect to any sales, use or excise taxes, income taxes, taxes based
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on or measured by income or franchise taxes attributable to periods or events
prior to or ending on the Closing Date or any sales, use or excise taxes, income
taxes, or any other taxes, legal, accounting, brokerage, finder's fees, or other
expenses of whatsoever kind or nature incurred by the Company or any affiliate,
stockholder, director, employee or officer of the Company as a result of the
consummation of the transactions contemplated by the Agreement (other than such
taxes, fees and expenses which are accrued in the ordinary course of business
prior to Closing); (iii) arising out of any action, condition, suit or
proceeding based upon an event occurring or a claim arising (a) prior to the
Closing Date or (b) after the Closing Date in the case of claims in respect of
products sold or services provided by the Company prior to the Closing Date and
attributable to acts performed or omitted by the Company prior to the Closing
Date; provided, however, that HydroChem shall assume any such liability or
obligation to the extent it has been reserved against on the Company's June 30,
1998 balance sheet, updated to Closing; (iv) pursuant to existing loan
agreements (other than payment obligations assumed pursuant to the Agreement),
and all agreements executed in connection therewith; or (v) to any present or
former stockholder, officer, director or employee of the Company (including,
without limitation, for bonuses, fringe benefits, vacation or holiday pay, wages
or severance pay, but excluding any accrued liabilities specifically assumed by
HydroChem pursuant to the Agreement).
Representations and Warranties of the Company
The Agreement contains certain representations and warranties of the
Company, including without limitation, representations and warranties with
respect to (i) the Company's due organization, qualification, and corporate
authority for the sale of the Assets; (ii) possession of all required material
licenses, permits and other authorizations required by applicable laws or
governmental regulations in connection with its business as now conducted; (iii)
compliance with both the Company's certificate of incorporation and bylaws and
applicable laws; (iv) the Company's good and marketable title to the Assets; (v)
compliance with all real property leases of the Company; (vi) the Company's
possession of rights with respect to registered trademarks, copyrights, and
patents, and the absence of undisclosed claims or infringement with respect
thereto; (vii) the absence of undisclosed liabilities; (viii) the identity and
enforceability of and the Company's compliance with all contracts of the
Company; (ix) the accuracy and completeness of the Company's financial
statements for all periods required to be provided by the Agreement; (x) due
payment of all taxes; (xi) the absence of undisclosed litigation involving the
Company; (xii) that the Company is in compliance in all material respects with
all applicable laws respecting employment and employment practices; (xiii) the
Company's insurance policies; (xiv) the absence of undisclosed adverse changes
in the business relationships of the Company with any of its customers or
suppliers; (xv) that all trade accounts receivable of the Company reflected on
its June 30, 1998 balance sheet and all trade accounts receivable of the Company
arising between June 30, 1998 and the Closing Date have arisen in the ordinary
course of business and represent bona fide, undisputed indebtedness; (xvi) that
the inventories and supplies of the Company reflected on the June 30, 1998
balance sheet of the Company, or acquired by the Company between June 30, 1998,
and the date of the Agreement, are carried at not in excess of the lower of cost
or fair market value, and do not include any inventory which is not usable or
saleable in the ordinary course of business of the Company as presently
conducted net of reserves; (xvii) compliance with laws regulating hazardous
materials and other environmental laws; (xviii) the Company's conduct of the
business in the ordinary course consistent with past practices since June 30,
1998; (xix) the absence of undisclosed obligations to pay finder's fees,
brokerage or agent's commissions or other like payments in connection with the
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consummation of the transactions contemplated thereby; and (xx) the absence of
any material misstatements or omissions by either the Company in the Agreement
or any document furnished to HydroChem in connection with the execution of the
Agreement.
Representations, Warranties and Covenants of HydroChem
The Agreement also contains certain representations and warranties by
HydroChem including, without limitation, representations and warranties with
respect to (i) its due organization and corporate authority for the acquisition
of the Assets; (ii) possession of all required consents on the part of HydroChem
and approvals of governmental authorities; and (iii) compliance with HydroChem's
articles of incorporation and bylaws and applicable laws.
Additionally, pursuant to the Agreement, HydroChem covenants to offer
employment to all of the Company's employees as of the Closing Date, other than
as otherwise reasonably determined by HydroChem.
Covenants of the Company
The Agreement contains customary covenants by the Company, including,
without limitation, the following: (i) the Company will conduct its operations
according to its ordinary and usual course of business consistent with past
practice; (ii) the Company will use its reasonable best efforts to preserve
intact its business organization and goodwill, to keep available the services of
its officers and directors, and to maintain satisfactory relationships with
suppliers, distributors, licensors, licensees, customers, employees and others
having business relationships with it; (iii) afford to HydroChem and to its
officers, employees, accountants, counsel and other authorized representatives
reasonable access, throughout the period prior to the earlier of the Closing
Date or the date of termination of the Agreement, to the Company's plants,
properties, equipment, personnel, books and records (including, but not limited
to, audit and tax work papers and surveys, reports, studies, evaluations and the
like pertaining to the environment at the Company's facilities or former
facilities (during the time of ownership or operation by the Company or to
activities of the Company); (iv) use its reasonable best efforts to cause its
representatives to furnish to HydroChem and to its authorized representatives
such additional financial and operating data and other information as to its
respective businesses and properties as HydroChem or its duly authorized
representatives may from time to time reasonably request; (v) provide all
authorizations reasonably necessary for HydroChem to review records of any
governmental body with jurisdiction; (vi) afford HydroChem and its
representatives reasonable access, throughout the period prior to the earlier of
the Closing Date or the date of termination of the Agreement, to its present and
potential customers, and HydroChem and its authorized representatives shall have
the right to contact such customers and conduct such due diligence investigation
relating to customer relations as HydroChem deems reasonably necessary or
appropriate; (vii) the Company shall unconditionally guarantee that all
indebtedness represented by the accounts receivable of the Company as of the
Closing Date (less the reserve for doubtful accounts not to exceed an aggregate
of $125,000) will be received by HydroChem; (viii) the Company shall discontinue
all use of the name "Valley Systems, Inc." and any and all derivations thereof
within 30 days after the Closing Date (other than in respect of the name of the
Company's 401(k) plan prior to its termination); (ix) the Company shall not
dissolve until the entire Escrow Fund has been released pursuant to the Escrow
Agreement; (x) the Company shall deliver to HydroChem unaudited financial
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statements (including a consolidated balance sheet, consolidated statement of
operations, consolidated statement of cash flows, and consolidated statement of
stockholders' equity) and other operating reports for each month beginning with
July 1998 and ending with the month preceding the month during which the Closing
occurs; (xi) on or after the date of the Agreement, and until the earlier of the
Closing Date or the date of termination of the Agreement, the Company shall not
furnish any written communication (other than this Information Statement) to its
stockholders, customers, creditors or to the public generally if the subject
matter thereof relates to the transactions contemplated by the Agreement without
the prior approval of HydroChem; provided, however, that the foregoing shall not
be deemed to prohibit any disclosure required by any applicable law or by any
governmental body having jurisdiction over such matters; (xii) the Company shall
give prompt notice to HydroChem, and HydroChem shall give prompt notice to the
Company, of (a) the occurrence, or failure to occur, of any event the occurrence
or failure of which would be likely to cause any representation or warranty of
such party contained in the Agreement to be untrue or inaccurate in any material
respect at any time from the date of the Agreement to the Closing Date, and (b)
any material failure of the Company, or of HydroChem, as the case may be, or of
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
the Agreement; and (xiii) the Company agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Agreement, including without limitation,
obtaining all authorizations, consents, waivers and approvals as may be required
in connection with the assignment of those contracts, agreements, licenses,
leases, sales orders, purchase orders and other commitments to be assumed by
HydroChem; provided that the Company shall not be obligated to make any payments
in order to obtain any such authorizations, consents, waivers or approvals.
Negative Covenants of the Company
The Company has agreed that, prior to the Closing, except as provided
in the Agreement or pursuant to the prior consent of HydroChem, neither the
Company nor any subsidiary thereof, will do any of the following: (i) other than
dividends that would be paid to the holders of the Series C Preferred Stock in
the ordinary course, declare or pay any cash dividends on its outstanding shares
of capital stock; (ii) merge with, consolidate with, sell its assets to or
acquire substantially all the assets or capital stock of, any other corporation
or person, or enter into any other transaction not in the ordinary and usual
course of its business; (iii) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except that it may incur indebtedness
in the ordinary course of business consistent with prior practice; (iv) make any
direct or indirect redemption, purchase or other acquisition of any of its
capital stock; (v) create or amend any pension or profit sharing plan, bonus,
deferred compensation, death benefit, or retirement plan, or any other benefit
plan or program; (vi) amend its certificate of incorporation or bylaws, except
as may be necessary to carry out the Agreement or as required by law; (vii)
issue any share of its capital stock, effect any stock split or otherwise change
its capitalization as it exists on the date of the Agreement; (viii) grant,
confer or award any options, warrants, conversion rights or other rights, not
existing on the date of the Agreement, to acquire any shares of its capital
stock; (ix) enter into any agreement or make any undertaking which could be
violated, or create obligations which could be accelerated, as a result of
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changes or developments or the absence of changes or developments in, the
business, assets, earnings, operations or condition, financial or otherwise, of
any other party to the Agreement or any of its subsidiaries or affiliates; or
(x) make any material changes in any of their respective management employment
arrangements.
Indemnification
Pursuant to the Agreement, the Company has agreed to indemnify, defend,
protect, save and hold harmless HydroChem against, and will reimburse HydroChem
for, any and all losses made or incurred by or asserted against HydroChem, at
any time after the Closing Date, directly or indirectly, arising out of, related
to, caused by, or resulting from any of the following: (i) any and all
liabilities or obligations of the Company or claims against or imposed on
HydroChem, of any nature, including, without limitation, those relating to the
respective business activities of the Company or to conditions existing on any
of the facilities prior to the Closing Date not specifically assumed by
HydroChem; (ii) any inaccuracy, omission, misrepresentation, breach of warranty
or representation, or nonfulfillment of any term, provision, covenant or
agreement on the part of the Company contained in the Agreement, or any
inaccuracy or misrepresentation in, or omission from, any certificate or other
instrument furnished or to be furnished by the Company to HydroChem pursuant to
the Agreement; (iii) the Company's failure to comply with any bulk transfer
provisions which may be in effect in the state or states in which the assets are
located; (iv) any breach by the Company of the Company's environmental
representation and warranty contained in the Agreement; and (v) any and all
items listed on the schedules delivered subsequent to the Closing timely
objected to by HydroChem and determined not to be items assumed by HydroChem.
The Company will not be obligated to indemnify or hold harmless
HydroChem from or against losses arising out of or resulting from matters
described above, until the amount of such losses individually or in the
aggregate exceed the amount of $200,000 (the "Floor Amount"), which Floor Amount
shall be deemed to have been reached by the Company when HydroChem's losses
exceed the amount of $200,000. Upon reaching the Floor Amount, the Company shall
be required to indemnify HydroChem for losses comprising the Floor Amount as
well as all losses occurring thereafter only from the escrow fund and only up to
(except in the cases of losses resulting from fraud) an aggregate amount equal
to the amount of the escrow fund then outstanding (the "Company's Ceiling
Amount"). The Company will be obligated to indemnify and hold harmless HydroChem
from or against losses directly or indirectly arising out of, related to, caused
by, or resulting from any inaccuracy, omission or misrepresentation contained
in, or breach of warranty or representation respecting, the Company's
representations in the Agreement with respect to trade accounts receivable up to
the Company's Ceiling Amount without regard to the Floor Amount and, with
respect to certain of the Company's representations in the Agreement with
respect to contracts and leases, without regard to the materiality of such
inaccuracy, omission, misrepresentation, or breach of warranty or
representation. There shall be no monetary limit on the Company's obligation to
indemnify and hold harmless HydroChem from or against losses resulting from
fraud.
HydroChem agrees to indemnify, defend, protect, save and hold harmless
the Company against, and will reimburse the Company on demand for, any and all
losses made or incurred by or asserted against the Company, at any time after
the Closing Date, directly or indirectly, arising out of, related to, caused by,
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or resulting from (i) any inaccuracy, omission, misrepresentation, breach of
warranty, or nonfulfillment of any term, provision, covenant or agreement on the
party of HydroChem contained in the Agreement; (ii) any inaccuracy, or
misrepresentation in, or omission from, any certificate or other instrument
furnished or to be furnished by HydroChem to the Company pursuant to the
Agreement; or (iii) operation of business activities of HydroChem after the
Closing Date involving the Assets. Within 45 days following the first
anniversary of the Closing Date, HydroChem shall deliver to the Company a
certificate of HydroChem certifying which of those liabilities and obligations
of HydroChem assumed from the Company pursuant to the Agreement had become due
and payable but had not been paid in full or resolved as of the first
anniversary of the Closing Date. With respect to the liabilities and obligations
listed in such certificate (or which were erroneously omitted from such
certificate), HydroChem's obligations pursuant to the Agreement shall terminate
upon the payment or resolution of such liability or obligation. With respect to
those liabilities and obligations of HydroChem assumed from the Company pursuant
to the Agreement which by their respective terms in effect at Closing will
become due and payable later than the first anniversary of the Closing Date,
HydroChem's obligations pursuant to the Agreement shall terminate upon the
payment or resolution of such liability or obligation. With respect to all other
liabilities and obligations of HydroChem assumed from the Company pursuant to
the Agreement, HydroChem's obligations pursuant to the Agreement shall terminate
upon the third anniversary of the Closing Date. In the event the certificate
referenced above is not timely delivered, HydroChem's obligations pursuant to
the Agreement shall terminate upon the payment or resolution of all liabilities
assumed pursuant to the Agreement.
HydroChem will not be obligated to indemnify or hold harmless the
Company from or against losses arising out of or resulting from matters
described above (other than losses directly or indirectly arising out of,
related to, caused by, or resulting from any nonfulfillment of any covenant on
the part of HydroChem contained in the Agreement with respect to the assumption
of Company liabilities or any certificate related thereto), until the amount of
such losses individually or in the aggregate exceed the Floor Amount. Upon
reaching the Floor Amount, HydroChem shall be required to indemnify the Company
for losses comprising the Floor Amount as well as all losses occurring
thereafter only up to (except in the cases of losses resulting from fraud) an
aggregate amount equal to $12 million ("HydroChem's Ceiling Amount"). HydroChem
will be obligated to indemnify and hold harmless the Company from or against
losses directly or indirectly arising out of, related to, caused by, or
resulting from any nonfulfillment of any covenant on the part of HydroChem
contained in the Agreement with respect to the assumption of Company liabilities
up to HydroChem's Ceiling Amount, without regard to the Floor Amount. There
shall be no monetary limit on HydroChem's obligation to indemnify and hold
harmless the Company from or against losses resulting from fraud.
Notwithstanding anything to the contrary contained in the Agreement,
the parties agree that HydroChem's sole remedy for any claim for damages
(excluding equitable remedies and those resulting from fraud) arising under the
Agreement (including the disclosure schedules) or any other agreement between
HydroChem and the Company entered into in connection therewith (including any
claim based upon the Company's warranties, representations and covenants
contained in the Agreement) shall be limited to the remedies provided in the
indemnification provisions of the Agreement and the provisions of the Escrow
Agreement. Further, HydroChem waives all other statutory or common law rights to
recover against the Company for any matter relating to environmental
contamination, environmental liabilities or hazardous materials.
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Company's Conditions To Closing
The Company's obligations under the Agreement are subject to the
satisfaction at Closing of each of the following conditions: (i) the holders of
shares of the issued and outstanding capital stock of the Company shall have
duly adopted and approved the Agreement and all transactions contemplated
thereby in accordance with the requirements of Delaware law and the Company's
Certificate of Incorporation and Bylaws, as amended to the date of such
adoption; (ii) all representations and warranties of HydroChem contained in the
Agreement shall be true and correct at and as of the Closing Date in all
material respects and HydroChem shall have performed all agreements and
covenants in all material respects and satisfied all conditions on its part to
be performed or satisfied by the Closing Date pursuant to the terms of the
Agreement, and the Company shall have received a certificate of HydroChem signed
by its Chief Executive Officer and dated the Closing Date, to both such effects;
(iii) HydroChem shall have effected payment of the purchase price (less the
escrow funds) in accordance with the prior written instructions of the Company;
(iv) HydroChem shall have executed and delivered the Escrow Agreement; (v)
HydroChem shall have effected payment of the escrow funds to the escrow agent;
(vi) the escrow agent shall have acknowledged receipt of the escrow funds and
accepted the same subject to the terms and conditions of the Escrow Agreement;
(vii) HydroChem shall have executed and delivered a bill of sale, assignment and
assumption agreement; (viii) HydroChem shall have delivered to the Company a
certificate, dated the Closing Date, of HydroChem's corporate Secretary
certifying: (a) resolutions of its board of directors adopting and approving the
Agreement and all transactions contemplated thereby and authorizing execution of
the Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated thereby; and (b) the incumbency of its
officers executing the Agreement and all agreements and documents contemplated
thereby; (ix) the Company shall have received from Haynes and Boone, LLP,
counsel of HydroChem, an opinion, dated the Closing Date, as specified in an
exhibit to the Agreement; (x) the approval and all consents from any third party
or governmental body required to consummate the transactions contemplated by the
Agreement shall have been obtained and the waiting period and any statutory
extension thereof applicable to the consummation of the transactions
contemplated by the Agreement under the HSR Act shall have expired or been
terminated; (xi) no proceeding shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated by the
Agreement or any governmental consent, approval or authorization necessary for
the consummation of the transactions contemplated by the Agreement; (xii) as of
the Closing, there shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for in the Agreement or
any of them not be consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated thereby which is unduly burdensome
on the Company; (xiii) the Company and all guarantors of any bank indebtedness
of the Company shall have received a written release therefrom in form and
substance satisfactory to the Company and such guarantors.
HydroChem's Conditions To Closing
The obligations of HydroChem are subject to the satisfaction at Closing
of each of the following conditions: (i) the holders of shares of the issued and
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outstanding capital stock of the Company shall have duly adopted and approved
the Agreement and all transactions contemplated thereby in accordance with the
requirements of applicable law, and the Company's Articles or Certificate of
Incorporation and Bylaws, as amended to the date of such adoption and approval;
(ii) all representations and warranties of the Company contained in the
Agreement shall be true and correct in all material respects at and as of the
Closing Date and the Company shall have performed all agreements and covenants
in all material respects and satisfied all conditions on its part to be
performed or satisfied by the Closing Date pursuant to the Agreement, and
HydroChem shall have received a certificate of the Company, signed by its
President and dated the Closing Date, to both such effects; (iii) as of the
Closing, there shall have been no material adverse changes since the date of the
most recent financial statements in the Company, and the Company shall not have
suffered any material loss (whether or not insured) by reason of physical damage
caused by fire, earthquake, accident or other calamity which substantially
affects the value of their respective assets, properties or business, and
HydroChem shall have received a certificate of the Company, signed by its
principal financial officer and dated the Closing Date, to such effect; (iv) the
Company shall have executed and delivered a receivables guaranty in the form of
an exhibit to the Agreement; (v) the Company shall have delivered to HydroChem a
Certificate of the Secretary of State (or other authorized public official) of
the Company's jurisdiction of incorporation certifying as of a date reasonably
close to the Closing Date that the Company has filed all required reports, paid
all required fees and taxes, and is, as of such date, in good standing and
authorized to transact business as a domestic or foreign corporation, as the
case may be; (vi) the Company shall have executed and delivered the Escrow
Agreement; (vii) the escrow agent shall have acknowledged receipt of the escrow
funds and accepted the same subject to the terms and conditions of the Escrow
Agreement; (viii) HydroChem shall have received from Arnall Golden & Gregory,
LLP, counsel for the Company, an opinion dated the Closing Date, as specified on
an exhibit to the Agreement; (ix) the Company shall have obtained all
authorizations, consents, waivers and approvals as may be required in connection
with the assignment of those contracts, agreements, licenses, leases, sales,
orders, purchase orders and other commitments to be assigned to HydroChem
pursuant to the Agreement; (x) the Company shall have executed and delivered a
bill of sale, assignment and assumption agreement; (xi) the Company shall have
delivered to HydroChem a certificate, dated the Closing Date, of the Company's
corporate Secretary certifying: (a) resolutions of the Company's Board and
stockholders approving and adopting the Agreement and all transactions
contemplated thereby and authorizing execution of the Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated thereby; and (b) the incumbency of its officers
executing the Agreement and all agreements and documents contemplated thereby;
(xii) the approval and all consents from any third party or governmental body
required to consummate the transactions contemplated by the Agreement shall have
been obtained and the waiting period and any statutory extension thereof
applicable to the consummation of the transactions contemplated by the Agreement
under the HSR Act shall have expired or been terminated; (xiii) no proceeding
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated by the Agreement or any governmental
consent, approval or authorization necessary for the consummation of the
transactions contemplated by the Agreement; (xiv) as of the Closing, there shall
be no effective injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing that the
transactions provided for in the Agreement or any of them not be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated by the Agreement which is unduly burdensome on HydroChem; (xv)
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HydroChem shall have received from each of LOR, Inc., Rollins Investment Fund
and Rollins Holding Company, Inc., an executed agreement whereby each of them,
on their own behalf and on behalf of their respective affiliates, agrees to be
bound by certain restrictive covenants substantially similar to those imposed on
the Company under the heading -- "Restrictive Covenants"; provided, however,
that no such provision shall prohibit an investment in any publicly-traded
entity that does not require the filing of a Schedule 13D or Schedule 13G under
the Exchange Act; and (xvi) HydroChem shall have reasonably concluded, following
its environmental due diligence review, that there are no "material breaches"
(as defined in the Agreement) of the Company's warranties with regard to
environmental matters, provided, however, that such conclusion shall not
preclude the remedies of HydroChem provided for in the Agreement regarding
material breaches.
No Sale Negotiations
The Agreement provides that neither the Company nor any person acting
on its behalf will take any action (i) to solicit, initiate or encourage
submission of inquiries, proposals or offers from any third party other than
HydroChem relating to any acquisition or purchase of all or a portion of the
assets of, or any equity interest in, the Company, or (ii) unless the Company's
Board of Directors has determined that such third party has made a "Superior
Takeover Proposal" (as defined below), participate in any discussions or
negotiations regarding, or furnish to any third party any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any third party to do or seek
any of the foregoing. In the event that (a) the Closing shall fail to occur as
the result of the Company violating the provisions set forth above or (b) the
Company shall have determined that a Superior Takeover Proposal exists, shall
have elected to accept such Superior Takeover Proposal and either the
transaction contemplated thereby is consummated or the Company terminates the
Agreement as a result of such election, the Company shall promptly, but in no
event later than one day after the first of such events shall occur, pay
HydroChem an aggregate fee of $2,000,000, which amount shall be payable in same
day funds, plus all reasonable out-of-pocket expenses and fees actually incurred
by HydroChem or incurred by banks or other financial institutions on behalf of
HydroChem. A "Superior Takeover Proposal" means a bona fide (a) tender or
exchange offer; (b) proposal for a merger to which the Company would be a party;
(c) consolidation or other business combination involving the Company; or (d)
any other arrangement to acquire, directly or indirectly, for consideration
consisting of cash, securities or a combination thereof, all of the Common Stock
of the Company then outstanding or all or substantially all of the assets of the
Company on terms that the Board determines in its good faith reasonable judgment
(after consultation with a financial advisor of nationally recognized
reputation) to be more favorable to the stockholders of the Company than the
transactions contemplated by the Agreement.
Termination Provisions
The Agreement provides that it may be terminated at any time prior to
Closing (i) by mutual consent of the parties, (ii) by either party if one or
more of the conditions to such party's obligations to proceed to Closing have
not been fulfilled or waived by December 31,1998, (iii) by HydroChem at any time
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prior to the fifteenth business day after the delivery of exhibits and
preliminary schedules (in a form reasonably satisfactory to HydroChem) if
HydroChem's general due diligence investigation of the Company discloses facts
or circumstances which reflect in a material adverse way on the Company, (iv) by
HydroChem at any time if there has been a material adverse change in the Company
following the date of the Agreement, (v) by either party as a result of a
material breach in any representations and warranties made by the other party or
the failure to perform covenants and agreements required to be performed
pursuant to the Agreement, (vi) by either party if there has been any statute,
rule or regulation enacted or promulgated or deemed applicable to the
transactions contemplated by the Agreement by any governmental body that, in the
reasonable judgment of either party, as the case may be, might (a) result in a
significant delay in the ability of the parties to consummate the transaction
contemplated by the Agreement; (b) render the parties unable to consummate the
transactions contemplated by the Agreement; (c) make such consummation illegal;
or (d) otherwise materially adversely affect the Company, and (vii) by HydroChem
if the Company shall fail to deliver one or more of the preliminary schedules to
the Agreement in accordance with the Agreement or if one or more of the
preliminary schedules, as delivered, differs materially from the information
concerning the Company provided by the Company to HydroChem prior to the
execution of the Agreement. In the event of any termination of the Agreement as
set forth above, there shall by no liability on the part of either HydroChem or
the Company to the other, except for the material breach of any representation,
warranty or covenant contained in the Agreement which is in the reasonable
control of the party in breach. If the Agreement is terminated by the Company
for any reason whatsoever other than a failure of any condition set forth in the
Agreement and HydroChem is not in material breach of its material covenants and
agreements, then the Company shall reimburse HydroChem (including banks and
other financial institutions that incurred expenses on behalf of HydroChem) for
all reasonable out-of-pocket expenses and fees actually incurred by it in
connection with the negotiation, preparation, execution and performance of the
Agreement.
Restrictive Covenants
The Agreement provides that the Company will not, for a period of five
years following the Closing Date, compete, directly or indirectly, for
compensation or not, with HydroChem (i) with regard to any product or service
which is the same as or similar to that offered by the Company prior to the
Closing, (ii) induce or attempt to induce any customer to withdraw, curtail or
cancel its business with HydroChem, (iii) recruit or otherwise solicit or induce
any person or entity who is, on the Closing Date or thereafter, an employee or
vendor of the Company or any subsidiary to terminate his or her employment with,
or otherwise cease his or her relationship with, HydroChem or any of its
subsidiaries or affiliates, (iv) hire, recruit or otherwise solicit any person
or entity who, within the six months immediately preceding the Closing Date, had
been an employee or vendor of the Company, or (v) permit the Company's name to
be used by or engage in or carry on, directly or indirectly, either for itself
or as a member of a partnership or as a stockholder, investor, agent, associate
or consultant of any person, partnership or corporation (other than HydroChem or
a subsidiary or affiliate of HydroChem), any business in competition with the
business as carried on by the Company on the Closing Date.
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AVAILABLE INFORMATION AND SOURCES OF INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (Commission
File No. 0-19343), and in accordance therewith files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial statements and other matters. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the public reference facilities maintained by the
SEC at its regional offices located at Seven World Trade Center, Suite 1300, New
York, New York, 10048; and Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC also maintains a web site that
contains reports, proxy and information statements and other information
regarding the Company and the Registration Statement. The address of that web
site is http://www.sec.gov. The Company's Common Stock is listed on The Nasdaq
SmallCap Market, and other information with respect to the Company is available
for inspection at 1735 K Street, NW Washington, D.C. 20006-1500. The Company's
executive offices are located at 11580 Lafayette Drive, NW, Canal Fulton, Ohio
44616, telephone: (330) 854-4526.
No persons have been authorized to give any information or to make any
representation, other than those contained in this Information Statement, in
connection with the information contained herein, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any other person. The delivery of this Information Statement
shall not, under any circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to the date hereof.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by the Company with
the Securities Exchange Commission (File No. 0-19343) pursuant to the Exchange
Act is incorporated by reference in this Information Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, filed with the Securities and Exchange Commission
on September 28, 1998;
2. All documents filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act after the date of this Information
Statement and prior to the closing of the Sale shall be deemed
incorporated by reference in this Information Statement and to be
a part hereof from the date of filing of such documents.
Any statement contained herein or in a previously filed document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Information Statement to the
extent that a statement contained herein or in any other subsequently filed
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document which also is or was deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Information Statement.
The information relating to the Company contained in this Information
Statement should be read together with the information and documents
incorporated by reference.
This Information Statement incorporates documents by reference which
are not presented herein or delivered herewith. Such documents (other than
Exhibits to such documents, unless such Exhibits are specifically incorporated
by reference) are available without charge to any person, including any
beneficial owner, to whom this Information Statement is delivered, upon written
or oral request. Request for such documents should be directed to Dennis D.
Sheets, Secretary of the Company, telephone: (330) 854-4526.
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<PAGE>
755124v1
APPENDIX A
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement is entered into as
of the 8th day of September 1998, by and among HydroChem Industrial Services,
Inc., a Delaware corporation ("Buyer"), Valley Systems, Inc., a Delaware
corporation ("VSI") and Valley Systems of Ohio, Inc. an Ohio corporation and
wholly-owned subsidiary of VSI ("Seller").
WHEREAS, Buyer and VSI have entered into that certain Asset Purchase
Agreement dated September 8, 1998 (the "Purchase Agreement"); and
WHEREAS, the assets intended to be purchased pursuant to the Purchase
Agreement (other than certain assets which are owned by VSI) are the assets of
Seller and the obligations and liabilities intended to be assumed by Buyer
pursuant to the Purchase Agreement are the obligations and liabilities of Seller
as well as VSI; and
WHEREAS, VSI is willing to be jointly and severally responsible with
Seller for any obligations of Seller which have arisen or may arise under the
Purchase Agreement; and
WHEREAS, the parties hereto desire to amend and restate the Purchase
Agreement in light of the foregoing and to make such other modifications as are
provided for herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
Definitions
For purposes of this Agreement, the following terms have the following
meanings.
"affiliate"--as defined in Section 4.1.
"Agreement"--this Asset Purchase Agreement.
"Assets"--as defined in Section 1.1.1.
"Bill of Sale, Assignment and Assumption Agreement"--as defined in
Section 1.1.3.
"Board"--as defined in Section 1.5.
<PAGE>
"Business Property Rights"--as defined in Section 2.16.2.
"Buyer"--HydroChem Industrial Services, Inc., a Delaware corporation.
"Buyer Indemnitees"--as defined in Section 4.1.
"Buyer's Ceiling Amount"--as defined in Section 4.4.2.
"CERCLA"--the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"Claim"--as defined in Section 4.3.
"Closing"--as defined in Section 1.6.
"Closing Balance Sheet"--as defined in Section 2.8.5.
"Closing Date"--as defined in Section 1.6.
"Closing Financial Statements"--as defined in Section 2.8.5.
"Closing Schedules"--as defined in Section 1.7.
.
"Code"--the Internal Revenue Code of 1986, as amended, and the
regulations and rules issued pursuant thereto, as amended.
"control"--as defined in Section 4.1.
"Customer"--as defined in Section 5.2.1.
"Delivery Date"--as defined in Section 1.7.
"Employee"--any employee of VSI or Seller.
"Encumbrances"--options, indentures, mortgages, leases, licenses,
restrictions (other than restrictions under applicable securities laws), liens,
charges, assessments, pledges, security interests, adverse claims, equities,
limitations, community property interests, conditions, equitable interests,
rights of first refusal, easements, servitudes or other encumbrances of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable water, ocean waters, streams, ponds, drainage basins, and
wetlands), ground water, sediments, ambient air and natural resources.
<PAGE>
"Environmental Contamination"--as defined in Section 4.5.1.
"Environmental Due Diligence Review"--as defined in Section 5.5.2.
"Environmental Law"--any federal, state, or local law that governs
protection of the Environment, including, without limitation, those laws
relating to the Release, storage or handling of Hazardous Materials; those
relating to the treatment, storage, transport, disposal, or other management of
waste materials of any kind, and those relating to the protection of
Environmentally sensitive areas.
"Environmental Liabilities"--any costs, damages, expense, fine,
penalty, costs of investigation and remediation or any other liability arising
from or under any Environmental Law.
"Environmental Remediation"--as defined in Section 4.5.2.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agent"--as defined in Section 5.3.1
"Escrow Agreement"--as defined in Section 5.3.1.
"Escrow Fund"--as defined in Section 1.2.
"Exchange Act"--as defined in Section 2.8.1.
"Expenses"--as defined in Section 5.11.
"Facilities"--any real property, leaseholds, or other interests
currently owned or operated by VSI or Seller and any buildings, plants or
structures currently owned or operated by VSI or Seller.
"Former Facilities"--any real property, leaseholds, or other interests
formerly owned or operated by VSI or Seller and any buildings, plants or
structures formerly owned or operated by VSI or Seller.
"Financial Statements"--as defined in Section 2.8.4.
"Floor Amount"--as defined in Section 4.4.
"fraud"--fraud perpetrated or alleged to have been perpetrated by an
Indemnifying Party against an Indemnified Party.
<PAGE>
"GAAP"--United States generally accepted accounting principles,
applied on a consistent basis.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental authority of any nature (including any governmental
agency, branch, department, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Materials"--any "hazardous substance," "pollutant or
contaminant," and "petroleum" and "natural gas liquids," as those terms are
defined or used in Section 101 of CERCLA, and any other substances regulated
because of their effect or potential effect on public health and/or the
Environment including, without limitation, PCB's, lead paint, asbestos, and
radioactive materials.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Indemnified Party"--as defined in Section 4.3.
"Indemnifying Party"--as defined in Section 4.3.
"knowledge"--the actual knowledge of any director, officer, regional
manager, or branch manager of VSI or Seller.
"Leases"--as defined in Section 2.12.2.
"Legal Requirement"--any applicable federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Losses"--as defined in Section 4.1.
"material"--an item is "material" if its presence or absence, as
required by the context, would have a material adverse effect upon the assets,
financial condition, results of operations, business or affairs of a Person and
any affiliates of such Person with whom such Person, in accordance with GAAP,
consolidates financial statements, taken as a whole.
<PAGE>
"Order"--any award, decision, injunction, judgment, order, ruling, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Preliminary Schedules"--as defined in Section 1.7.
.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
inquiry, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Proxy Materials"--as defined in Section 1.5.
"Purchase Price"--as defined in Section 1.2.
"Receivables Guaranty"--as defined in Section 5.1.
"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, pumping, pouring, emptying, or injecting into the
Environment, whether intentional or unintentional.
"Rules"--as defined in Section 5.15.
"Schedules"--all Schedules to this Agreement, including the
Preliminary Schedules and the Closing Schedules.
"SEC"--as defined in Section 2.8.2.
.
"SEC Reports"--as defined in Section 2.8.2.
"Securities Act"--as defined in Section 2.8.1.
"Seller"--Valley Systems of Ohio, Inc., an Ohio corporation (including
all prior subsidiaries).
"Seller's Ceiling Amount"--as defined in Section 4.4.1.
"Stockholders"--Rollins Investment Fund; Rollins Holding Company,
Inc.; and their respective affiliates.
<PAGE>
"Superior Takeover Proposal"--as defined in Section 5.6.
"Termination Date"--as defined in Section 5.4.1.
"Third Party"--as defined in Section 5.6.
"Third Party Claim"--as defined in Section 4.3.
"Threatened"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand, notice or statement has
been made (orally, to the knowledge of Seller, or in writing).
"VSI"--Valley Systems, Inc., a Delaware corporation (including all
prior subsidiaries).
"WARN"--as defined in Section 2.18.7.
1. Purchase and Sale of Assets; Assumption of Specified Liabilities.
1.1 Agreement to Purchase and Sell.
1.1.1 Upon the terms and subject to the conditions
set forth herein and upon the representations and warranties
made herein by each of the parties hereto, at the Closing (as
such term is hereinafter defined), each of VSI and Seller
respectively shall sell, grant, convey, assign, transfer and
deliver to Buyer, and Buyer shall purchase and acquire from
each of VSI and Seller respectively, all of the respective
assets and properties of each of VSI and Seller of every kind,
nature and description (wherever located), as the same shall
exist on the Closing Date, except those assets and properties
specifically excluded pursuant to Section 1.1.2 hereof (said
assets and properties so to be sold, granted, conveyed,
transferred, assigned and delivered to Buyer being hereinafter
collectively referred to as the "Assets"). Without limiting
the generality of the foregoing, the Assets shall include, but
shall not be limited to, the following respective assets and
properties of each of VSI and Seller:
(i) all real property, interests in real
property (including, without limitation, leases), and
structures and improvements located on real property,
and all the easements and uses which benefit any such
real property;
(ii) all notes and accounts receivable;
(iii) all machinery, inventories,
inventories of parts, computers, furniture,
furnishings, fixtures, office supplies and equipment,
automobiles, trucks, vehicles, returnable containers,
tools and parts, and work in process;
<PAGE>
(iv) all technology, know-how, designs,
devices, processes, methods, inventions, drawings,
schematics, specifications, standards, trade secrets
and other proprietary information, and all patents
and applications therefor and all trademarks and
trade names, trademark and trade name registrations,
service marks and service mark registrations,
copyrights and copyright registrations, the
applications therefor and the licenses thereto,
together with the goodwill and the business
appurtenant thereto;
(v) all drawings, blueprints,
specifications, designs and data of Seller (including
drawings, blueprints, specifications, designs and
data of Seller used by or in the possession of any
Third Party);
(vi) all catalogues, brochures, sales
literature, promotional material and other selling
material of Seller;
(vii) all books and records and all files,
documents, papers, agreements, books of account and
other records pertaining to the Assets or to the
business of Seller which are located at the offices,
plants, warehouses or other locations used in
connection with the Assets;
(viii) all rights, title and interest of
Seller under all contracts, agreements, licenses,
leases, sales orders, purchase orders and other
commitments Buyer will assume pursuant to Section 1.3
hereof;
(ix) all laboratory equipment (including
laboratory notes and supplies) and chemical
inventories;
(x) all lists of past, present and qualified
prospective customers of the business of Seller;
(xi) all goodwill relating to the business
of Seller as a going concern, together with the right
to represent oneself to third parties as the new
owner of such business;
(xii) all governmental and product licenses
and permits, approvals, license and permit
applications and license and permit amendment
applications;
<PAGE>
(xiii) all claims against third parties,
whether or not asserted and whether now existing or
hereafter arising, related to the business of Seller
or the Assets (including, without limitation, all
claims based on any indemnities or warranties in
favor of Seller relating to any of the Assets);
(xiv) all other assets and rights of every
kind and nature, real or personal, tangible or
intangible, of Seller;
(xv) all cash on hand, including bank
accounts (other than the Purchase Price depository
account) and temporary cash investments;
(xvi) all claims for refunds of taxes and
other governmental charges for periods ending on or
prior to the Closing Date; and
(xvii) all safe deposit boxes and lockboxes,
as well as the contents thereof.
Without limiting the generality of the foregoing, the
Assets shall, except as set forth in Section 1.1.2 hereof,
include all assets set forth in a detailed list of fixed
assets as of June 30, 1998, prepared from the accounting
records of VSI and Seller, indicating the respective assets of
VSI and Seller, and attached hereto as Schedule 1.1.1, and all
such assets as may have been acquired by VSI or Seller which
would be included on a list prepared in like manner from such
accounting records as of the Closing Date, except any such
assets which may have been disposed of since June 30, 1998, in
the ordinary course of business on a basis consistent with
past practice.
1.1.2 Anything herein contained to the contrary
notwithstanding, the following respective assets and
properties of each of VSI and Seller are specifically excluded
from the Assets and shall be retained respectively by VSI or
Seller:
(i) claims or rights against third parties
relating to liabilities or obligations which are not
expressly assumed by Buyer pursuant to Section 1.3
hereof;
(ii) rights under insurance policies,
including rights to any cancellation value on the
Closing Date, except that VSI and Seller shall assign,
to the extent such assignment is enforceable, to Buyer
<PAGE>
rights under policies (or make the proceeds available)
with respect to claims arising out of transactions
prior to the Closing Date which Buyer shall have agreed
to assume pursuant to Section 1.3 below; in the event
that such an assignment is not enforceable and in order
that the full value of all rights of the character
described in this clause (ii) of this Section 1.1.2 and
all claims on such policies may be realized, each of
VSI and Seller shall, by itself or by its agents, at
the request and expense and under the direction of
Buyer, until the entire Escrow Fund has been released
pursuant to Section 5.3 hereof, in the name of VSI or
Seller or otherwise as Buyer shall specify and as shall
be permitted by law, take all such action and do or
cause to be done all such things as shall in the
reasonable opinion of Buyer be necessary or proper (x)
in order that the rights of each of VSI and Seller
under such policies shall be preserved and (y) for, and
to facilitate, the collection of the monies due and
payable, and to become due and payable, to each of VSI
and Seller in and under every such policy in respect of
every such claim, and each of VSI and Seller shall hold
the same for the benefit of and pay the same over
promptly to Buyer;
(iii) the stock books, minute books and other
corporate and financial books and records of each of
VSI and Seller (but each of VSI and Seller shall, upon
request by Buyer and, after Closing, at Buyer's
expense, provide copies of such financial books and
records to Buyer);
(iv) all shares of capital stock of Seller;
and
(v) funds held in respect of the VSI 401(k)
plan.
1.1.3 Subject to Section 1.1.4 hereof, at the Closing,
each of VSI and Seller shall execute and deliver to Buyer (i) a
Bill of Sale, Assignment and Assumption Agreement, in the form
attached hereto as Exhibit "A" (the "Bill of Sale, Assignment
and Assumption Agreement"), under the terms of which each of VSI
and Seller shall sell, grant, convey, assign, transfer and
deliver their respective portions of the Assets to Buyer, and
(ii) such other bills of sale, deeds, instruments of assignment
and other appropriate documents as may be reasonably requested
by Buyer in order to carry out the intentions and purposes
hereof.
1.1.4 Nothing in this Agreement shall be construed as
an attempt or agreement to assign (i) any contract, agreement,
license, lease, sales order, purchase order or other commitment
which is nonassignable without the consent of the other party or
parties thereto unless such consent shall have been given or
(ii) any contract or claim as to which all the remedies for the
enforcement thereof enjoyed by VSI or Seller would not pass to
<PAGE>
Buyer as an incident of the assignments provided for hereby. In
order, however, that the full value of every contract and claim
of the character described in clauses (i) and (ii) of this
Section 1.1.4 and all claims and demands on such contracts may
be realized, each of VSI and Seller shall, by itself or by its
agents, at the request and expense and under the direction of
Buyer, until the entire Escrow Fund has been released pursuant
to Section 5.3 hereof, in the name of VSI or Seller or otherwise
as Buyer shall specify and as shall be permitted by law, take
all such action and do or cause to be done all such things as
shall in the reasonable opinion of Buyer be necessary or proper
(x) in order that the rights and obligations of each of VSI and
Seller under such contracts shall be preserved and (y) for, and
to facilitate, the collection of the monies due and payable, and
to become due and payable, to VSI or Seller in and under every
such contract and claim and in respect of every such claim and
demand, and each of VSI and Seller shall hold the same for the
benefit of and pay the same over promptly to Buyer.
1.2 Purchase Price; Payment. Upon the terms and subject to the
conditions set forth herein, in reliance upon the representations,
warranties, covenants and agreements of each of VSI and Seller
contained herein, and in exchange for the sale, grant, conveyance,
assignment, transfer and delivery of the Assets, Buyer agrees, subject
to Section 1.9 hereof, to pay to VSI and Seller the sum of $29,800,771
(the "Purchase Price"), payable at the Closing as follows: (i) by wire
transfer of $25,800,771 in immediately available funds to VSI and
Seller in such bank accounts as designated by Seller in writing to
Buyer at least 24 hours prior to the Closing; and (ii) by depositing
$4,000,000 (the "Escrow Fund") with the Escrow Agent to be held and
disposed of pursuant to the Escrow Agreement.
1.3 Assumption of Specified Liabilities. At the Closing, and as
additional consideration for the sale, grant, conveyance, assignment,
transfer and delivery of the Assets, subject, however, to Sections
1.1.4 and 1.4 hereof, Buyer shall assume and agree to pay, perform and
discharge when due only the following:
(i) those liabilities or obligations of Seller which
are listed on Schedule 1.3A hereof (which shall be the detail of
the liabilities reflected in the balance sheet included in the
Financial Statements dated June 30, 1998 as updated to the
Closing Date pursuant to Section 1.9 hereof) which updated
Schedule 1.3A shall prevail in the event of a conflict between
the Closing Balance Sheet and such updated Schedule 1.3A
(depending upon the category of the liability being assumed by
Buyer, the parties shall mutually agree (as denoted in Schedule
1.3A) whether (i) Seller will pay the accrued liability to the
obligee and Buyer will reimburse Seller for such payments (ii)
Buyer will pay the amount of the accrued liability directly to
Seller and Seller will pay the liability to the obligee, or
(iii) Buyer will pay the liability directly to the obligee up to
the amount of the accrued liability); and
<PAGE>
(ii) those liabilities and obligations of either of VSI
or Seller which arise under the terms of a contract, agreement,
license, lease, sales order, purchase order or other commitment
which is listed on Schedule 1.3B hereof (as updated to the
Closing Date pursuant to Section 1.9 hereof) or is not required
by the last sentence of this Section 1.3(ii) to be so listed.
Schedule 1.3B shall only list (x) master service agreements of
Seller assumed by Buyer (y) agreements under which either VSI or
Seller have indemnified or provided a guaranty to any Person and
(z) contracts, agreements, licenses, leases, sales orders,
purchase orders or other commitments of Seller assumed by Buyer
which involve services or annual payments to or from either of
VSI or Seller in excess of $10,000.
Subject to Sections 1.1.4 and 1.4 hereof, at the Closing, Buyer
shall execute and deliver to Seller the Bill of Sale, Assignment and
Assumption Agreement assuming the liabilities and obligations of Seller
referred to in this Section 1.3.
1.4 Non-Assumption of Certain Liabilities. Buyer is not
assuming, and shall not be deemed to have assumed, any liabilities or
obligations of Seller or VSI of any kind or nature whatsoever, except as
expressly provided in Section 1.3 hereof. Anything in Section 1.3 hereof
or elsewhere herein to the contrary notwithstanding and without limiting
the generality of the foregoing, it is hereby agreed that Buyer is not
assuming, and shall not be deemed to have assumed, any liability and
shall not have any obligation for or with respect to any liability or
obligation of VSI or Seller:
(i) under any employee benefit plan of VSI or Seller
other than any accrued liabilities specifically assumed by Buyer
pursuant to Section 1.3 above;
(ii) in respect of (x) any sales, use or excise taxes,
income taxes, taxes based on or measured by income or franchise
taxes attributable to periods or events prior to or ending on
the Closing Date or (y) any sales, use or excise taxes, income
taxes, or any other taxes, legal, accounting, brokerage,
finder's fees, or other expenses of whatsoever kind or nature
incurred by VSI or Seller or any affiliate, stockholder,
director, Employee or officer of VSI or Seller as a result of
the consummation of the transactions contemplated hereby (other
than such taxes, fees and expenses which are accrued in the
ordinary course of business prior to Closing);
(iii) arising out of any action, condition, suit or
proceeding based upon an event occurring or a claim arising (x)
prior to the Closing Date or (y) after the Closing Date in the
case of claims in respect of products sold or services provided
<PAGE>
by VSI or Seller prior to the Closing Date and attributable to
acts performed or omitted by VSI or Seller prior to the Closing
Date, provided, however, that Buyer shall assume any such
liability or obligation to the extent it has been reserved
against on the Closing Balance Sheet;
(iv) pursuant to existing loan agreements (other than
payment obligations assumed pursuant to Section 1.3 above), and
all agreements executed in connection therewith; or
(v) to any present or former shareholder, officer,
director or Employee of VSI or Seller (including, without
limitation, for bonuses, fringe benefits, vacation or holiday
pay, wages or severance pay, but excluding any accrued
liabilities specifically assumed by Buyer pursuant to Section
1.3 above).
1.5 Stockholder Approval; Voting. Seller, acting through its
board of directors, shall, unless there exists a Superior Takeover
Proposal, as soon as practicable after the date hereof (i) seek the
written consent of its sole stockholder, VSI, approving this Agreement
and all transactions contemplated hereby. VSI, acting through its board
of directors (the "Board"), shall, unless there exists a Superior
Takeover Proposal, as soon as practicable after the date hereof (i) seek
to obtain the written consent of stockholders owning not less than that
number of shares of VSI capital stock required under applicable law in
order to approve the transactions contemplated hereby; (ii) recommend
that such stockholders of VSI consent to the approval and adoption of
this Agreement and all transactions contemplated hereby; (iii)
distribute to its stockholders the definitive information statement
materials with respect to the sale of the Assets in accordance with
Regulation 14C under the Exchange Act, other applicable federal and
state laws, (the "Proxy Materials"); (iv) use its reasonable efforts to
obtain the necessary approvals by VSI's stockholders of this Agreement
and all transactions contemplated hereby; and (v) will, as the sole
stockholder of Seller, consent in writing, with respect to all
outstanding shares of capital stock of Seller, to the execution and
delivery of, and consummation of the transactions contemplated by, this
Agreement by Seller. Contemporaneously herewith, each of Rollins
Investment Fund and Rollins Holding Company, Inc., has executed an
agreement whereby each of them has agreed to consent in writing, with
respect to all shares of capital stock of VSI respectively beneficially
owned by them, to the execution and delivery of, and consummation of the
transactions contemplated by, this Agreement by VSI unless there exists
a Superior Takeover Proposal.
1.6 Closing. The closing of the purchase and sale of the Assets
provided herein (the "Closing") shall occur (i) at the office of Haynes
and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas 75202, at
10:00 a.m., local time, on the first business day immediately following
the day on or by which the last to be fulfilled or waived of the
<PAGE>
conditions set forth in Section 6 hereof shall be fulfilled or waived in
accordance herewith or (ii) at such other time and place or on such
other date as VSI, Seller and Buyer may mutually agree (such date and
time of Closing being herein referred to collectively as the "Closing
Date").
1.7 Delivery of Schedules and Exhibits. Within twenty business
days of the date of this Agreement, VSI and Seller shall deliver to
Buyer all schedules (other than Schedule 2.9, which shall be delivered
within twenty-five business days of the date of this Agreement) and
exhibits to this Agreement (the date of delivery of the last such
schedule or exhibit, including Schedule 2.9, being referred to herein as
the "Delivery Date"), such schedules being true and correct in all
material respects at and as of the Delivery Date (except for Schedules
1.1.1 and 1.3A, which shall be true and correct at and as of June 30,
1998) (collectively, the "Preliminary Schedules"). The Preliminary
Schedules shall be updated as required pursuant to Section 1.3 hereof
and otherwise as necessary so as to be true and correct at and as of the
Closing Date (collectively, as so updated, the "Closing Schedules"). The
Closing Schedules shall be delivered in accordance with Section 1.9
hereof; provided that any objection by Buyer to any of the Closing
Schedules delivered not later than five days prior to Closing must be
made by Buyer prior to Closing. Each of the Preliminary Schedules and
the Closing Schedules shall be in a form reasonably satisfactory to
Buyer.
1.8 Allocation of Purchase Price. The consideration given by
Buyer under this Agreement (including without limitation the payment of
the Purchase Price and the assumption of liabilities pursuant to Section
1.3 hereof) shall be allocated among the Assets in accordance with
section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. A schedule setting forth such proposed
allocations shall be prepared by Buyer and delivered to Seller within
120 days following the Closing Date. The allocation as set forth on such
schedule shall be reasonably determined by Buyer and shall be reasonably
satisfactory to Seller. Buyer, VSI and Seller agree to make such
allocation in filing their respective tax returns or declarations for
applicable United States income tax purposes.
<PAGE>
1.9 Closing Balance Sheet Adjustment
1.9.1 Within 45 days following the Closing Date, VSI and
Seller, with the reasonable assistance and cooperation of Buyer
(including use of employees of Buyer who were employees of
Seller immediately prior to Closing at no cost to Seller), shall
prepare and deliver to Buyer the Closing Balance Sheet and the
Closing Schedules. The Closing Balance Sheet and the Closing
Schedules shall be prepared from the books and records of VSI
and Seller concerning their respective businesses in accordance
with GAAP on a basis consistent with that used in the
preparation of the balance sheet included in the Financial
Statements dated June 30, 1998. Buyer, with the reasonable
assistance and cooperation of VSI and Seller, shall have 30 days
to review the Closing Balance Sheet and the Closing Schedules
after receipt thereof from VSI and Seller. On or before the
expiration of such 30-day period, Buyer shall deliver to VSI and
Seller a written statement accepting or objecting to the Closing
Balance Sheet and the Closing Schedules. In the event that Buyer
shall object to the Closing Balance Sheet, the Closing Schedules
or both, such statement shall include a detailed itemization of
Buyer's objections and its reasons therefor. If no statement is
delivered by Buyer to VSI and Seller within such 30-day period,
Buyer shall be deemed to have accepted the Closing Balance Sheet
and the Closing Schedules.
1.9.2 In the event that Buyer shall timely object to
the Closing Balance Sheet, Buyer, VSI and Seller shall promptly
meet and in good faith attempt to resolve such objection or
objections. Any of such objections which cannot be resolved
between Buyer, VSI and Seller within 30 days following VSI's and
Seller's receipt of Buyer's statement of objections shall be
submitted to binding arbitration conducted by the independent
accounting firm of Arthur Andersen LLP. In the event that Buyer
shall timely object to any of the Closing Schedules, such
objection shall be resolved in accordance with Section 5.15
hereof.
1.9.3 In the event that the net assets reflected on the
Closing Balance Sheet, after all of Buyer's objections thereto
shall have been resolved in accordance with Section 1.9.2
hereof, are greater or less than $5,353,593 (i.e. the amount of
the net assets reflected on the balance sheet included in the
Financial Statements dated June 30, 1998), then the amount of
any such excess or deficiency shall be paid to VSI and Seller
(in the case of an excess) or Buyer (in the case of a
deficiency) by the other by wire transfer of immediately
available United States funds within three business days of such
resolution, receipt of Buyer's written acceptance of the Closing
Balance Sheet or expiration of Buyer's 30-day period for
objection to the Closing Balance Sheet.
<PAGE>
2. Representations and Warranties of Seller and VSI. Subject to
attachment of the Schedules as provided in Section 1.7 hereof, VSI and Seller
hereby jointly and severally represent and warrant to Buyer as follows (Seller
and VSI reserving the right to attach at the Delivery Date and update at and as
of the Closing Date Schedules in addition to those called for herein and to add
references thereto in the following warranties and representations as
appropriate):
2.1 Existence; Good Standing; Corporate Authority; Compliance
With Law. Each of VSI and Seller (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction
of incorporation; (ii) is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other
jurisdictions in which the character of the properties owned or leased
by it therein or in which the transaction of its business makes such
qualification necessary except where the failure to be so qualified
would not be material; (iii) has all requisite corporate power and
authority to own its properties and carry on its business as now
conducted; (iv) is not in material default with respect to any Order of
any Governmental Body or arbitration board; (v) is not in material
violation of any Legal Requirement to which it is subject; and (vi) has
obtained all material licenses, permits and other authorizations and has
taken all actions required by applicable laws or governmental
regulations in connection with its business as now conducted.
2.2 Authorization, Validity and Effect of Agreements.
2.2.1 The execution and delivery of this Agreement and
all agreements and documents contemplated hereby by Seller and
VSI, and the consummation by each of Seller and VSI of the
transactions contemplated hereby, have been duly authorized by
the Board and the board of directors of Seller and, except for
the approval of the stockholders of VSI and Seller, no other
corporate proceedings on the part of Seller or VSI are necessary
to authorize this Agreement and the transactions contemplated
hereby.
2.2.2 This Agreement constitutes, and all agreements
and documents contemplated hereby when executed and delivered
pursuant hereto for value received will constitute, the valid
and legally binding obligations of Seller and VSI enforceable in
accordance with their terms, except that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, bulk sales, preference,
equitable subordination, marshalling or other similar laws of
general application now or hereafter in effect relating to the
enforcement of creditors' rights generally and except that the
remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court
before which any proceeding therefor may be brought.
<PAGE>
2.2.3 The execution and delivery of this Agreement by
each of Seller and VSI does not, and the consummation of the
transactions contemplated hereby by each of Seller and VSI will
not, except as set forth in Schedule 2.2 hereof (which Schedule
2.2 will include reference to compliance with the HSR Act), (i)
require the consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Body
or any Third Party; (ii) result in the breach of any term or
provision of, or constitute a default under, or result in the
acceleration of or entitle any party to accelerate (whether
after the giving of notice or the lapse of time or both) any
obligation under, or result in the creation or imposition of any
Encumbrance upon any part of the property of Seller or VSI
pursuant to any provision of, any Order, indenture, mortgage,
lease, license, lien, or other agreement or instrument to which
VSI or Seller is a party or by which either of them is bound; or
(iii) violate or conflict with any provision of the bylaws or
the Certificate of Incorporation of VSI or Seller as amended to
the date hereof
2.3 Capitalization and Ownership. The authorized capital stock
of VSI consists solely of (i) 12,000,000 shares of common stock, par
value $.01 per share, of which 7,906,617 shares and no more are
presently issued and outstanding and (ii) 55,000 shares of Series C
preferred stock, par value $0.10 per share, of which 55,000 shares and
no more are presently issued and outstanding. All issued and outstanding
shares of capital stock of Seller are owned beneficially and of record
by VSI. All of such capital stock of VSI and of Seller has been duly
authorized and validly issued and is fully paid and nonassessable.
Except as set forth in Schedule 2.3B hereof, there are no outstanding
rights, warrants, options, subscriptions, agreements or commitments
giving anyone any right to require VSI or Seller to sell or issue, or to
require VSI or the Stockholders to sell or otherwise transfer, any
capital stock or other securities of VSI or Seller.
2.4. affiliated Entities. Neither VSI nor Seller owns, nor has
either of them owned since September 4, 1998, directly or indirectly, a
majority or controlling interest in any corporation (other than VSI's
ownership of Seller), business trust, joint stock company, partnership
or other business organization or association relating to the business
operations of Seller.
2.5 Jurisdictions. Schedule 2.5 hereof contains a list of all
jurisdictions in which each of VSI and Seller is presently licensed or
qualified to do business. To the best knowledge of VSI and Seller, VSI
and Seller has each complied in all material respects with all
applicable laws of each such jurisdiction and all applicable rules and
regulations of each regulatory agency therein. Neither VSI nor Seller
(i) has been denied admission to conduct any type of business in any
jurisdiction in which it is not presently admitted as set forth in such
Schedule 2.5, (ii) has had its license or qualifications to conduct
business in any jurisdiction revoked or suspended, or (iii) has been
involved in any Proceeding to revoke or suspend a license or
qualification.
<PAGE>
2.6 Records. Each of VSI and Seller shall have delivered or made
available to Buyer and its counsel on or prior to the Delivery Date true
and complete copies of its respective Certificate or Articles of
Incorporation, bylaws, minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the
directors or shareholders without a meeting, partnership agreements and
certificates, and other organizational documents, of VSI and Seller, and
such documents are in full force and effect on the date hereof.
2.7 Bank Accounts. Schedule 2.7 hereof sets forth the name of
each bank, savings institution or other Person with which VSI or Seller
has an account, lockbox or safe deposit box and the names and
identification of all Persons authorized to drawn thereon or to have
access thereto.
2.8 Financial Statements.
2.8.1 Since June 30, 1996, the filings required to be
made by each of VSI and Seller under the Securities Act of 1933,
as amended (the "Securities Act"), or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), have been filed
with the SEC as required by each such law or regulation,
including all forms, statements, reports, agreements and all
documents, exhibits, amendments and supplements appertaining
thereto, and each of VSI and Seller have complied in all
material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder.
2.8.2 VSI and Seller shall have made available to Buyer
on or prior to the Delivery Date a true and complete copy of
each report, schedule, registration statement and definitive
proxy statement filed by VSI or Seller with the Securities and
Exchange Commission (the "SEC") since June 30, 1996 (such
documents as filed, and any and all amendments thereto, being
collectively referred to herein as the "SEC Reports").
2.8.3 The SEC Reports, including without limitation any
financial statements or schedules included therein, at the time
filed, and all forms, reports or other documents filed by each
of VSI and Seller with the SEC after the date hereof, did not
and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.8.4 The audited consolidated financial statements and
unaudited interim financial statements of VSI and Seller
included in the SEC Reports (collectively, the "Financial
Statements") have been prepared, and the audited consolidated
<PAGE>
financial statements and unaudited interim financial statements
of VSI and Seller as included in all forms, reports or other
documents filed with the SEC after the date hereof will be
prepared in accordance with GAAP (except as may be indicated
therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q) and fairly
present in all material respects the financial position of VSI
and Seller as of the respective dates thereof or the results of
operations and cash flows for the respective periods then ended,
as the case may be, subject, in the case of the unaudited
interim financial statements, to normal, recurring audit
adjustments.
2.8.5 As soon as reasonably practical following the
Closing Date, VSI and Seller (with the reasonable assistance and
cooperation of Buyer and employees of Buyer who were employees
of Seller immediately prior to Closing, such assistance to be at
no cost to VSI or Seller) will cause to be prepared each of the
following with respect to VSI and Seller, as at and of the
Closing Date: an audited consolidated balance sheet (the
"Closing Balance Sheet"), an audited consolidated statement of
operations, an audited consolidated statement of cash flows and
an audited consolidated statement of stockholders' equity
(collectively with the Closing Balance Sheet, the "Closing
Financial Statements"), which Closing Financial Statements will
be prepared in accordance with GAAP on a basis consistent with
the Financial Statements. In addition, the Closing Balance Sheet
shall be in the form of the balance sheet included in the
Financial Statements dated June 30, 1998. One half of the fees
paid to independent accounting firms incurred in connection with
the audit and preparation of the Closing Financial Statements
shall be paid by VSI and Seller and the other half shall be paid
by Buyer.
2.9 Undisclosed Liabilities. Neither VSI nor Seller has any
liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet, except liabilities, obligations or
contingencies (i) that are accrued or reserved against in the audited
consolidated financial statements of VIS and Seller or reflected in the
notes thereto for the year ended June 30, 1998, (ii) have been accrued
or been reserved against since June 30, 1998, and are disclosed on
Schedule 2.9 or (iii) that were incurred after June 30, 1998, in the
ordinary course of business and would not have a material effect on VSI
or Seller.
2.10 Absence of Certain Changes or Events. Since June 30, 1998,
neither VSI nor Seller has:
(i) incurred any obligation or liability (fixed or
contingent), except normal trade or business obligations
incurred in the ordinary course of business and consistent with
past practice, none of which is materially adverse, and except
<PAGE>
in connection with this Agreement and the transactions
contemplated hereby;
(ii) discharged or satisfied any Encumbrance or paid
any obligation or liability (fixed or contingent), other than in
the ordinary course of business and consistent with past
practice;
(iii) mortgaged, pledged or subjected to any
Encumbrance any of its assets or properties (other than inchoate
real estate tax liens not due and payable, mechanic's,
materialman's and similar statutory liens arising in the
ordinary course of business and purchase money security
interests arising as a matter of law between the date of
delivery and payment);
(iv) transferred, leased or otherwise disposed of any
of its assets or properties except for a fair consideration in
the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and
consistent with past practice, acquired any assets or
properties;
(v) cancelled or compromised any debt or claim, except
in the ordinary course of business and consistent with past
practice;
(vi) waived or released any rights of material value;
(vii) except pursuant to those contracts listed on the
Schedules hereof, transferred or granted any rights under any
concessions, leases, licenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with
respect to any know-how;
(viii) made or granted any wage or salary increase
applicable to any group or classification of Employees
generally, entered into any employment contract with, or made
any loan to, or entered into any material transaction of any
other nature with, any officer or Employee, except in the
ordinary course of business or as listed on the Schedules
hereof;
(ix) entered into any transaction, contract or
commitment, except (a) contracts listed on the Schedules hereof
and (b) this Agreement and the transactions contemplated hereby;
or
(x) suffered any casualty loss or damage (whether or
not such loss or damage shall have been covered by insurance)
which affects in any material respect its ability to conduct
business.
2.11 Taxes. Each of VSI and Seller (i) has duly and timely filed
or caused to be filed all federal, state, local and foreign tax returns
<PAGE>
(including, without limitation, consolidated and/or combined tax
returns) required to be filed by it prior to the date hereof which
relate to it or with respect to which it or the Assets are liable or
otherwise in any way subject; (ii) has paid or fully accrued for all
taxes shown to be due and payable on such returns (which taxes are all
the taxes due and payable under the laws and regulations pursuant to
which such returns were filed); and (iii) has properly accrued for all
such taxes accrued in respect of it or the Assets for periods subsequent
to the periods covered by such returns. No deficiency in payment of
taxes for any period has been asserted by any taxing body and remains
unsettled at the date hereof and no audits are in process and no
notification of audit to begin has been received for which claims are
unasserted. The consolidated tax returns of VSI and Seller for tax year
1995 have been audited by the Internal Revenue Service. Copies of all
federal, state, local and foreign income (or franchise) tax returns of
VSI and Seller for tax years 1996 and thereafter have been made
available for inspection by Buyer.
2.12 Real Property
2.12.1 Schedule 2.12A hereof identifies the real
property owned, either in whole or in part, by each of VSI and
Seller.
2.12.2 Schedule 2.12B hereof identifies the real
property leased or subleased by each of VSI and Seller (the
"Leases"). Neither VSI nor Seller has received any written
notification that it is in default with respect to any of the
Leases nor are there any disputes between any landlord and VSI
or Seller with respect to the Leases that would affect the right
of VSI or Seller, as the case may be, to remain in possession or
otherwise affect the current use of the property leased. Except
as set forth in Schedule 2.12B hereof, each of VSI and Seller
has performed all material obligations required to be performed
by it to date under, and is not in material default in respect
of, any Lease, and no event has occurred which, with due notice
or lapse of time or both, would constitute such a material
default. To the best of each of VSI's and Seller's knowledge, no
other party to any Lease is in material default in respect
thereof, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a default.
2.12.3 True and complete copies of all Leases and all
title reports, surveys and other leases relating to the real
property owned by VSI or Seller shall have been made available
to Buyer or its representatives on or prior to the Delivery
Date.
2.13 Personal Property. The machinery, equipment, furniture,
fixtures and other tangible personal property owned, leased or used by
each of VSI and Seller are sufficient and adequate to carry on their
respective businesses as presently conducted and are in good operating
condition and repair and are suitable for the purposes for which they
are used, normal "wear and tear" excepted.
<PAGE>
2.14 Title to Property; Encumbrances. Either VSI or Seller has
good, valid and, in the case of real properties, marketable title to all
the properties and assets shown on the Financial Statements or
thereafter acquired, including the Assets (except for (i) inventory
subsequently sold or otherwise disposed of for fair value in the
ordinary course of business consistent with past practice, (ii) accounts
receivable subsequently collected in the ordinary course of business
consistent with past practice and (iii) immaterial amounts of inventory,
machinery and equipment that have been determined to be obsolete or
otherwise not necessary and have been disposed of in the ordinary course
of business consistent with past practice), in each case free and clear
of all Encumbrances except for any Encumbrance reflected in Schedule
2.14 hereof. All buildings, structures, improvements and fixtures owned,
leased or used by VSI or Seller in the conduct of their respective
businesses conform in all material respects to all applicable codes, and
rules adopted by any applicable Governmental Body or national and local
associations and boards of insurance underwriters; and all such
buildings, structures, improvements and fixtures are in good operating
condition and repair, normal "wear and tear" excepted.
2.15 Insurance. Schedule 2.15 hereof sets forth a complete list
of all policies of or binders for fire, liability, worker's compensation
and other forms of insurance owned or held by each of VSI and Seller.
All such policies, or binders thereof, are in full force and effect, all
premiums with respect thereto covering all periods up to and including
the respective dates set forth in Schedule 2.15 hereof have been paid,
and no notice of cancellation or termination has been received with
respect to any such policy or binder. Such policies or binders (i) are
sufficient for compliance with all requirements of law currently
applicable to each of VSI and Seller and of all agreements to which each
of VSI and Seller is a party or by which any of them is bound; (ii) are
in such amounts and types of coverage as are customarily maintained by
businesses of the size and type as VSI's and Seller's; (iii) provide
insurance coverage adequate for the Assets and present operations of VSI
and Seller; (iv) will remain in full force and effect through the
respective dates set forth in Schedule 2.15 hereof without the payment
of additional premiums; and (v) will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Schedule 2.15 hereof also identifies all risks which each of
VSI and Seller has designated as being self-insured. Neither VSI nor
Seller has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited, by any insurance carrier
to which it has applied for any such insurance or with which it has
carried insurance during the last five years.
2.16 Business Property Rights
2.16.1 Schedule 2.16 hereof sets forth (i) all computer
software, patents, and registrations for trademarks, trade
<PAGE>
names, service marks and copyrights which are unexpired as of
the date hereof and which are used in connection with the
operation of each of VSI's and Seller's business, as well as all
applications pending on said date for patents or for trademark,
trade name, service mark or copyright registrations, and all
other trade secrets and proprietary rights, owned or held by
each of VSI and Seller and which are reasonably necessary to, or
used in connection with, the business of each of VSI and Seller;
and (ii) all licenses (other than shrink wrap licenses) granted
by or to VSI or Seller and all other agreements to which VSI or
Seller is a party and which relate, in whole or in part, to any
items of the categories mentioned in (i) above or to any trade
secret or other proprietary rights of VSI or Seller which are
reasonably necessary to, or used in connection with, the
business of VSI or Seller.
2.16.2 The property referred to in Section 2.16.1
hereof, together with (i) all designs, methods, inventions,
know-how, related thereto and (ii) all trademarks, trade names,
service marks, and copyrights claimed or used by either VSI or
Seller which have not been registered (collectively "Business
Property Rights"), constitute all such proprietary rights owned
or held by either VSI or Seller and which are reasonably
necessary to, or used in the conduct of the business of either
VSI or Seller. All of those items designated as trade secrets
and all related designs, methods, inventions and know-how
constitute trade secrets of VSI or Seller within the meaning of
all applicable laws, and each of VSI and Seller has taken all
necessary steps required by law to protect these trade secrets
as such. With respect to each such trade secret, the
documentation relating to such trade secret is current,
accurate, and sufficient in detail and content to identify it
and to allow its full and proper use. No such trade secrets are
part of the public knowledge or literature, nor have they been
used, divulged, or appropriated for the benefit of any Third
Party or otherwise to the detriment of VSI or Seller.
2.16.3 Each of VSI and Seller, as the case may be, owns
or has valid rights to use all such Business Property Rights
without conflict with the rights of others. Except as set forth
in Schedule 2.21 hereof, no Person or corporation has made or,
to the knowledge of each of VSI and Seller, Threatened to make
any claims that the operation of the business of VSI or Seller
is in violation of or infringes any other proprietary or trade
rights of any Third Party. To the knowledge of each of VSI and
Seller, no Third Party is in violation of or is infringing upon
any Business Property Rights.
2.17 Collective Bargaining Agreements. There are no collective
bargaining agreements which relate to either VSI or Seller or to which
either VSI or Seller is a party or which cover one or more Employees.
<PAGE>
2.18 Employees
2.18.1 Schedule 2.18. to this Agreement contains a
complete and accurate list of the following information for each
Employee, including each Employee on leave of absence or layoff
status: (i) name; (ii) address; (iii) telephone number; (iv)
social security number; (v) date of birth; (vi) job title; (vii)
date of hire; (viii) hourly or weekly compensation rate in
effect on June 30, 1998, and a comparison of such rate to that
in effect on June 30, 1997; (ix) vacation accrued; and (x)
service credited for purposes of vesting and eligibility to
participate under any pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, or any other
employee benefit plan. To the best of each of VSI's and Seller's
knowledge, during the past four years neither VSI nor Seller
has, directly or indirectly, purchased, leased, acquired any
property or obtained any services from, or sold, leased,
disposed of any property or furnished any services to, or
otherwise dealt with any Employee or any Person, firm or
corporation which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common
control with any Employee, except with respect to remuneration
for services rendered as a director, officer or employee of VSI
or Seller.
2.18.2 To the best of each of VSI's and Seller's
knowledge, no part of the property or assets of any Employee or
any Person, individual or organization directly or indirectly
related to any Employee is used by VSI or Seller.
2.18.3 Neither VSI nor Seller has encountered any
actual or threatened Employee strike, work stoppage, slowdown or
lockout, or had any material change in its relations with
Employees, agents, customers or suppliers for the three years
prior to the date of this Agreement. No question concerning
representation has been raised or is threatened with respect to
the Employees.
2.18.4 No "leased employee", as that term is defined
within the meaning of Section 414(n) of the Code, performs
services for VSI or Seller other than temporary employees.
2.18.5 The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current
or former Employee or current or former officer or director of
VSI or Seller to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement;
(ii) accelerate the time or payment or vesting, or increase the
amount of compensation due any such Employee, officer or
<PAGE>
director; or (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code
for which an exemption is not available.
2.18.6 Each of VSI and Seller is currently and has
always been in compliance in all material respects with all
applicable laws respecting employment and employment practices,
terms and conditions of wages and hours, and is not engaged in
any unfair labor practice.
2.18.7 Neither VSI nor Seller (i) has taken any action
which, alone or in conjunction with actions committed by VSI or
Seller prior to the Closing Date to be taken in the future,
would constitute a "plant closing" or "mass layoff" within the
meaning of the Worker Adjustment and Retraining Notification Act
("WARN") or applicable state law; or (ii) has issued any
notification of a "plant closing" or "mass layoff" required by
WARN or by applicable state law.
2.19 Other Contracts. Schedule 2.19 hereof sets forth all
contracts, understandings and commitments (including, without
limitation, mortgages, indentures and loan agreements) to which either
VSI or Seller is a party, or to which either of them or any of their
respective assets or properties are subject, and which are not
specifically referred to in the other Schedules hereof other than those
which are exempted by the terms of Section 1.3(ii) hereof from being
listed on Schedule 1.3B. True and complete copies of all documents and
complete descriptions of all oral understandings, if any, referred to in
the Schedules will be provided or made available to Buyer and its
counsel on or prior to the Delivery Date.
2.20 No Breach or Default. Neither VSI nor Seller is in material
default under any contract to which it is a party or by which it is
bound, nor has any event occurred which, after the giving of notice or
the passage of time or both, would constitute a material default under
any such contract. Neither VSI nor Seller has any reason to believe that
the parties to such contracts will not fulfill their obligations under
such contracts in all material respects or are threatened with
insolvency.
2.21 Litigation
2.21.1 Schedule 2.21 hereof sets forth a list and a
summary description of all pending or Threatened Proceedings in
respect of each of VSI and Seller, setting forth, with respect
to each action or suit, (i) the reserves reflected in the most
recent Financial Statements and (ii) the existence and extent of
insurance coverage.
2.21.2 Except as set forth in Schedule 2.21 hereof,
there are no claims or Proceedings pending or Threatened before
<PAGE>
any Governmental Body or before any arbitrator of any nature,
brought by or against VSI or Seller or any of their respective
officers, directors, Employees, agents or affiliates involving,
affecting or relating to any assets, properties or operations of
VSI or Seller or the transactions contemplated by this
Agreement, nor does there exist any fact which might reasonably
be expected to give rise to any such suit, Proceeding, dispute
or investigation.
2.21.3 Neither VSI nor Seller nor any of their
respective assets or properties is subject to any Order of any
Governmental Body or arbitrator, which adversely affects or
might reasonably be expected to affect their respective assets,
properties, business operation, prospects, net income or
financial condition or which would or might reasonably be
expected to interfere with the transactions contemplated hereby.
2.21.4 Other than as provided in Section 1.4(iii),
Buyer is not assuming any liabilities or obligations of VSI or
Seller set forth on Schedule 2.21. Schedule 2.21 is provided to
Buyer solely for informational purposes. Buyer does, however,
agree to cooperate, at Seller's expense, with the reasonable
requests of Seller to make available certain witnesses and other
evidence during the pendency of the matters set forth in
Schedule 2.21.
2.22 Accounts Receivable. All trade accounts receivable of each
of VSI and Seller reflected in the Financial Statements and all trade
accounts receivable of each of VSI and Seller arising between June 30,
1998 and the Closing Date have arisen in the ordinary course of business
and represent bona fide, undisputed indebtedness (subject to no
counterclaim, right of setoff or warranty claim other than as will be
reserved against in the Closing Balance Sheet) incurred by the
applicable account debtor for goods held subject to delivery
instructions or shipped or delivered pursuant to a contract of sale or
for services performed by VSI or Seller.
2.23 Inventories and Supplies. The inventories and supplies of
each of VSI and Seller reflected in the Financial Statements, or
acquired by VSI or Seller between June 30, 1998, and the date hereof,
are carried at not in excess of the lower of cost or fair market value,
and do not include any inventory which is not usable or saleable in the
ordinary course of business of VSI and Seller as heretofore conducted,
in each case net of reserves provided therefor in such Financial
Statements in accordance with GAAP.
2.24 Inventories and Supplies. Except as set forth in Schedule
2.24 hereof,
2.24.1 Each of VSI and Seller is in compliance with and
neither is liable under any Environmental Law. Neither VSI nor
Seller has received any Order or written notice from any
<PAGE>
Governmental Body or other Person alleging any violation of or
failure to comply with any Environmental Law, or any actual or
Threatened obligation to undertake or bear the cost of any
Environmental Liabilities with respect to any of the Facilities,
or with respect to any property at, to, or from which Hazardous
Materials were generated, manufactured, refined, transferred,
imported, used, processed, transported, treated, stored,
handled, disposed, recycled, or received by VSI or Seller or any
of their respective Employees.
2.24.2 There are no Claims resulting from any
Environmental Liabilities that have been asserted with respect
to or affecting any of the Facilities or that relate to
ownership or operation by VSI or Seller.
2.24.3 There are no Hazardous Materials present on or
in the Environment at the Facilities, including any Hazardous
Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or
any other part of the Facilities, or incorporated into any
structure therein or thereon except in compliance with
Environmental Laws and with regard to which no remedial action
would be required if brought to the attention of a Governmental
Body with jurisdiction.
2.24.4 Either VSI or Seller has delivered or made
available to Buyer true and complete copies and results of any
reports, studies, analyses, tests, or monitoring possessed by
VSI or Seller pertaining to Hazardous Materials in, on, or
under, or to Environmental issues relating to, the Facilities or
Former Facilities.
2.25 Customers and Suppliers. Except as set forth in Schedule
2.25 hereof,
(i) neither VSI nor Seller has received notice that,
nor does VSI or Seller have any knowledge that, any customer of
VSI or Seller has, will or plans to discontinue doing business
with VSI or Seller;
(ii) neither VSI nor Seller has any outstanding
purchase contracts or commitments or unaccepted purchase orders
which are in excess of the normal, ordinary and usual
requirements;
(iii) no supplier or subcontractor to VSI or Seller has
reduced its shipments of orders issued by VSI or Seller, or
threatened to discontinue, supplying such items or services to
VSI or Seller on reasonable terms; and
(iv) neither VSI nor Seller has received notice that,
nor does VSI nor Seller have any knowledge that, any such
<PAGE>
supplier or subcontractor has, will or plans to discontinue
doing business with VSI or Seller on substantially the same
terms as are consistent with its past practices.
2.26 No Brokers. Neither VSI nor Seller has entered into any
contract, arrangement or understanding with any Person or firm which may
result in the obligation of Buyer, VSI or Seller to pay any finder's
fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, and neither VSI
nor Seller is aware of any claim or basis for any claim for payment of
any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
2.27 Indemnities and Guaranties. Neither VSI nor Seller has
indemnified or provided a guaranty to any Person except (i) as set forth
and described in Schedule 1.3B hereof and (ii) to customers of either in
the ordinary course of business.
2.28 No Misrepresentation or Omission. No representation or
warranty by VSI or Seller in this Section 2 or in any other Section of
this Agreement, or in any certificate or other document furnished or to
be furnished by VSI or Seller pursuant hereto, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not
misleading or will omit to state a material fact necessary in order to
provide Buyer with accurate information as to VSI and Seller.
2.29 Survival of Representations and Warranties. All
representations and warranties by each of VSI and Seller in this Section
2 or in any other Section hereof, or in any certificate or other
document furnished or to be furnished by VSI or Seller pursuant hereto,
shall survive delivery by Buyer of the consideration to be given by it
hereunder and delivery by each of VSI and Seller of the consideration to
be given by each hereunder, and shall survive the execution hereof, the
Closing hereunder and the Closing Date; provided, however, that no claim
based on any breach of any such warranty or any misrepresentation may be
made by any Buyer Indemnitee unless written notice with respect thereto
is given on or before the third anniversary of the Closing Date.
3. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller and VSI as follows (Buyer reserving
the right to attach at the Delivery Date and update at and as of the
Closing Date Schedules in addition to those called for herein and to add
references thereto in the following warranties and representations as
appropriate):
<PAGE>
3.1 Existence; Good Standing; Corporate Authority;
Compliance with Law. Buyer (i) is a corporation duly
incorporated, validly existing in good standing under the laws
of its jurisdiction of incorporation; (ii) is duly licensed or
qualified to do business as a foreign corporation and is in good
standing under the laws of all other jurisdictions in which the
character of the properties owned or leased by it therein or in
which the transaction of its business makes such qualification
necessary except where the failure to be so qualified would not
be material; (iii) has all requisite corporate power and
authority to own its properties and carry on its business as now
conducted; (iv) is not in material default with respect to any
Order of any Governmental Body or arbitration board to which
Buyer is a party or is subject; (v) is not in material violation
of any laws, ordinances, governmental rules or regulations to
which it is subject; and (vi) has obtained all material
licenses, permits and other authorizations and has taken all
actions required by applicable laws or governmental regulations
in connection with its business as now conducted.
3.2 Authorization, Validity and Effect of Agreements.
3.2.1 The execution and delivery of this Agreement and
all agreements and documents contemplated hereby by Buyer, and
the consummation by it of the transactions contemplated hereby,
have been duly authorized by all requisite corporate action.
3.2.2 This Agreement constitutes, and all agreements
and documents contemplated hereby when executed and delivered
pursuant hereto for value received will constitute, the valid
and legally binding obligations of Buyer enforceable in
accordance with their terms, except that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, bulk sales, preference,
equitable subordination, marshalling or other similar laws of
general application now or hereafter in effect relating to the
enforcement of creditors' rights generally and except that the
remedies of specific performance, injunction and other forms of
equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court
before which any proceeding therefor may be brought.
3.2.3 The execution and delivery of this Agreement by
Buyer does not, and the consummation of the transactions
contemplated hereby will not, (i) except as set forth on
Schedule 3.2 hereof, require the consent, approval or
authorization of, or declaration, filing or registration with,
any Governmental Body or any Third Party, (ii) result in the
breach of any term or provision of, or constitute a default
under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or the lapse of
time or both) any obligation under, or result in the creation or
imposition of any Encumbrance upon any part of the property of
Buyer pursuant to any provision of, any Order, indenture,
mortgage, lease, license, lien, or other agreement or instrument
to which Buyer is a party or by which it is bound, and (iii)
violate or conflict with any provision of the bylaws or
Certificate of Incorporation of Buyer as amended to the date
hereof.
<PAGE>
3.3 Survival of Representations and Warranties. All
representations and warranties by Buyer in this Section 3 or in any
other Section hereof, or in any certificate or other document furnished
or to be furnished by Buyer pursuant hereto, shall survive delivery by
Buyer of the consideration to be given by it hereunder and delivery by
each of VSI and Seller of the consideration to be given by each
hereunder, and shall survive the execution hereof, the Closing hereunder
and the Closing Date; provided, however, that, other than as set forth
in Section 4.2 hereof, no claim based on any breach of any such warranty
or any misrepresentation may be made by VSI or Seller unless written
notice with respect thereto is given on or before the third anniversary
of the Closing Date.
4. Indemnification
4.1 Indemnification by Seller and VIS. Subject to the provisions
of Section 5.15 below and upon the terms and subject to the conditions
set forth in Sections 4.3 and 4.5 hereof and this Section 4.1, Seller
and VSI, jointly and severally, agree to indemnify, defend, protect,
save and hold harmless the Buyer Indemnitees (or any Buyer Indemnitee)
against, and will reimburse the Buyer Indemnitees (or any Buyer
Indemnitee) for, any and all Losses made or incurred by or asserted
against the Buyer Indemnitees (or any Buyer Indemnitee), at any time
after the Closing Date, directly or indirectly, arising out of, related
to, caused by, or resulting from any of the following (in each case
regardless of by whom asserted):
4.1.1 any and all liabilities or obligations of Seller
or VSI or claims against or imposed on the Buyer Indemnitees (or
any Buyer Indemnitee), of any nature, including, without
limitation, those relating to the respective business activities
of Seller or VSI or to conditions existing on any of the
Facilities prior to the Closing Date (whether accrued, absolute,
contingent or otherwise and whether a contractual, tax,
statutory or other type of liability, obligation or claim) not
specifically assumed by Buyer pursuant hereto (including,
without limitation, those liabilities or obligations of VSI or
Seller specifically referred to in Section 1.4 hereof);
4.1.2 any inaccuracy, omission, misrepresentation,
breach of warranty or representation, or nonfulfillment of any
term, provision, covenant or agreement on the part of Seller or
VSI contained herein, or any inaccuracy or misrepresentation in,
or omission from, any certificate or other instrument furnished
or to be furnished by Seller or VSI to Buyer pursuant hereto;
4.1.3 Seller's or VSI's failure to comply with any bulk
transfer provisions which may be in effect in the state or
states in which the Assets are located;
<PAGE>
4.1.4 (i) any Breach by Seller or VSI of Seller's or
VSI's environmental representation and warranty contained
herein; (this indemnity is intended to allocate responsibility
between VSI, Seller and Buyer and any other Indemnified Party as
contemplated by Section 107(e)(1) of CERCLA or similar law);
4.1.5 any and all items listed on the Schedules
delivered subsequent to the Closing, objected to by Buyer and
determined in accordance with Section 5.15 hereof not to be
items assumed by Buyer pursuant hereto.
As used herein, the term "Losses" shall mean, with respect to
any Person or party, any payment, loss, liability, obligation, damage
(including, without limitation, consequential, punitive, special or
otherwise), deficiency, lien, claim, suit, cause of action, judgment,
cost or expense (including, without limitation, reasonable attorneys'
fees and court costs and costs of cleanup, containment, or other
remediation of the Environment) of any kind, nature or description.
As used herein, the term "Buyer Indemnitees" shall mean Buyer
and any affiliate of Buyer;
As used herein, the term "affiliate" shall mean, with respect to
any Person or party, (i) any Person or party controlling, controlled by
or under common control with any such Person or party or (ii) any
director or executive officer of any such Person or party or of any
Person or party referred to in clause (i) of this paragraph. As used
herein, the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person or party, whether through the
ownership of voting securities or voting interests, by contract or
otherwise.
Notwithstanding anything to the contrary contained herein, the
parties agree that any Buyer Indemnitee's sole remedy for any claim for
damages (excluding equitable remedies and those resulting from fraud)
arising under this Agreement (including the Schedules) or any other
agreement between Buyer and VSI or Seller entered into in connection
herewith (including any claim based upon Seller's warranties,
representations and covenants contained herein) shall be limited to the
remedies provided in the indemnification provisions of this Section 4
and the Escrow Agreement. Further, Buyer waives all other statutory or
common law rights to recover against VSI or Seller for any matter
relating to Environmental Contamination, Environmental Liabilities or
Hazardous Materials. There shall be no limit on Seller's or VSI's
obligation to indemnify and hold harmless any Buyer Indemnitee from or
against Losses resulting from fraud.
4.2 Indemnification by Buyer. Upon the terms and subject to the
conditions set forth in Section 4.3 hereof and this Section 4.2, Buyer
agrees to indemnify, defend, protect, save and hold harmless Seller and
<PAGE>
VSI against, and will reimburse Seller and VSI on demand for, any and
all Losses made or incurred by or asserted against Seller, at any time
after the Closing Date, directly or indirectly, arising out of, related
to, caused by, or resulting from (i) any inaccuracy, omission,
misrepresentation, breach of warranty, or nonfulfillment of any term,
provision, covenant or agreement on the part of Buyer contained herein,
(ii) any inaccuracy or misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished by Buyer to
Seller pursuant hereto or (iii) operation of business activities of
Buyer after the Closing Date involving the Assets. Within 45 days
following the first anniversary of the Closing Date, Buyer shall deliver
to VSI and Seller a certificate of Buyer certifying which of those
liabilities and obligations of Buyer assumed from VSI or Seller pursuant
to this Agreement and listed on Schedule 1.3A or Schedule 1.3B (each as
updated to Closing) had become due and payable but had not been paid in
full or resolved as of the first anniversary of the Closing Date. With
respect to the liabilities and obligations listed in such certificate
(or which were erroneously omitted from such certificate), Buyer's
obligations pursuant to this Section 4.2 shall terminate upon the
payment or resolution of such liability or obligation. With respect to
those liabilities and obligations of Buyer assumed from VSI or Seller
pursuant to this Agreement and listed on Schedule 1.3A or Schedule 1.3B
(each as updated to Closing) which by their respective terms in effect
at Closing will become due and payable later than the first anniversary
of the Closing Date, Buyer's obligations pursuant to this Section 4.2
shall terminate upon the payment or resolution of such liability or
obligation. In the event the certificate is not timely delivered,
Buyer's obligation pursuant to this Section 4.2 shall terminate upon the
payment or resolution of all liabilities assumed pursuant to Section
1.3. With respect to all other liabilities and obligations of Buyer
assumed from VSI or Seller pursuant to this Agreement, Buyer's
obligations pursuant to this Section 4.2 shall terminate upon the third
anniversary of the Closing Date. There shall be no limit on Buyer's
obligation to indemnify and hold harmless Seller and VSI from or against
Losses resulting from fraud.
4.3 Conditions of Indemnification. With respect to any actual or
potential claim, any written demand, the commencement of any action, or
the occurrence of any other event which involves any matter or related
series of matters (a "Claim") against which a party hereto is
indemnified (the "Indemnified Party") by any other party (the
"Indemnifying Party") under Section 4.1 or 4.2 hereof:
4.3.1 Promptly after the Indemnified Party first
receives written documents pertaining to the Claim, or if such
Claim does not involve a Third Party Claim (a "Third Party
Claim"), promptly after the Indemnified Party first has actual
knowledge of such Claim, the Indemnified Party shall give notice
to the Indemnifying Party of such Claim in reasonable detail and
stating the amount involved, if known, together with copies of
any such written documents.
<PAGE>
4.3.2 The obligation of the Indemnifying Party to
indemnify the Indemnified Party with respect to any Claim shall
not be affected by the failure of the Indemnified Party to give
the notice with respect thereto in accordance with Section 4.3.1
hereof unless the Indemnifying Party shall establish that it has
been materially prejudiced thereby.
4.3.3 If the Claim involves a Third Party Claim, then
the Indemnifying Party shall, at its sole cost, expense and
ultimate liability regardless of the outcome, and through
counsel of its choice (which counsel shall be reasonably
satisfactory to the Indemnified Party), litigate, defend, settle
or otherwise attempt to resolve such Third Party Claim;
provided, however, that if in the Indemnified Party's reasonable
judgment a conflict of interest may exist with respect to the
Third Party Claim, then the Indemnified Party shall be entitled
to select counsel of its own choosing, reasonably satisfactory
to the Indemnifying Party, in which event the Indemnifying Party
shall be obligated to pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, the Indemnified Party
may elect, at any time and at the Indemnified Party's sole cost,
expense and ultimate liability, regardless of the outcome (in
the case of reasons other than the Indemnifying Party's failure
or refusal to provide a defense to such Third Party Claim), and
through counsel of its choice, to litigate, defend, settle or
otherwise attempt to resolve such Third Party Claim. If the
Indemnified Party so elects (for reasons other than the
Indemnifying Party's failure or refusal to provide a defense to
such Third Party Claim), then the Indemnifying Party shall have
no obligation to indemnify the Indemnified Party with respect to
such Third Party Claim, but such disposition will be without
prejudice to any other right the Indemnified Party may have to
indemnification under Section 4.1 or 4.2 hereof, regardless of
the outcome of such Third Party Claim. If the Indemnifying Party
fails or refuses to provide a defense to any Third Party Claim,
then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such Third Party Claim,
through counsel of its choice, on behalf of and for the account
and at the risk of the Indemnifying Party, and the Indemnifying
Party shall be obligated to pay the costs, expenses and
attorney's fees incurred by the Indemnified Party in connection
with such Third Party Claim. In any event, Seller and the Buyer
Indemnitees shall fully cooperate with each other and their
respective counsel in connection with any such litigation,
defense, settlement or other attempted resolution.
4.4 Monetary Limits of Indemnification
4.4.1 Notwithstanding the provisions of Section 4.1
hereof, Seller and VSI will not be obligated to indemnify or
hold harmless any Buyer Indemnitee from or against Losses
<PAGE>
arising out of or resulting from matters described in Section
4.1, (other than Losses directly or indirectly arising out of,
related to, caused by, or resulting from any inaccuracy,
omission or misrepresentation contained in, or breach of
warranty or representation respecting, Section 2.22), until the
amount of such Losses individually or in the aggregate exceed
the amount of $200,000 (the "Floor Amount"), it being understood
and agreed that the Floor Amount shall be deemed to have been
reached as to each of VSI and Seller when Buyer's Losses exceed
the amount of $200,000. Upon reaching the Floor Amount, Seller
and VSI shall be required to indemnify the applicable Buyer
Indemnitee for Losses comprising the Floor Amount as well as all
Losses occurring thereafter only from the Escrow Fund and only
up to (except in the cases of Losses resulting from fraud) an
aggregate amount equal to the amount of the Escrow Fund then
outstanding (the "Seller's Ceiling Amount"). Seller and VSI will
be obligated to indemnify and hold harmless any Buyer Indemnitee
from or against Losses directly or indirectly arising out of,
related to, caused by, or resulting from any inaccuracy,
omission or misrepresentation contained in, or breach of
warranty or representation respecting, Section 2.22 up to the
Seller's Ceiling Amount without regard to the Floor Amount.
Seller and VSI will be obligated to indemnify and hold harmless
any Buyer Indemnitee from or against Losses directly or
indirectly arising out of, related to, caused by, or resulting
from any inaccuracy, omission or misrepresentation contained in,
or breach of warranty or representation respecting, Sections
2.12.2 or 2.20 without regard to the materiality of such
inaccuracy, omission, misrepresentation, or breach of warranty
or representation. Notwithstanding the provisions of Section 4.1
hereof and except in the cases of Losses resulting from fraud,
Seller and VSI will not be obligated to indemnify or hold
harmless any Buyer Indemnitee from or against Losses to the
extent such Losses are in excess of the Seller's Ceiling Amount.
There shall be no monetary limit on Seller's or VSI's obligation
to indemnify and hold harmless any Buyer Indemnitee from or
against Losses resulting from fraud.
4.4.2 Notwithstanding the provisions of Section 4.2
hereof, Buyer will not be obligated to indemnify or hold
harmless Seller or VSI from or against Losses arising out of or
resulting from matters described in Section 4.2, (other than
Losses directly or indirectly arising out of, related to, caused
by, or resulting from any nonfulfillment of any covenant on the
part of Buyer contained in Section 1.3 hereof or any certificate
related thereto), until the amount of such Losses individually
or in the aggregate exceed the Floor Amount. Upon reaching the
Floor Amount, Buyer shall be required to indemnify Seller and
VSI for Losses comprising the Floor Amount as well as all Losses
occurring thereafter only up to (except in the cases of Losses
<PAGE>
resulting from fraud) an aggregate amount equal to $12,000,000
(the "Buyer's Ceiling Amount"). Buyer will be obligated to
indemnify and hold harmless Seller and VSI from or against
Losses directly or indirectly arising out of, related to, caused
by, or resulting from any nonfulfillment of any covenant on the
part of Buyer contained in Section 1.3 hereof up to the Buyer's
Ceiling Amount without regard to the Floor Amount.
Notwithstanding the provisions of Section 4.2 hereof and except
in the cases of Losses resulting from fraud, Buyer will not be
obligated to indemnify or hold harmless Seller or VSI from or
against Losses to the extent such Losses are in excess of the
Buyer's Ceiling Amount. There shall be no monetary limit on
Buyer's obligation to indemnify and hold harmless Seller or VSI
from or against Losses resulting from fraud.
. 4.5 Environmental Remediation
4.5.1. The term "Environmental Contamination" shall
mean the presence of Hazardous Materials at any of the
Facilities. Environmental Contamination is indemnifiable as a
Loss under Section 4.1 hereof if it has resulted in the issuance
of a final Order or legally enforceable directive by a
Governmental Body or if it triggers a Legal Requirement that
imposes an obligation to act, or, for Facilities on leased
property, when brought to the attention of the landlord as a
result of a legal requirement or a requirement under the lease
to so notify, results in a legally enforceable demand by the
landlord for remediation.
4.5.2 The addressing of Environmental Contamination,
(whether by assessment, negotiation, compromise, risk
assessment, cleanup or otherwise) (hereafter "Environmental
Remediation") identified by the Environmental Due Diligence
Review shall be performed by VSI and Seller, to the extent the
cost of the Environmental Remediation of such contamination does
not exceed the funds available in the Escrow Fund. If and when
funds from the Escrow fund are exhausted, VSI and Seller shall
have no obligation to perform any Environmental Remediation or
otherwise address any Environmental Contamination. The
remediation of Environmental Contamination identified after the
Closing shall be the responsibility of Buyer unless Buyer can
establish that such contamination arose prior to the Closing.
Buyer acknowledges that VSI and Seller shall have no obligation
to perform Environmental Remediation unless Environmental
Contamination is discovered (i) during the Environmental Due
Diligence review set forth in Section 5.5.2; or (ii) by, or as a
result of a third party claim or demand; or (iii) due to a Legal
Requirement under any Environmental Law. Notwithstanding any
other provision of this Section 4.5.2, if, after the Closing
Date, Buyer is informed of, or inadvertently discovers
Environmental Contamination that does not require the giving of
notice to either a Governmental Body or to the landlord pursuant
to the applicable lease, Buyer shall give notice of same to VSI
and Seller and VSI and Seller shall perform Environmental
Remediation to the standards set forth in Section 4.5.4.
<PAGE>
4.5.3 Seller and VSI have the right to undertake any
Environmental Remediation for which they are responsible subject
to reasonable agreement of Buyer and VSI regarding access to,
and non-interference with activities of Buyer on, the
Facilities. Seller and VSI shall be entitled to receive monthly
reimbursement from the Escrow Fund for the costs of that
Environmental Remediation to the extent funds are available.
4.5.4 The extent to which Environmental Contamination
must be remediated, if at all, shall be to the highest levels
allowed by law that do not require the imposition of
institutional controls unless those controls would not impair
the value, or interfere with the reasonable use, of the
property, and, if the Facility is on leased property, to
whatever level the landlord ultimately agrees; provided however,
institutional controls that impair value may be allowed if VSI
or Seller pays Buyer for the diminution in value attributable to
that impairment.
5. Other Covenants and Agreements
5.1 Guaranty of Receivables. At the Closing, Seller and VSI
shall execute and deliver to Buyer a Guaranty in the form set forth as
Exhibit "B" hereto (the "Receivables Guaranty"), under the terms of
which Seller and VSI, jointly and severally, shall unconditionally
guarantee that all indebtedness represented by the accounts receivable
of VSI and Seller as of the Closing Date (less the reserve for doubtful
accounts not to exceed an aggregate of $125,000) will be received by
Buyer. Within 160 days following the Closing Date, Buyer shall prepare
and deliver to VSI and Seller an accounting of collections on such
receivables on or before 150 days following the Closing Date, certified
as true and correct by the Chief Financial Officer of Buyer. In the
event such net indebtedness is not received by Buyer on or before 150
days after the Closing Date, VSI and Seller shall within ten business
days following receipt from Buyer of such accounting giving notice to
such effect cause the Escrow Agent to make payment from the Escrow Fund
to Buyer of an amount in cash equal to the difference between such net
indebtedness and the amount received by Buyer for such accounts
receivable, whereupon Buyer shall promptly assign or cause to be
assigned to VSI or Seller all rights, claims, actions or causes of
action which Buyer may have relating to such unpaid receivables. In the
event that the amount received by Buyer for such accounts receivable
shall be in excess of such net indebtedness, the amount of such excess
will be paid by Buyer to VSI (from Buyer's own funds and not from the
Escrow Fund) within such ten business day period. During the 150 days
following the Closing Date, Buyer shall use reasonable and customary
efforts to collect such receivables (but shall not be obligated to
initiate litigation) and any amounts received by Buyer in respect of
such accounts receivable shall be applied first to the oldest such
account receivable of the respective account debtor unless the account
debtor specifically directs otherwise in writing without any direction
from Buyer.
<PAGE>
5.2 Restrictive Covenants
5.2.1 Customer Restriction. Each of Seller and VSI
covenants and agrees that it shall not, for a period of five
years from and after the Closing Date, working alone or in
conjunction with one or more other Persons or entities, for
compensation or not, (i) provide or offer to provide to any
Customer (as such term is hereinafter defined) any product or
service the same or similar to that offered by VSI or Seller
prior to the Closing, or (ii) induce or attempt to induce any
Customer to withdraw, curtail or cancel its business with Buyer
or in any manner modify or fail to enter into any actual or
potential business relationship with Buyer. As used herein, the
term "Customer" means any Person or entity for whom VSI or
Seller provided services on or prior to the Closing Date or to
whom VSI or Seller provided a product on or prior to the Closing
Date.
5.2.2 Non-Raid. Each Seller and VSI covenants and
agrees that it shall not, for a period of five years from and
after the Closing Date, working alone or in conjunction with one
or more other Persons or entities, for compensation or not, (i)
recruit or otherwise solicit or induce any Person or entity who
is, on the Closing Date or thereafter, an employee or vendor of
VSI or Seller to terminate their employment with, or otherwise
cease their relationship with, Buyer or any of its subsidiaries
or affiliates, or (ii) hire, recruit or otherwise solicit any
Person or entity who, within the six months immediately
preceding the Closing Date, had been an employee or vendor of
VSI or Seller.
5.2.3 Noncompetition. Each of Seller and VSI covenants
and agrees that it shall not, for a period of five years from
and after the Closing Date, working alone or in conjunction with
one or more other Persons or entities, for compensation or not,
permit VSI's or Seller's name to be used by or engage in or
carry on, directly or indirectly, either for itself or as a
member of a partnership or as a stockholder, investor, agent,
associate or consultant of any Person, partnership or
corporation (other than Buyer or a subsidiary or affiliate of
Buyer), any business in competition with the business as carried
on by VSI or Seller on the Closing Date, but only for as long as
such like business is carried on by (i) Buyer or any subsidiary
or affiliate of Buyer, or (ii) any Person, corporation,
partnership, trust or other organization or entity deriving
title from Buyer to the assets and goodwill of the business
being carried on by VSI or Seller on the Closing Date, in any
county in any state of the United States in which Buyer or any
subsidiary or affiliate of Buyer conducts business, or in any
other county in any state of the United States, or in any
country or political subdivision of the world. The parties
intend that the covenants contained in this Section 5.2.3 shall
be deemed to be a series of separate covenants, one for each
county in each state of the United States and for each country
<PAGE>
and political subdivision of the world and, except for
geographic coverage, each such separate covenant shall be
identical in terms to the covenant contained in this Section
5.2.3.
5.2.4 Tolling. The term of the covenants contained in
Section 5.2.1, 5.2.2 or 5.2.3 hereof shall be tolled for the
period commencing on the date any successful action is filed for
injunctive relief or damages arising out of a breach by VSI or
Seller of Section 5.2.1, 5.2.2 or 5.2.3 hereof and ending upon
final adjudication (including appeals) of such action.
5.2.5 Reformation. If, in any judicial proceeding, the
court shall refuse to enforce all of the separate covenants
contained in Section 5.2.1, 5.2.2 or 5.2.3 hereof because the
time limit is too long, it is expressly understood and agreed
between the parties hereto that for purposes of such proceeding
such time limitation shall be deemed reduced to the extent
necessary to permit enforcement of such covenants. If, in any
judicial proceeding, the court shall refuse to enforce all of
the separate covenants contained in Section 5.2.1, 5.2.2 or
5.2.3 hereof because it is more extensive (whether as to
geographic area, scope of business or otherwise) than necessary
to protect the business and goodwill of Buyer, it is expressly
understood and agreed between the parties hereto that for
purposes of such proceeding the geographic area, scope of
business or other aspect shall be deemed reduced to the extent
necessary to permit enforcement of such covenants.
5.2.6 Injunctive Relief. Each of VSI and Seller
acknowledges that a breach of Section 5.2.1, 5.2.2 or 5.2.3
hereof would cause irreparable damage to Buyer, and in the event
of its actual or threatened breach of the provisions of Section
5.2.1, 5.2.2 or 5.2.3 hereof, Buyer shall be entitled to a
temporary restraining order and an injunction restraining each
of VSI and Seller from breaching such covenants without the
necessity of posting bond or proving irreparable harm, such
being conclusively admitted by VSI and Seller. Nothing shall be
construed as prohibiting Buyer from pursuing any other available
remedies for such breach or threatened breach, including the
recovery of damages from each of VSI and Seller. Each of VSI and
Seller acknowledges that the restrictions set forth in Sections
5.2.1, 5.2.2 and 5.2.3 hereof are reasonable in scope and
duration, given the nature of the business of Buyer.
5.2.7 Use of Name. Each of Seller and VSI shall
discontinue all use of the name "Valley Systems" and any and all
derivations thereof within 30 days after the Closing Date (other
than in respect of the name of VSI's 401(k) plan prior to its
termination).
<PAGE>
5.2.8 No Dissolution. Neither VSI nor Seller shall
dissolve until the entire Escrow Fund has been released
pursuant to Section 5.3 hereof.
5.3 Escrow
5.3.1 The Escrow Fund shall be the exclusive source of
recovery in respect of each of VSI's and Seller's
indemnification obligations pursuant to Section 4 hereof or
otherwise arising under this Agreement (including the Schedules
hereto) or any other agreement between Buyer and VSI or Seller
entered into in connection herewith, including any claim based
upon each of VSI's and Seller's warranties, representations and
covenants contained herein including those contained in Section
5.1 hereof. The Escrow Fund shall be held and distributed, with
interest, by Bank One Texas, N.A. (the "Escrow Agent"), pursuant
to an Escrow Agreement in the form set forth as Exhibit "C"
hereto (the "Escrow Agreement"), which shall be executed and
delivered by VSI, Seller and Buyer at the Closing.
5.3.2 Buyer shall be entitled to receive from the
Escrow Fund a payment equal to the amount, if any, provided for
in Section 5.1 hereof without regard to the Floor Amount.
5.3.3 Subject to Sections 4.5.2 and 5.3.6 hereof,
Seller and VSI shall be entitled to receive from the Escrow Fund
the costs of Environmental Remediation at all Facilities not
excluded by Buyer from the Assets pursuant to Section 5.5.2
hereof and in accordance with the terms of the Escrow Agreement.
5.3.4 In the event that any Buyer Indemnitee has any
claim for damages based upon VSI's and Seller's warranties,
representations and covenants contained herein or otherwise
arising hereunder or any other agreement between Buyer and VSI
or Seller entered into in connection herewith (other than VSI's
and Seller's obligations under Section 5.1 hereof), Buyer shall
give written notice of same to VSI and Seller and shall forward
a copy of such notice to the Escrow Agent. If VSI or Seller has
not corrected or remedied such failure of performance,
representation, warranty or covenant within 30 days following
receipt of such notice, then VSI and Seller acknowledge, subject
to the provisions of Section 5.15 hereof, that Buyer shall be
entitled to receive from the Escrow Fund, in accordance with the
terms of the Escrow Agreement, the amount of indemnification
that Buyer is due pursuant to this Agreement.
5.3.5 Provided no dispute or disputes in excess of an
aggregate of $3,000,000 (or $2,000,000, if that part of the
Escrow Fund subject to Section 5.3.6 hereof has been released to
VSI or Seller), less the amount of any payments theretofore made
<PAGE>
in satisfaction of Seller's or VSI's indemnification and
guaranty obligations hereunder, exist as to any Claim or Claims
by any Buyer Indemnitee against all or a portion of the Escrow
Fund on the first anniversary of the Closing Date, then
$1,000,000, less the amount of any payments in satisfaction of
VSI's or Seller's indemnification and guaranty obligations
hereunder, will be released to Seller or VSI on the first
business day following such first anniversary of the Closing
Date. To the extent such a dispute or disputes do exist as to a
Claim or Claims on the first anniversary of the Closing Date, an
amount equal to the amount of such Claim or Claims will be
withheld from such partial release of the Escrow Fund and will
continue to be held in accordance with the provisions of the
Escrow Agreement until such Claim or Claims have been fully
resolved. Provided no dispute or disputes in excess of an
aggregate of $2,000,000 (or $1,000,000, if that part of the
Escrow Fund subject to Section 5.3.6 hereof has been released to
VSI or Seller), less the amount of any payments theretofore made
in satisfaction of Seller's or VSI's indemnification and
guaranty obligations hereunder, exist as to any Claim or Claims
by any Buyer Indemnitee against all or a portion of the Escrow
Fund on the second anniversary of the Closing Date, then an
additional $1,000,000, less the amount of any payments
theretofore made in satisfaction of VSI's or Seller's
indemnification and guaranty obligations hereunder, will be
released to Seller or VSI on the first business day following
such second anniversary of the Closing Date. To the extent such
a dispute or disputes do exist as to a Claim or Claims on the
second anniversary of the Closing Date, an amount equal to the
amount of such Claim or Claims will be withheld from such
partial release of the Escrow Fund and will continue to be held
in accordance with the provisions of the Escrow Agreement until
such Claim or Claims have been fully resolved. Provided no
dispute or disputes exist as to any Claim or Claims by any Buyer
Indemnitee against all or a portion of the Escrow Fund on the
third anniversary of the Closing Date, then the remainder of the
Escrow Fund will be released to Seller or VSI on the first
business day following such third anniversary of the Closing
Date and the Escrow Agreement shall thereupon terminate. To the
extent a dispute or disputes do exist as to a Claim or Claims on
the third anniversary of the Closing Date, an amount equal to
the amount of such Claim or Claims will be withheld from such
release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until
such Claim or Claims have been fully resolved. Seller's and
VSI's obligations hereunder shall not be affected by any
termination of the Escrow Agreement.
5.3.6 On or before the first anniversary of the Closing
Date, VSI shall certify in writing to Buyer that VSI or Seller
or both have completed the Environmental Remediation of the
Environmental Contamination identified by the Environmental Due
<PAGE>
Diligence Review as required by the terms of Section 4.5 hereof
as to all Facilities not excluded by Buyer pursuant to Section
5.5.2 hereof as well as any Environmental Contamination
identified during the Environmental Remediation (or, in the
event that such Environmental Remediation is not completed at
the first anniversary of the Closing Date, VSI shall deliver a
certificate of the environmental engineering and consulting firm
which is effecting such Environmental Remediation estimating the
additional time required for such completion and the additional
cost thereof ("Estimated Additional Remediation Cost"). Upon
delivery to Buyer of VSI's certificate or the certificate of
such firm, as the case may be, an amount equal to $1,000,000,
less the sum of (i) the aggregate cost of such Environmental
Remediation (including the Estimated Additional Remediation
Cost) and (ii) the aggregate amount of other Losses of all other
Buyer Indemnitees subject to indemnification pursuant to Section
4.1 hereof in excess of $3,000,000, shall forthwith be released
to VSI and Seller out of the Escrow Fund. In the event that such
Environmental Remediation was not completed at the first
anniversary of the Closing Date, VSI shall deliver to Buyer a
certificate of completion thereof upon such completion
containing a statement of the aggregate cost of the
Environmental Remediation effected following such first
anniversary, and Buyer shall immediately release to Seller or
VSI out of the Escrow Fund the amount, if any, which would have
been released to Seller or VSI under this Section 5.3.6
following such first anniversary had such actual cost, rather
than the Estimated Additional Remediation Cost, been used in
such calculation.
5.4 Conduct of the Business.
5.4.1 Affirmative Covenants. On and after the date
hereof and until the Closing Date or the date, if any, on which
this Agreement is earlier terminated and abandoned pursuant to
Section 7 hereof (the "Termination Date"), each of Seller and
VSI shall:
(i) conduct its operations according to its
ordinary and usual course of business consistent with
past practice; and
(ii) use its reasonable best efforts to
preserve intact its business organization and goodwill,
to keep available the services of its officers and
directors, and to maintain satisfactory relationships
with suppliers, distributors, licensors, licensees,
customers, Employees and others having business
relationships with it.
5.4.2 Negative Covenants. Without limiting the
generality of the foregoing, and except for actions to be taken
in connection with any of the transactions contemplated hereby,
<PAGE>
without Buyer's prior written consent, VSI shall not, and VSI
shall cause Seller not to, on or after the date hereof and until
the earlier of the Closing Date or the Termination Date:
(i) other than dividends that would be paid to
the holders of the Series C Preferred Stock in the
ordinary course, declare or pay any cash dividends on
its outstanding shares of capital stock;
(ii) merge with, consolidate with, sell its
assets to or acquire substantially all the assets or
capital stock of, any other corporation or Person, or
enter into any other transaction not in the ordinary
and usual course of its business;
(iii) incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt
securities of others, except that it may incur
indebtedness in the ordinary course of business
consistent with prior practice;
(iv) make any direct or indirect redemption,
purchase or other acquisition of any of its capital
stock;
(v) create or amend any pension or profit
sharing plan, bonus, deferred compensation, death
benefit, or retirement plan, or any other benefit plan
or program;
(vi) amend its Certificate of Incorporation or
Bylaws, as amended to the date hereof, except as may be
necessary to carry out this Agreement or as required by
law;
(vii) issue any shares of its capital stock,
effect any stock split or otherwise change its
capitalization as it exists on the date hereof;
(viii) grant, confer or award any options,
warrants, conversion rights or other rights, not
existing on the date hereof, to acquire any shares of
its capital stock;
(ix) enter into any agreement or make any
undertaking which could be violated, or create
obligations which could be accelerated, as a result of
changes or developments or the absence of changes or
developments in, the business, assets, earnings,
operations or condition, financial or otherwise, of any
other party hereto or any of its subsidiaries or
affiliates; or
<PAGE>
(x) make any material changes in any of their
respective management employment arrangements.
5.5 Due Diligence; Access to Information and Customers
5.5.1 General Due Diligence Review. From and
after the date hereof and throughout the period prior
to the earlier of the Closing Date or the Termination
Date, Buyer and its officers, employees, accountants,
counsel and other authorized representatives may
perform a due diligence review of VSI and Seller
relating to matters other than Environmental matters.
In the event that the results thereof are not
reasonably satisfactory to Buyer, Buyer may terminate
this Agreement as provided in Section 7.1.4 hereof.
5.5.2 Environmental Due Diligence Review. From
and after the date hereof through the Closing Date,
Buyer and its officers, employees, accountants, counsel
and other authorized representatives will perform a due
diligence review of VSI and Seller relating to
Environmental matters associated with the Facilities,
and activities of VSI and Seller (collectively, the
"Environmental Due Diligence Review"). Buyer shall
cause a qualified independent environmental engineering
and consulting firm reasonably acceptable to VSI to
perform such a review. Buyer shall not provide a copy
of any report resulting from the Environmental Due
Diligence to VSI, unless VSI specifically requests
otherwise. If the Environmental Due Diligence Review
reveals that one or more Facilities has one or more
problems relating to the Environment (including, but
not limited to, Environmental Liabilities) the
remedying of which is or are reasonably advisable, and
the aggregate estimated cost of such remedy as quoted
to Buyer is in excess of $1,000,000, then Buyer will
have the right to exclude any one or more of such
Facilities from the Assets so that the aggregate
estimated cost of the remedying the problems at the
remaining Facilities shall be as close to $1,000,000 as
practicable without exceeding $1,000,000.
5.5.3 Reimbursement for Environmental Due
Diligence Review. If, as a result of the Environmental
Due Diligence Review, Environmental Contamination is
discovered that is indemnifiable as a Loss under
Section 4.1 hereof pursuant to Section 4.5.1 hereof,
VSI shall reimburse Buyer from the Escrow Fund for the
total costs of the Environmental Due Diligence Review
of each property where such indemnifiable Environmental
Contamination is present.
<PAGE>
5.5.4 Access. Each of VSI and Seller shall, as
soon as possible and in any event no later than the
Delivery Date, (i) afford to Buyer and to its officers,
employees, accountants, counsel and other authorized
representatives reasonable access, throughout the
period prior to the earlier of the Closing Date or the
Termination Date, to each of VSI's and Seller's plants,
properties, equipment, personnel, books and records
(including, but not limited to, audit and tax work
papers and surveys, reports, studies, evaluations and
the like pertaining to the Environment at the
Facilities or Former Facilities (during the time of
ownership or operation by VSI or Seller, or to
activities of VSI or Seller); (ii) use its reasonable
best efforts to cause its representatives to furnish to
Buyer and to its authorized representatives such
additional financial and operating data and other
information as to its respective businesses and
properties as Buyer or its duly authorized
representatives may from time to time reasonably
request; (iii) provide all authorizations reasonably
necessary for Buyer to review records of any
Governmental Body with jurisdiction; and (iv) afford
Buyer and its representatives reasonable access,
throughout the period prior to the earlier of the
Closing Date or the Termination Date, to its present
and potential customers, and Buyer and its authorized
representatives shall have the right to contact such
customers and conduct such due diligence investigation
relating to customer relations as Buyer deems
reasonably necessary or appropriate. Buyer agrees to
perform all due diligence under this Section 5.5 using
its reasonable best efforts to minimize disruption to
VSI's and Seller's business. Buyer further agrees to
indemnify, defend and hold Seller harmless for all
losses resulting from physical damages caused by Buyer
or its agents in the course of Buyer's due diligence,
and to restore the Facilities to substantially the same
condition they were in prior thereto. Buyer further
agrees to dispose of any wastes or materials it or its
agents generated during the Environmental Due Diligence
Review, and to do so in accordance with all applicable
Legal Requirements.
5.5.5 Monthly Financial Statements and
Reports. VSI and Seller shall deliver to Buyer
unaudited financial statements (including a
consolidated balance sheet, consolidated statement of
operations, consolidated statement of cash flows, and
consolidated statement of stockholders' equity) and
other operating reports for each month beginning with
July 1998 and ending with the month preceding the month
during which the Closing occurs. Such financial
statements and operating reports shall be delivered to
<PAGE>
Buyer no later than twenty business days after the end
of the month the subject thereof and shall be subject
to no warranty or representation of Seller or VSI.
5.6 Acquisition Proposals. Neither VSI nor Seller shall,
directly or indirectly, through any officer, director, agent, affiliate,
representative (including, without limitation, investment bankers,
attorneys and accountants) or otherwise, (i) solicit, initiate or
encourage submission of inquiries, proposals or offers from any Person,
corporation, partnership or other entity or group (as such term is used
in Section 13(d)(3) of the Exchange Act) other than Buyer (a "Third
Party"), relating to any acquisition or purchase of all or a portion of
the assets of, or any equity interest in, VSI or Seller; or (ii) unless
the Board has determined that such Third Party has made a Superior
Takeover Proposal, participate in any discussions or negotiations
regarding, or furnish to any Third Party any information with respect
to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to do
or seek any of the foregoing. VSI and Seller shall promptly notify Buyer
if any such proposal or offer, or any inquiry or contact with any Third
Party with respect thereto, is made, and shall in any such notice set
forth in reasonable detail the identity of the Third Party and the terms
and conditions of such inquiry, proposal or offer. In the event that (a)
the Closing shall fail to occur as the result of VSI or Seller violating
the terms of this Section 5.6 or (b) VSI or Seller shall have determined
that a Superior Takeover Proposal exists, shall have elected to accept
such Superior Takeover Proposal and either the transaction contemplated
thereby is consummated or VSI or Seller terminates this Agreement as a
result of such election, VSI and Seller shall promptly, but in no event
later than one day after the first of such events shall occur, pay Buyer
an aggregate fee of $2,000,000, which amount shall be payable in same
day funds, plus all Expenses. A "Superior Takeover Proposal" means any
bona fide (w) tender or exchange offer; (x) proposal for a merger to
which VSI or Seller would be a party; (y) consolidation or other
business combination involving VSI or Seller; or (z) any other
arrangement to acquire, directly or indirectly, for consideration
consisting of cash, securities or a combination thereof, all of the
common stock of VSI or Seller then outstanding or all or substantially
all of the assets of VSI or Seller on terms that the Board determines in
its good faith reasonable judgment (after consultation with a financial
advisor of nationally recognized reputation) to be more favorable to the
stockholders of VSI than the transactions contemplated by this
Agreement.
5.7 Public Announcements. On or after the date hereof, and until
the earlier of the Closing Date or the Termination Date, neither VSI nor
Seller shall furnish any written communication (other than the Proxy
Materials) to its stockholders, customers, creditors or to the public
generally if the subject matter thereof relates to the transactions
contemplated hereby without the prior approval of Buyer as to the
content thereof; provided, however, that the foregoing shall not be
deemed to prohibit any disclosure required by any applicable law or by
any Governmental Body having jurisdiction over such matters.
<PAGE>
5.8 Notification of Certain Matters. VSI and Seller shall give
prompt notice to Buyer, and Buyer shall give prompt notice to VSI and
Seller, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or
warranty of such party contained herein to be untrue or inaccurate in
any material respect at any time from the date hereof to the Closing
Date; and (ii) any material failure of VSI or Seller, or of Buyer, as
the case may be, or of any officer, director, employee or agent thereof,
to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
5.9 Best Efforts. Each of VSI and Seller agrees to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated hereby,
including, without limitation, obtaining all authorizations, consents,
waivers and approvals as may be required in connection with the
assignment of those contracts, agreements, licenses, leases, sales
orders, purchase orders and other commitments to be assumed by Buyer
pursuant hereto; provided that Seller shall not be obligated to make any
payments in order to obtain any such authorizations, consents, waivers
or approvals.
5.10 Execution of Additional Documents. Each party hereto will
at any time, and from time to time after the Closing Date, upon request
of the other party hereto, execute, acknowledge and deliver all such
further deeds, assignments, transfers, conveyances, powers of attorney
and assurances, and take all such further action, as may be reasonably
required to carry out the intent of this Agreement, and to transfer and
vest title to any Asset being transferred hereunder, and to protect the
right, title and interest in and enjoyment of all of the Assets sold,
granted, assigned, transferred, delivered and conveyed pursuant hereto;
provided, however, that this Agreement shall be effective regardless of
whether any such additional documents are executed.
5.11 Fees and Expenses
5.11.1 Expense Reimbursement. If this Agreement is
terminated by VSI or Seller for any reason whatsoever other than
a failure of any condition set forth in Section 6.2 hereof and
Buyer is not in material breach of its material covenants and
agreements hereunder, then VSI or Seller shall, whether or not
any payment is made pursuant to Section 5.11.2 hereof, reimburse
each of Buyer and its stockholders and affiliates (not later
than one day after submission of statements therefor) for all
reasonable out-of-pocket expenses and fees actually incurred by
it or on its behalf in connection with the negotiation,
preparation, execution and performance of this Agreement and the
transactions contemplated hereby, or reasonably and actually
incurred by banks and other financial institutions and assumed
by Buyer or its stockholders or affiliates in connection with
<PAGE>
the negotiation, preparation, execution and performance of this
Agreement, any financing related hereto and any definitive
financing agreements relating thereto (all of the foregoing
being referred to herein collectively as the "Expenses").
5.11.2 Other Costs and Expenses. Except as otherwise
provided herein, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses.
5.12 Limitation of Liability. Notwithstanding any other
provision hereof, no shareholder, officer, director, employee, agent,
attorney, affiliate, servant, successor, assign or representative of
either party hereto or of any affiliate thereof shall have any personal,
partnership, corporate or other liability or obligation whatsoever in
respect of or relating to the covenants, obligations, indemnities,
representations or warranties of Buyer or VSI and Seller under or by
reason hereof or in respect of any certificate or other document
delivered with respect hereto.
5.13 HSR Act Filings. Each of VSI and Seller and Buyer shall as
soon as practicable after the date of this Agreement file their
respective notification and report forms with the Federal Trade
Commission and the United States Department of Justice as required under
the HSR Act. Each of VSI and Seller and Buyer agree to use their
respective good faith efforts to eliminate any concern on the part of
any Governmental Body regarding the legality of the transactions
contemplated under this Agreement.
5.14 Employees. Buyer shall, effective as of Closing, offer
employment to all Employees of Seller (subject to satisfaction of
Buyer's standard conditions to employment) other than as otherwise
reasonably determined by Buyer (but in no event shall Buyer terminate
such number of former employees of Seller during such time periods as
would require any action on the part of Seller under WARN). VSI and
Seller shall fully cooperate with Buyer and lend all assistance
reasonably requested by Buyer for the purpose of facilitating Buyer's
employment of and communication with Employees of Seller, including, but
not limited to, allowing access to the Facilities and any Employees and
payroll and other Employee records requested by Buyer.
5.15 Dispute Resolution. Other than as provided in Section 1.9.2
hereof and notwithstanding any provision of this Agreement to the
contrary, all disputes, controversies or claims arising out of or
relating to this Agreement and the transactions contemplated hereby
shall be resolved by agreement among the parties, or, if not so resolved
within forty five (45) days following written notice of dispute given by
either party hereto to the other, and if written notice is given by
either of the parties as provided below and the matter is not otherwise
resolved by the parties hereto, by resort to arbitration in accordance
with Title 9 of the United States Code (the United States Arbitration
<PAGE>
Act) and the Commercial Arbitration Rules, as amended from time to time
(the "Rules") by the American Arbitration Association and the following
provisions; provided, however, that the provisions of this Section shall
prevail in the event of any conflict with such Rules. Within thirty (30)
days after the giving of notice by a party to the other parties of its
desire to refer the matter in dispute to arbitration, the parties agree
that the matter shall be presented to a panel of three arbitrators at
least one of whom shall have at least ten years of industry experience
relating to the subject matter of the dispute. Such selection of
arbitrators shall be made in accordance with the Rules. Any such
arbitration proceeding shall be held at a location to be determined by
the arbitrators. Any provisional remedy that would be available from a
court of law shall be available from the arbitrator to the parties to
this Agreement pending arbitration. The written decisions and
conclusions of a majority of the arbitration panel with respect to the
matters referred to them pursuant hereto shall be final and binding upon
the parties to the dispute, and confirmation and enforcement thereof may
be rendered thereon by any court having jurisdiction upon application of
any person who is a party to the arbitration proceeding. The costs and
expenses incurred in the course of such arbitration shall be borne by
the party or parties against whose favor the decisions and conclusions
of the arbitration panel are rendered; provided, however, that if the
arbitration panel determines that its decisions are not rendered wholly
against the favor of one party or parties or the other, the arbitration
panel shall be authorized to apportion such costs and expenses in the
manner that it deems fair and just in light of the merits of the dispute
and its resolution. The arbitration panel shall have no power or
authority under this Agreement or otherwise to award or provide for the
award of punitive or consequential damages against any party. In any
arbitration relating to whether Buyer has "reasonably concluded" (for
purposes of Section 6.1.16) that there has been no material breach of
the warranties in Section 2.24, the burden of establishing
reasonableness shall be on Buyer.
6. Conditions of Closing
6.1 Buyer's Conditions to Closing. The obligation of Buyer to
purchase and pay for the Assets and to assume the specified liabilities
and obligations set forth herein shall be subject to and conditioned
upon, at Buyer's option, the satisfaction at the Closing of each of the
following conditions:
6.1.1 The holders of shares of the issued and
outstanding capital stock of VSI and Seller shall have duly
adopted and approved this Agreement and all transactions
contemplated hereby in accordance with the requirements of
Delaware law and Ohio law, respectively, and the Articles or
Certificate of Incorporation and Bylaws, as amended to the date
of such adoption and approval, of each of VSI and Seller.
6.1.2 All representations and warranties of each of VSI
and Seller contained herein shall be true and correct in all
material respects at and as of the Closing Date (provided
however that in respect of the warranties and representations
<PAGE>
contained in Section 2.24 hereof Section 6.1.16 shall apply) and
each of VSI and Seller shall have performed all agreements and
covenants in all material respects and satisfied all conditions
on its part to be performed or satisfied by the Closing Date
pursuant to the terms hereof, and Buyer shall have received a
certificate of each of VSI and Seller, signed by its President
and dated the Closing Date, to both such effects.
6.1.3 As of the Closing, there shall have been no
material change since the date of the most recent Financial
Statements in VSI or Seller, and neither VSI nor Seller shall
have suffered any material loss (whether or not insured) by
reason of physical damage caused by fire, earthquake, accident
or other calamity which substantially affects the value of their
respective assets, properties or business, and Buyer shall have
received a certificate of each of VSI and Seller, signed by its
principal financial officer and dated the Closing Date, to such
effect.
6.1.4 Seller and VSI shall have executed and delivered
the Receivables Guaranty.
6.1.5 VSI shall have delivered to Buyer a Certificate
of the Secretary of State (or other authorized public official)
of VSI's and Seller's respective jurisdiction of incorporation
(and each other jurisdiction listed in Schedule 2.5 hereof)
certifying as of a date reasonably close to the Closing Date
that each of VSI and Seller has filed all required reports, paid
all required fees and taxes, and is, as of such date, in good
standing and authorized to transact business as a domestic or
foreign corporation, as the case may be.
6.1.6 Seller and VSI shall have executed and delivered
the Escrow Agreement.
6.1.7 The Escrow Agent shall have acknowledged
receipt of the Escrow Fund and accepted the same subject to
the terms and conditions of the Escrow Agreement.
6.1.8 Buyer shall have received from Arnall Golden &
Gregory, LLP, counsel for VSI and Seller, an opinion, dated
the Closing Date, in the form attached hereto as Exhibit "D".
6.1.9 Each of VSI and Seller shall have obtained all
authorizations, consents, waivers and approvals as may be
required in connection with the assignment of those contracts,
agreements, licenses, leases, sales orders, purchase orders
and other commitments to be assigned to Buyer pursuant hereto.
<PAGE>
6.1.10 Seller and VSI shall have executed and
delivered the Bill of Sale, Assignment and Assumption
Agreement.
6.1.11 Each of Seller and VSI shall have delivered to
Buyer a certificate, dated the Closing Date, of each of VSI's
and Seller's corporate Secretary certifying:
(i) Resolutions of the Board, VSI's
stockholders, Seller's board of directors and
Seller's sole stockholder approving and adopting this
Agreement and all transactions contemplated hereby
and authorizing execution of this Agreement and the
execution, performance and delivery of all
agreements, documents and transactions contemplated
hereby; and
(ii) The incumbency of its officers
executing this Agreement and all agreements and
documents contemplated hereby.
6.1.12 The approval and all consents from any Third
Party or Governmental Body required to consummate the
transactions contemplated hereby shall have been obtained and
the waiting period and any statutory extension thereof
applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
6.1.13 No Proceeding shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby or any governmental consent,
approval or authorization necessary for the consummation of the
transactions of the transactions contemplated by this Agreement.
6.1.14 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby, which is
unduly burdensome on Buyer.
6.1.15 Buyer shall have received from each of LOR,
Inc., Rollins Investment Fund and Rollins Holding Company, Inc.,
an executed agreement whereby each of them, on their own behalf
and on behalf of their respective affiliates, agrees to be bound
by certain restrictive covenants substantially similar to those
imposed on Seller and VSI pursuant to Section 5.2 of this
Agreement; provided, however, that no such provision shall
<PAGE>
prohibit an investment in any publicly-traded entity that does
not require the filing of a Schedule 13D nor Schedule 13G under
the Exchange Act.
6.1.16 Buyer shall have reasonably concluded, following
the Environmental Due Diligence Review, that there are no
material breaches in the warranties in Section 2.24; provided,
however, that such conclusion shall not preclude the remedies of
Buyer provided for herein. For purposes of this Section 6.1.16
only, "material breaches" shall be defined as those matters,
which in the opinion of the environmental consultant retained as
provided in Section 5.5.2, are reasonably likely to cost in the
aggregate in excess of $1,000,000 to remedy (excluding the cost
of addressing any environmental issues on Facilities that Buyer
elects to exclude from the purchase pursuant to Section 5.5.2).
If Buyer's consultant so concludes, then Buyer shall promptly so
inform VSI of the consultant's opinion. At such time, VSI may
ask Buyer for the information and data upon which Buyer's
consultant bases his or her opinion. If VSI does not agree that
it is reasonably likely to cost in excess of $1,000,000 to
remedy the environmental problems, then VSI shall promptly
inform Buyer of its belief. If the parties cannot resolve this
issue within fifteen days after VSI so informs Buyer, then the
matter shall be submitted to arbitration in accordance with
Section 5.15 and the Closing shall be delayed pending the
resolution of such arbitration. If the transaction closes, then
VSI's and Seller's obligation to perform any Environmental
Remediation shall be governed by the provisions and standards
set forth in Section 4.5
6.2 Seller's and VSI's Conditions to Closing. The obligation of
Seller and VSI to sell, grant, convey, assign, transfer and deliver the
Assets shall be subject to and conditioned upon, at VSI's option, the
satisfaction at the Closing of each of the following conditions:
6.2.1 The holders of shares of the issued and
outstanding capital stock of VSI shall have duly adopted and
approved this Agreement and all transactions contemplated hereby
in accordance with the requirements of Delaware law and the
Certificate of Incorporation and Bylaws, as amended to the date
of such adoption, of VSI.
6.2.2 All representations and warranties of Buyer
contained herein shall be true and correct at and as of the
Closing Date in all material respects and Buyer shall have
performed all agreements and covenants in all material respects
and satisfied all conditions on its part to be performed or
satisfied by the Closing Date pursuant to the terms hereof, and
VSI and Seller shall have received a certificate of Buyer,
signed by its Chief Executive Officer and dated the Closing
Date, to both such effects.
<PAGE>
6.2.3 Buyer shall have effected payment of the Purchase
Price (less the Escrow Fund) in accordance with the prior
written instructions of Seller.
6.2.4 Buyer shall have executed and delivered the Escrow
Agreement.
6.2.5 Buyer shall have effected payment of the Escrow
Fund.
6.2.6 The Escrow Agent shall have acknowledged receipt
of the Escrow Fund and accepted the same subject to the terms
and conditions of the Escrow Agreement.
6.2.7 Buyer shall have executed and delivered the Bill
of Sale, Assignment and Assumption Agreement.
6.2.8 Buyer shall have delivered to Seller and VSI a
certificate, dated the Closing Date, of Buyer's corporate
Secretary certifying:
(i) Resolutions of its board of directors
adopting and approving this Agreement and all
transactions contemplated hereby and authorizing
execution of this Agreement and the execution,
performance and delivery of all agreements, documents
and transactions contemplated hereby; and
(ii) The incumbency of its officers executing
this Agreement and all agreements and documents
contemplated hereby.
6.2.9 VSI and Seller shall have received from Haynes
and Boone, LLP, counsel for Buyer, an opinion, dated the Closing
Date, in the form attached hereto as Exhibit "E".
6.2.10 The approval and all consents from any Third
Party or Governmental Body required to consummate the
transactions contemplated hereby shall have been obtained and
the waiting period and any statutory extension thereof
applicable to the consummation of the transactions contemplated
by this Agreement under the HSR Act shall have expired or been
terminated.
6.2.11 No Proceeding shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby or any governmental consent,
approval or authorization necessary for the consummation of the
transactions of the transactions contemplated by this Agreement
<PAGE>
6.2.12 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be
consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby, which is
unduly burdensome on VSI or Seller.
6.2.13 VSI, Seller and all guarantors of any bank
indebtedness of VSI or Seller shall have received a written
release therefrom in form and substance satisfactory to VSI,
Seller and such guarantors.
7. Termination and Abandonment
7.1 Reasons for Termination. Anything herein or
elsewhere to the contrary notwithstanding, this Agreement may be
terminated and abandoned at any time after the date hereof but
not later than the Closing:
7.1.1 by the mutual consent of VSI, Seller and Buyer;
7.1.2 by Buyer at any time after December 31, 1998, if,
by that date, the conditions set forth in Section 6.1 hereof
shall not have been fulfilled or waived;
7.1.3 by VSI and Seller at any time after December 31,
1998, if, by that date, the conditions set forth in Section 6.2
hereof shall not have been fulfilled or waived;
7.1.4 by Buyer at any time prior to the later of (i)
the fifteenth business day after the Delivery Date and (ii) the
fifteenth business day after such later date as Buyer actually
receives the Preliminary Schedules required by Section 1.7
hereof, if the general due diligence investigation of VSI and
Seller by Buyer pursuant to Section 5.5.1 hereof, or any
Schedule hereto or any other document delivered to Buyer as
contemplated hereby, shall have revealed any facts or
circumstances which, in the reasonable judgment of Buyer and
regardless of the cause thereof, reflect in a material way on
VSI or Seller;
7.1.5 by Buyer at any time if there has been a material
change in VSI or Seller after the date hereof;
7.1.6 by Buyer or by VSI and Seller at any time if
there has been a material breach of any representation or
warranty made by the other party herein or in any certificate or
other document delivered pursuant hereto or if there has been
any failure by the other party to perform in all material
<PAGE>
respects all obligations or to comply with all covenants on its
part to be performed hereunder; or
7.1.7 by Buyer or by Seller and VSI if there shall have
been any statute, rule or regulation enacted or promulgated or
deemed applicable to the transactions contemplated hereby by any
Governmental Body that, in the reasonable judgment of Buyer or
of VSI and Seller, as the case may be, might (i) result in a
significant delay in the ability of the parties to consummate
the transactions contemplated hereby; (ii) render the parties
unable to consummate the transactions contemplated hereby; (iii)
make such consummation illegal; or (iv) otherwise materially
adversely affect VSI or Seller.
7.1.8 by Buyer if VSI and Seller shall fail to deliver
one or more of the Preliminary Schedules to this Agreement in
accordance with Section 1.7 hereof or if one or more of the
Preliminary Schedules, as delivered, differs materially from the
information concerning VSI and Seller provided by VSI or Seller
to Buyer prior to the execution of this Agreement.
7.2 Procedure Upon and Effect of Termination. In the event of
any termination and abandonment pursuant to Section 7.1 hereof, written
notice thereof shall forthwith be given to the other party and the
transactions contemplated hereby shall thereupon be terminated and
abandoned, without further action by Buyer or by VSI and Seller (except
for the provisions of Sections 5.6, 5.11 and 5.12 hereof), and there
shall be no liability on the part of either VSI, Seller or Buyer or
their respective officers, directors or stockholders, except for the
provisions of Sections 5.6, 5.11 and 5.12 hereof or except for the
material breach of any representation, warranty or covenant contained
herein that is within the reasonable control of the party in breach.
8. Miscellaneous
8.1 Notices. Any notice, consent, approval, request, demand or
other communication required or permitted hereunder must be in writing
to be effective and shall be deemed delivered and received (i) if
personally delivered or delivered by telecopy with electronic
confirmation, when actually received by the party to whom sent, or (ii)
if delivered by mail (whether actually received or not), at the close of
business on the third business day next following the day when placed in
the federal mail, postage prepaid, certified or registered mail, return
receipt requested, addressed as follows:
<PAGE>
If to Buyer:
HydroChem Industrial Services, Inc.
5956 Sherry Lane, Suite 930
Dallas, Texas 75225
Attention: Chief Executive Officer
Facsimile No.: (214) 361-4715
with a copy to:
Haynes and Boone, LLP
600 Congress Avenue, Suite 1600
Austin, Texas 78701
Attention: Dennis R. Cassell
Facsimile No.: (512) 867-8470
If to Seller or VSI:
Valley Systems, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
Attention: Chief Executive Officer
Facsimile #: (330) 854-3444
with a copy to:
Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Jonathan Golden
Facsimile #: (404) 873-8701
(or to such other address as any party shall specify by written
notice so given).
8.2 Binding Effect; Benefits. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything
contained herein to the contrary, nothing in this Agreement, expressed
or implied, is intended to confer on any Person (other than the parties
hereto, the Buyer Indemnitees (but only with respect to Section 4
hereof), or their respective successors and permitted assigns) any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
8.3 Entire Agreement. This Agreement, together with the
Exhibits, Schedules and other documents contemplated hereby, constitute
<PAGE>
the final written expression of all of the agreements between the
parties, and is a complete and exclusive statement of those terms.
Except as specifically included or referred to herein, this Agreement
and the Exhibits, Schedules and other documents contemplated hereby
supersede all understandings and negotiations concerning the matters
specified herein. Any representations, promises, warranties or
statements made by any party that differ in any way from the terms of
this written Agreement, and the Exhibits, Schedules and other documents
contemplated hereby, shall be given no force or effect (except as
specifically included or referred to herein). The parties specifically
represent, each to the other, that there are no additional or
supplemental agreements between them related in any way to the matters
herein contained unless specifically included or referred to herein. No
addition to or modification of any provision hereof shall be binding
upon any party unless made in writing and signed by all parties.
8.4 Governing Law. THIS AGREEMENT, AND ALL QUESTIONS RELATING TO
ITS VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING,
WITHOUT LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTION, BUT
EXCLUDING THE PROVISIONS OF SECTION 5.2 HEREOF AND THE PROVISIONS HEREOF
RELATING TO THE CORPORATE GOVERNANCE OF SELLER), SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
(EXCLUSIVE OF THE CONFLICT OF LAW PROVISIONS THEREOF) APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE
PROVISIONS OF SECTION 5.2 HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE OF THE
CONFLICT OF LAW PROVISIONS THEREOF) APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE PROVISIONS HEREOF RELATING
TO THE CORPORATE GOVERNANCE OF SELLER SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
8.5 Survival. All of the terms, conditions, covenants,
agreements, warranties and representations contained herein shall
survive, in accordance with their terms, the execution hereof, the
Closing hereunder and the Closing Date.
8.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument; but in making proof
of this Agreement, it shall not be necessary to produce or account for
more than one such counterpart. It is not necessary that each party
hereto execute the same counterpart, so long as identical counterparts
are executed by all parties.
<PAGE>
8.7 Headings. Headings of the Sections of this Agreement are for
the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.8 Waivers. VSI and Seller may, by written notice to the Buyer,
(i) extend the time for the performance of any of the obligations or
other actions of Buyer hereunder; (ii) waive any inaccuracies in the
representations or warranties of Buyer contained herein or in any
document delivered pursuant hereto; (iii) waive compliance with any of
the conditions or covenants of Buyer contained herein; or (iv) waive
performance of any of the obligations of Buyer hereunder. Buyer may, by
written notice to VSI and Seller, (i) extend the time for the
performance of any of the obligations or other actions of each of VSI
and Seller hereunder; (ii) waive any inaccuracies in the representations
or warranties of each of VSI and Seller contained herein or in any
document delivered pursuant hereto; (iii) waive compliance with any of
the conditions or covenants of each of VSI and Seller contained herein;
or (iv) waive performance of any of the obligations of each of VSI and
Seller hereunder. Except as provided in the preceding two sentences, no
action taken pursuant hereto, including without limitation any
investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained
herein. The waiver by any party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
8.9 Incorporation of Exhibits and Schedules. All Exhibits and
Schedules attached hereto are by this reference incorporated herein and
made a part hereof for all purposes as if fully set forth herein.
8.10 Severability. If for any reason whatsoever, any one or more
of the provisions hereof shall be held or deemed to be illegal,
inoperative, unenforceable or invalid as applied to any particular case
or in all cases, such circumstances shall not have the effect of
rendering such provision illegal, inoperative, unenforceable or invalid
in any other case or of rendering any of the other provisions hereof
illegal, inoperative, unenforceable or invalid. Furthermore, in lieu of
each illegal, invalid, unenforceable or inoperative provision, there
shall be added automatically, as part of this Agreement, a provision
similar in terms of such illegal, invalid, unenforceable or inoperative
provision as may be possible and as shall be legal, valid, enforceable
and operative.
8.11 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto; provided,
however, that Buyer's or its successors' or assigns' rights hereunder
may be assigned or otherwise transferred, in whole or in part, without
any other party's consent (i) to any successor by merger or
<PAGE>
consolidation or (ii) to any individual, partnership, corporation or
other entity deriving title from Buyer or its successors or assigns to
all or substantially all of the assets as constituted on the date of any
such transfer, provided that no such assignment shall effect a release
of Buyer or its successors or assigns from any liabilities or
obligations hereunder.
8.12 Drafting. The parties acknowledge and confirm that each of
their respective attorneys have participated jointly in the review and
revision of this Agreement and that it has not been written solely by
counsel for one party. The parties hereto therefore stipulate and agree
that the rule of construction to the effect that any ambiguities are to
be or may be resolved against the drafting party shall not be employed
in the interpretation of this Agreement to favor any party against
another.
8.13 References. The use of the words "hereof," "herein,"
"hereunder," "herewith," "hereto," "hereby," and words of similar import
shall refer to this entire Amended and Restated Asset Purchase
Agreement, and not to any particular article, section, subsection,
clause, or paragraph hereof, unless the context clearly indicates
otherwise.
8.14 Calendar Days, Weeks and Months. Unless otherwise specified
herein, any reference to "day", "week", or "month" herein shall mean a
calendar day, week or month.
8.15 Gender; Plural and Singular. Where the context hereof so
requires, the masculine gender shall include the feminine or neuter, and
the singular shall include the plural and the plural the singular.
8.16 Cumulative Rights. All rights and remedies specified herein
are cumulative and are in addition to, not in limitation of, any rights
or remedies the parties may have at law or in equity, and all such
rights and remedies may be exercised singularly or concurrently.
8.17 No Implied Covenants. Each party, against the other, waives
and relinquishes any right to assert, either as a claim or as a defense,
that the other party is bound to perform or liable for the
nonperformance of any implied covenant or implied duty or implied
obligation.
8.18 Attorneys' Fees. The prevailing party in any dispute
between the parties arising out of the interpretation, application or
enforcement of any provision hereof shall be entitled to recover all of
its reasonable attorney's fees and costs whether suit be filed or not,
including without limitation costs and attorneys' fees related to or
arising out of any trial or appellate proceedings.
8.19 Indirect Action. Where any provision hereof refers to
action to be taken by any Person or party, or which such Person or party
<PAGE>
is prohibited from taking, such provision shall be applicable whether
the action in question is taken directly or indirectly by such Person or
party.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year hereinabove
first set forth.
SELLER:
VALLEY SYSTEMS OF OHIO, INC.
By:___________________________________________
Ed Strickland
President and Chief Executive Officer
VSI:
VALLEY SYSTEMS, INC.
By:___________________________________________
Ed Strickland
President and Chief Executive Officer
BUYER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By:___________________________________________
B. Tom Carter, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX B
ESCROW AGREEMENT
This Escrow Agreement, dated as of ____________, 1998 (the "Closing
Date"), among HydroChem Industrial Services, Inc., a Delaware corporation
("Buyer"), Valley Systems, Inc., a Delaware corporation, and Valley Systems of
Ohio, Inc., an Ohio corporation (collectively, "Seller"), and Bank One Texas,
N.A., a national banking association, as escrow agent ("Escrow Agent").
This is the Escrow Agreement referred to in the Amended and Restated
Asset Purchase Agreement, dated as of September 8, 1998, by and among Buyer and
Seller (the "Purchase Agreement"). Capitalized terms used in this agreement
without definition shall have the respective meanings given to them in the
Purchase Agreement.
The parties, intending to be legally bound, hereby agree as follows:
1. ESTABLISHMENT OF ESCROW
(a) Buyer is depositing with Escrow Agent the amount of
$4,000,000 in immediately available funds (as increased by any earnings
thereon and as reduced by any disbursements, amounts withdrawn under
Section 5(j) hereof, or losses on investments, the "Escrow Fund").
Escrow Agent acknowledges receipt thereof.
(b) Escrow Agent hereby agrees to act as escrow agent and to
hold, safeguard, and disburse the Escrow Fund pursuant to the terms and
conditions hereof.
2. INVESTMENT OF FUNDS
Except as Buyer and Seller may from time to time jointly instruct Escrow
Agent in writing, the Escrow Fund shall be invested from time to time, to the
extent possible, in United States Treasury Bills having a remaining maturity of
90 days or less and repurchase obligations secured by such United States
Treasury Bills, with any remainder being deposited and maintained in demand
deposits with Escrow Agent, until disbursement of the entire Escrow Fund. Escrow
Agent is authorized to liquidate in accordance with its customary procedures any
portion of the Escrow Fund consisting of investments to provide for payments
required to be made under this Agreement.
3. CLAIMS
(a) From time to time on or before the third anniversary of the
date of this Agreement, Buyer may give notice (a "Notice") to Seller and
Escrow Agent specifying in reasonable detail the nature and dollar
<PAGE>
amount of any Claim it may have under the terms of the Purchase
Agreement; Buyer may make more than one claim with respect to any
underlying state of facts. If Seller gives notice to Buyer and Escrow
Agent disputing any Claim (a "Counter Notice") within ten (10) business
days following receipt by Escrow Agent of the Notice regarding such
Claim, such Claim shall be resolved as provided in Section 3(b) hereof.
If no Counter Notice is received by Escrow Agent within such ten
business day period, then the dollar amount of damages claimed by Buyer
as set forth in its Notice shall be deemed established for purposes of
this Agreement and the Purchase Agreement and, at the end of such ten
business day period, Escrow Agent shall pay to Buyer the dollar amount
claimed in the Notice from (and only to the extent of) the Escrow Fund.
Escrow Agent shall not inquire into or consider whether a Claim complies
with the requirements of the Purchase Agreement.
(b) If a Counter Notice is given with respect to a claim, Escrow
Agent shall make payment with respect thereto only in accordance with
(i) joint written instructions of Buyer and Seller or (ii) a final
non-appealable order of a court of competent jurisdiction. Any court
order shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to the Escrow Agent to the effect that the
order is final and non-appealable. Escrow Agent shall act on such court
order without further question.
4. RELEASE OF ESCROW
(a)(i) Provided no dispute or disputes in excess of an aggregate
of $3,000,000 (or $2,000,000, if that part of the Escrow Fund subject to
Section 4(b) below has been released to Seller), less the amount of any
payments theretofore made in satisfaction of Seller's indemnification
and guaranty obligations, exist as to any Claim or Claims by any Buyer
Indemnitee against all or a portion of the Escrow Fund on the first
anniversary of the Closing Date, then $1,000,000, less the amount of any
payments in satisfaction of Seller's indemnification and guaranty
obligations, will be released to Seller on the first business day
following such first anniversary of the Closing Date. To the extent such
a dispute or disputes do exist as to a Claim or Claims on the first
anniversary of the Closing Date, an amount equal to the amount of such
Claim or Claims (or if the amount of said Claims cannot be quantified,
then Buyer's reasonable, good faith estimate of the amount of the
Claims) will be withheld from such partial release of the Escrow Fund
and will continue to be held in accordance with the provisions of the
Escrow Agreement until such claim or claims have been fully resolved and
the balance of the partial release will be paid to Seller.
(ii) Provided no dispute or disputes in excess of an aggregate
of $2,000,000 (or $1,000,000, if that part of the Escrow Fund subject to
Section 4(b) below has been released to Seller), less the amount of any
payments theretofore made in satisfaction of Seller's indemnification
and guaranty obligations, exist as to any Claim or Claims by any Buyer
<PAGE>
Indemnitee against all or a portion of the Escrow Fund on the second
anniversary of the Closing Date, then an additional $1,000,000, less the
amount of any payments theretofore made in satisfaction of Seller's
indemnification and guaranty obligations, will be released to Seller on
the first business day following such second anniversary of the Closing
Date. To the extent such a dispute or disputes do exist as to a Claim or
Claims on the second anniversary of the Closing Date, an amount equal to
the amount of such Claim or Claims (or if the precise amount of said
Claims cannot be quantified, then Buyer's reasonable, good faith
estimate of the amount of the Claims) will be withheld from such partial
release of the Escrow Fund and will continue to be held in accordance
with the provisions of the Escrow Agreement until such claim or claims
have been fully resolved and the balance of the partial release will be
paid to Seller.
(iii) Provided no dispute or disputes exist as to any Claim or
Claims by any Buyer Indemnitee against all or a portion of the Escrow
Fund on the third anniversary of the Closing Date, then the remainder of
the Escrow Fund will be released to Seller on the first business day
following such third anniversary of the Closing Date and the Escrow
Agreement shall thereupon terminate. To the extent a dispute or disputes
do exist as to a Claim or Claims on the third anniversary of the Closing
Date, an amount equal to the amount of such Claim or Claims (or if the
amount of said Claims cannot be quantified, then Buyer's reasonable,
good faith estimate of the amount of the Claims) will be withheld from
such partial release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until such claim
or claims have been fully resolved and the balance of the partial
release will be paid to Seller.
(b) Upon delivery to Buyer of Seller's certificate pursuant to
the terms of Section 5.3.6 of the Purchase Agreement certifying that the
Environmental Remediation has been completed, an amount equal to
$1,000,000, less the sum of (i) the aggregate cost of such Environmental
Remediation (including the Estimated Additional Remediation Cost) and
(ii) the aggregate amount of other Losses of all other Buyer Indemnitees
subject to indemnification pursuant to Section 4.1 of the Purchase
Agreement in excess of $3,000,000, shall forthwith be released to Seller
out of the Escrow Fund. In the event that such Environmental Remediation
was not completed at the first anniversary of the Closing Date, Seller
shall deliver to Buyer a certificate of completion thereof upon such
completion containing a statement of the aggregate cost of the
Environmental Remediation effected following such first anniversary, and
Buyer shall immediately release to Seller out of the Escrow Fund the
amount, if any, which would have been released to Seller under Section
5.3.6 of the Purchase Agreement following such first anniversary had
such actual cost, rather than the Estimated Additional Remediation Cost,
been used in such calculation.
5. DUTIES OF ESCROW AGENT
(a) Escrow Agent shall not be under any duty to give the Escrow
Fund held by it hereunder any greater degree of care than it gives its
<PAGE>
own similar property and shall not be required to invest any funds held
hereunder except as directed in this Agreement. Uninvested funds held
hereunder shall not earn or accrue interest.
(b) Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims
based upon such gross negligence or willful misconduct that are
successfully asserted against the Escrow Agent, the other parties hereto
shall jointly and severally indemnify and hold harmless the Escrow Agent
(and any successor to the Escrow Agent) from and against any and all
losses, liabilities, claims, actions, damages and expenses, including
reasonable attorneys' fees and disbursements, arising out of and in
connection with this Agreement. Without limiting the foregoing, Escrow
Agent shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof, including, without limitation, any
liability for any delays (not resulting from its gross negligence or
willful misconduct) in the investment or reinvestment of the Escrow
Fund, or any loss of interest incident to any such delays.
(c) Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the
propriety or validity of the service thereof. Escrow Agent may act in
reliance upon any instrument or signature believed by it to be genuine
and may assume that the person purporting to give receipt or advice or
make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so. Escrow Agent may
conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless
written notice to the contrary is delivered to Escrow Agent.
(d) Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable
for any action taken or omitted by it in good faith in accordance with
such advice.
(e) Escrow Agent does not have any interest in the Escrow Fund
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Any payments of income from this Escrow Fund shall
be subject to withholding regulations then in force with respect to
United States taxes. The parties hereto will provide Escrow Agent with
appropriate Internal Revenue Service Forms W-9 for tax identification
number certification, or non-resident alien certifications. This Section
5(e) and Section 5(b) hereof shall survive notwithstanding any
termination of this Agreement or the resignation of Escrow Agent.
<PAGE>
(f) Escrow Agent makes no representation as to the validity,
value, genuineness, or the collectability of any security or other
document or instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited
hereunder.
(h) Escrow Agent (and any successor to the Escrow Agent) may at
any time resign as such by delivering the Escrow Fund to any successor
Escrow Agent jointly designated by the other parties hereto in writing,
or to any court of competent jurisdiction, whereupon Escrow Agent shall
be discharged of and from any and all further obligations arising in
connection with this Agreement. The resignation of Escrow Agent will
take effect on the earlier of (a) the appointment of a successor escrow
agent (including a court of competent jurisdiction) or (b) the day which
is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time Escrow Agent
has not received a designation of a successor Escrow Agent, Escrow
Agent's sole responsibility after that time shall be to retain and
safeguard the Escrow Fund until receipt of a designation of successor
Escrow Agent or a joint written disposition instruction by the other
parties hereto or a final non-appealable order of a court of competent
jurisdiction.
(i) In the event of any disagreement between the other parties
hereto resulting in adverse claims or demands being made in connection
with the Escrow Fund or in the event that Escrow Agent is in doubt as to
what action it should take hereunder, Escrow Agent shall be entitled to
retain the Escrow Fund until Escrow Agent shall have received (i) a
final non-appealable order of a court of competent jurisdiction
directing delivery of the Escrow Fund or (ii) a written agreement
executed by the other parties hereto directing delivery of the Escrow
Fund, in which event Escrow Agent shall disburse the Escrow Fund in
accordance with such order or agreement. Any court order shall be
accompanied by a legal opinion by counsel for the presenting party
satisfactory to Escrow Agent to the effect that the order is final and
non-appealable. Escrow Agent shall act on such court order and legal
opinion without further question.
(j) Buyer and Seller shall pay Escrow Agent compensation (as
payment in full) for the services to be rendered by Escrow Agent
hereunder in the amount of $_________ at the time of execution of this
Agreement and $_____________ annually thereafter and agree to reimburse
Escrow Agent for all reasonable expenses, disbursements and advances
incurred or made by Escrow Agent in performance of its duties hereunder
(including reasonable fees, expenses and disbursements of its counsel).
Any such compensation and reimbursement to which Escrow Agent is
entitled shall be evenly split by Buyer and Seller.
<PAGE>
(k) No printed or other matter in any language (including,
without limitation, prospectuses, notices, reports and promotional
material) that mentions Escrow Agent's name or the rights, powers, or
duties of Escrow Agent shall be issued by the other parties hereto or on
such parties' behalf unless Escrow Agent shall first have given its
specific written consent thereto.
(l) The other parties hereto authorize Escrow Agent, for any
securities held hereunder, to use the services of any United States
central securities depository it reasonably deems appropriate,
including, without limitation, the Depositary Trust Company and the
Federal Reserve Book Entry System.
6. LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against Escrow Agent. Escrow Agent
shall not be bound by the provisions of any agreement among the other parties
hereto except this Agreement.
7. OWNERSHIP FOR TAX PURPOSES
Seller agrees that, for purposes of federal and other taxes based on
income, Seller will be treated as the owner of the Escrow Fund, and that Seller
will report all income, if any, that is earned on, or derived from, the Escrow
Fund as its income in the taxable year or years in which such income is properly
includible and pay any taxes attributable thereto.
8. NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Seller:
Valley Systems, Inc.
Valley Systems of Ohio, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
Attention: Chief Executive Officer
Facsimile No.: (330) 854-3444
<PAGE>
with a copy to:
Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Jonathan Golden
Facsimile No.: (404) 873-8701
Buyer:
HydroChem Industrial Services, Inc.
5956 Sherry Lane
Suite 930
Dallas, Texas 75225
Attention: Chief Executive Officer
Facsimile No.: (214) 361-4715
with a copy to:
Haynes and Boone, LLP
600 Congress Avenue
Suite 1600
Austin, Texas 78701
Attention: Dennis R. Cassell
Facsimile No.: (512) 867-8470
Escrow Agent:
Bank One Texas, N.A.
Attention:
Facsimile No.:
with a copy to:
Attention:
Facsimile No.:
<PAGE>
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Texas, County of Dallas, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken together,
will be deemed to constitute one and the same.
11. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
12. WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
13. EXCLUSIVE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements among the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
<PAGE>
may not be amended except by a written agreement executed by the Buyer, the
Seller and the Escrow Agent.
14. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Texas,
without regard to conflicts of law principles.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
HYDROCHEM INDUSTRIAL VALLEY SYSTEMS, INC.
SERVICES, INC.
By:______________________________ By:______________________________________
B. Tom Carter, Jr. Ed Strickland
Chairman of the Board and President and Chief Executive Officer
Chief Executive Officer
BANK ONE TEXAS, N.A. VALLEY SYSTEMS OF OHIO, INC.
By:______________________________ By:______________________________________
Ed Strickland
Name:____________________________ President and Chief Executive Officer
Officer:_________________________
Title:___________________________
