<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12273
ROPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
----------------
Delaware 51-0263969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------
160 Ben Burton Road
Bogart, Georgia 30622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 369-7170
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights
with respect to Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock, as of
December 31, 1999: $1,147,060,111
Number of shares of Registrant's Common Stock outstanding as of December 31,
1999: 30,335,474
----------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be furnished to Shareholders
in connection with its Annual Meeting of Shareholders to be held on March 17,
2000, are incorporated by reference into Part III
===============================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
Roper Industries, Inc. ("Roper") designs, manufactures and distributes specialty
industrial controls, fluid handling and analytical instrumentation products
worldwide, serving selected segments of a broad range of markets such as oil &
gas, scientific research, medical diagnostics, semiconductor, microscopy,
chemical and petrochemical processing, large diesel engine and
turbine/compressor control applications, bulk-liquid trucking, power generation,
and agricultural irrigation industries.
Roper pursues consistent and sustainable growth in sales and earnings by
operating and acquiring businesses that manufacture and sell high value-added,
highly engineered industrial products that are capable of achieving and
maintaining high margins. This strategy continually emphasizes (i) increasing
market share and market expansion, (ii) new product development, (iii) improving
productivity and reducing costs and (iv) acquisition of similar businesses. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - - Year Ended October 31, 1999 Compared to Year Ended October 31,
1998 and - - Year Ended October 31, 1998 Compared to Year Ended October 31,
1997."
Market Share, Market Expansion and Product Development. Roper competes in many
narrowly defined niche markets. Its position in these markets is typically as
the market leader or as a competitive alternate to the market leader. In those
markets where Roper is regionally dominant it seeks to sustain growth through
geographic expansion of its marketing efforts and the development of new
products for associated markets.
Roper expanded its markets in fiscal 1999 principally by new business
acquisitions. In June 1999 it acquired the three units comprising the
instruments division of Varlen Corporation, and has integrated their management
and sales distribution with that of Roper's ISL unit. These businesses now
operate as Petroleum Analyzer Company ("Petroleum Analyzer") which manufactures
and markets petroleum properties test equipment. Subsequent to the end of the
fiscal year, Roper acquired in November 1999 the Motion Analysis Systems
Division of Eastman Kodak Company, now named Roper Scientific MASD, Inc.
("MASD"), and Redlake Imaging Corporation ("Redlake Imaging"). MASD and Redlake
Imaging manufacture and market high-speed and high-resolution digital video
equipment.
The fiscal 1999 Petroleum Analyzer acquisitions represented an investment of $36
million in cash. The MASD and Redlake Imaging acquisitions represented a
combined investment of approximately $60 million in cash. These acquisitions
have been financed principally from borrowings. Roper's debt under its primary
credit facility was $109 million at October 31, 1999 ($158 million after the
additional borrowings to purchase MASD) and $119 million at October 31, 1998.
Total debt was 36% (44% after the MASD borrowings) and 39% of total
capitalization at October 31, 1999 and 1998, respectively. Roper believes it is
well positioned for additional acquisitions.
1
<PAGE>
International Sales. Sales outside the United States continue to play an
important part in Roper's overall operating results, including U.S.-based
businesses. In fiscal 1999, 1998 and 1997, Roper's net sales outside the U.S.
were 51%, 50% and 46%, respectively, of total net sales. Information regarding
international operations is set forth in Note 13 of the Notes to Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K
("Annual Report").
Research and Development. Roper conducts applied research and development to
improve the quality and performance of its products, to develop new products and
to enter new markets. Research and development performed by Roper often
includes extensive field testing of its products. Roper expensed $16.7 million,
$18.0 million and $14.2 million in the years ended October 31, 1999, 1998 and
1997, respectively, on research and development activities.
INDUSTRIAL CONTROLS SEGMENT
The Industrial Controls segment's products are manufactured and distributed by
Amot Controls Corporation, Richmond, California ("Amot U.S."), and its U.K.
affiliated division, Roper Industries Limited, Bury St. Edmunds, England ("Amot
U.K."), which are collectively referred to as "Amot", Compressor Controls
Corporation, Des Moines, Iowa ("Compressor Controls"), Metrix Instrument Co.,
L.P., having divisions located in Houston, Texas and Natick, Massachusetts
("Metrix") and Petrotech, Inc., Belle Chasse, Louisiana ("Petrotech").
Selected financial information for the Industrial Controls segment is set forth
in Note 13 of the Notes to the Consolidated Financial Statements included
elsewhere in this Annual Report. This segment's principal sales and services
consist of: (i) rotating machinery control systems and panels (ii) industrial
valve, control and measurement products, (iii) vibration instrumentation and
(iv) design, build, construct and install services.
Rotating Machinery Control Systems and Panels. Roper manufactures control
systems and panels engineered for applications involving compressors, turbines,
and engines in the oil & gas, pipeline, power generation and marine industries.
Industrial Valve, Control and Measurement Products. Roper manufactures a
variety of valve, sensor, switch and control products used on engines,
compressors, turbines and other powered equipment for the oil & gas, pipeline,
power generation, marine and general industrial markets. Most of these products
are designed for use in hazardous, explosive environments.
Vibration Instrumentation. Roper manufactures industrial vibration sensors,
switches and transmitters for use in the broad industrial controls market.
Their applications typically involve turbomachinery, engines, compressors, fans
and/or pumps.
Design, Build, Construct and Install Services. Roper provides specialized
technical services to the product markets described above and thus offers
turnkey solution capability to its customers. Services offered include
engineering design, procurement, packaging and site installation. Those classes
of products within the Industrial Controls segment that accounted for at least
10% of
2
<PAGE>
Roper's consolidated net sales in any of the periods presented below were as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended October 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Rotating machinery control systems and panels $78,979 $93,540 $59,078
Industrial valve, control and measurement products 25,123 32,298 34,827
</TABLE>
The following chart shows the breakdown of sales by market for fiscal 1999 for
the Industrial Controls segment:
<TABLE>
<S> <C>
Power Generation 10%
Oil & Gas - Pipeline 39%
General Industry 6%
Oil & Gas Production
and Processing 40%
Marine 5%
</TABLE>
Backlog. The bulk of this segment's business consists of large engineered oil &
gas development and transmission projects with lead times of three-to-nine
months. Standard products generally ship within two weeks of receipt of order,
while shipment of orders for specialty products varies according to the
complexity of the product and availability of the required components. Roper
enters into blanket purchase orders for the manufacture of products for certain
OEMs and end-users over periods of time specified by such customers. The
segment's backlog of firm unfilled orders, including blanket purchase orders,
totaled $29.3 million at October 31, 1999 compared to $39.0 million as of
October 31, 1998. The principle reason for this decrease was softness in the
segment's oil & gas markets.
Distribution and Sales. Distribution and sales occur through direct sales
offices, manufacturer's representatives and industrial machinery distributors.
Customers. Each of Roper's business units sells to a variety of customers
worldwide. RAO Gazprom ("Gazprom"), a large Russian natural gas company, was
the biggest single customer in this segment for the year, contributing
approximately 22% of segment sales in fiscal 1999, and has
3
<PAGE>
indicated its interest to continue purchases of control systems for several
years. However, continuation of this business at expected levels will continue
to be subject to numerous commercial and political risks beyond Roper's control
and cannot be assured. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Forward Looking Information".
FLUID HANDLING SEGMENT
The Fluid Handling segment's products are manufactured and distributed by
Cornell Pump Manufacturing Corporation, Portland, Oregon ("Cornell Pump"), Fluid
Metering, Inc., Syosset, New York ("Fluid Metering"), FTI Flow Technology, Inc.,
Phoenix, Arizona ("Flow Technology"), Integrated Designs L.P., Carrollton, Texas
("Integrated Designs") and Roper Pump Company, Commerce, Georgia ("Roper Pump").
Selected financial information for the Fluid Handling segment is set forth in
Note 13 of the Notes to Consolidated Financial Statements included elsewhere in
this Annual Report. This segment's principal products consist of (i) general
industrial pumps, (ii) integrated dispense systems and (iii) flow metering
products.
General Industrial Pumps. Roper manufactures a variety of general industrial
pumps including (i) rotary gear pumps which operate on the principle of two
gears intermeshing and are primarily used for pumping particle-free viscous
liquids such as oil and certain fluid products, and specialty rotary gear pumps
such as lubricating oil pumps for diesel engines and fuel distribution devices,
(ii) progressing cavity pumps whose pumping elements consist of a steel rotor
within an elastomeric stator and which are used primarily for handling viscous
liquids with suspended solids and abrasive material and is the basis for Roper's
"mud motor" used in the oil & gas industry for directional drilling, (iii)
centrifugal pumps which are used for pumping water and other low-viscosity
liquids in agricultural, industrial and municipal applications and (iv) piston-
type metering pumps able to handle most types of chemicals and fluids within
low-flow applications and used principally in the medical diagnostics, chemical
processing, food processing and agricultural industries.
Integrated Dispense Systems. Roper's microprocessor-based integrated dispense
systems are used principally in the semiconductor industry to dispense chemicals
in a precise and repeatable fashion during the wafer fabrication process. These
highly reliable dispense units incorporate no mechanical displacement, but
utilize the application of electronically regulated vacuum pressure.
Flow Metering Products. Roper manufactures turbine flow meters, emissions
measurement equipment and flow meter calibration for the aerospace, automotive
and other industrial applications.
4
<PAGE>
Those classes of products within the Fluid Handling segment that accounted for
at least 10% of Roper's consolidated net sales in any of the periods presented
below were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
General industrial pumps $ 76,193 $ 72,095 $ 71,918
</TABLE>
The following chart shows the breakdown of Fluid Handling segment sales by
market for fiscal 1999:
<TABLE>
<S> <C>
Semiconductor Equipment 12%
General Industry and Other 40%
Transportation 4%
Aerospace 3%
Irrigation 7%
Food Processing 8%
Oil & Gas 7%
Power Generation 9%
Medical 10%
</TABLE>
Backlog. The Fluid Handling companies' sales also reflect a combination of
standard products and specifically engineered, application-specific products.
Standard products are typically shipped within two weeks of receipt of order.
Application-specific products typically ship within six-to-twelve weeks
following receipt of order, although certain blanket purchase orders for certain
OEMs and other end-users may extend for longer periods. This segment's backlog
of firm unfilled orders, including blanket purchase orders, totaled $14.4
million at October 31, 1999 compared to $12.7 million as of October 31, 1998.
Most of the increase in backlog was attributed to the semiconductor equipment
business where backlog was up over 500% compared to depressed conditions that
existed last year.
Distribution and Sales. Distribution and sales occur through direct sales
personnel, manufacturer's representatives and stocking and non-stocking
distributors.
5
<PAGE>
Customers. Several of the Fluid Handling segment's companies have sales to one
or a few customers that represent a significant portion of that company's sales
and the relative importance of such a concentrated customer base for these
companies is expected to continue. In particular, two customers of Integrated
Designs contributed approximately 55% of its fiscal 1999 net sales. However, no
customer was responsible for as much as 10% of the segment's net sales.
ANALYTICAL INSTRUMENTATION SEGMENT
The Analytical Instrumentation segment's products are manufactured and
distributed by Gatan, Inc. ("Gatan"), having principal operations in Pleasanton,
CA and Warrendale PA, Molecular Imaging Corporation ("Molecular Imaging"),
Tempe, AZ, Petroleum Analyzer, having principal operations in Houston and San
Antonio, TX, Verson, France and Lauda, Germany, Redlake Imaging, Morgan Hill,
CA, Roper Scientific, Inc. ("Roper Scientific"), having principal operations in
Tucson, AZ, Trenton, NJ and Acton, MA, MASD, San Diego, CA and Uson L.P.
("Uson"), Houston, TX.
Selected financial information for the Analytical Instrumentation segment is set
forth in Note 13 of the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report. This segment's principal products consist of
(i) digital imaging products, (ii) industrial testing and analysis products,
(iii) microscopy specimen preparation/handling products and (iv) spectroscopy
products.
Digital Imaging Products. Roper manufactures and sells extremely sensitive,
high-performance charge-coupled device ("CCD") cameras and detectors for a
variety of scientific uses, which use high resolution and/or high speed digital
video, including transmission electron microscopy and spectroscopy applications.
These products are principally sold for use within academic, government
research, semiconductor, automotive, ballistic and biological and material
science end-user markets. They are frequently incorporated into original
equipment manufacturers' ("OEM") products.
Industrial Testing and Analysis Products. Roper manufactures and sells (i)
automated and manual test equipment to determine certain characteristics of
petroleum products, such as flash point, viscosity, freeze point and
distillation and (ii) products and systems to determine leaks and completeness
of assemblies and sub-assemblies in the automotive, medical and consumer
products industries.
Microscopy Specimen Preparation/Handling Products. Roper manufactures and sells
specimen preparation and handling equipment for use with electron microscopes.
The handling products are incorporated into OEM equipment and also sold as a
retrofit for microscopes currently in use within the academic, government
research, electronics, biological and material science end-user markets.
Spectroscopy Products. Roper manufactures and sells spectrometers,
monochrometers and optical components and coatings for various high-end
analytical applications. These products are often incorporated into OEM
equipment for use within the research and material science end-user markets.
6
<PAGE>
The class of products within the Analytical Instrumentation segment that
accounted for at least 10% of Roper's consolidated net sales in any of the
periods presented below were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Digital imaging products $ 89,739 $ 65,576 $ 37,181
</TABLE>
The following chart shows the breakdown of Analytical Instrumentation segment
sales by market for fiscal 1999:
<TABLE>
<S> <C>
General Industry and Other 8%
Medical 7%
Oil & Gas 18%
Automotive 9%
Research 53%
Semiconductor 5%
</TABLE>
Backlog. The Analytical Instrumentation companies have lead times of up to
several months on many of their product sales, although standard products are
often shipped within four weeks of receipt of order. Blanket purchase orders
are placed by certain OEMs and end-users, with continuing requirements for
fulfillment over specified periods of time. The segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $30.0 million at
October 31, 1999 compared to $28.9 million as of October 31, 1998. This year-
over-year increase mostly attributed to the fiscal 1999 acquisition of the
Varlen Instruments companies.
Distribution and Sales. Distribution and sales are achieved through a
combination of manufacturer representatives, agents, distributors and direct
sales offices in both the U.S. and various leading industrial nations.
Customers. Each of the companies in the Analytical Instrumentation segment
sells to a variety of customers worldwide, with certain major OEMs in the
automotive, medical diagnostics and microscopy industries having operations
globally. In particular, the two major OEM customers of
7
<PAGE>
Gatan contributed approximately 47% of its fiscal 1999 net sales. However, no
customer accounted for as much as 10% of the segment's sales.
MATERIALS AND SUPPLIERS
Most materials and supplies used by Roper are believed to be readily available
from numerous sources and suppliers throughout the world which are believed
adequate for their needs. Some high-performance components for digital imaging
products can be in short supply and Roper continuously investigates and
identifies alternative sources where possible. Roper believes this condition
equally affects its competitors and, thus far, it has not had a significant
adverse effect on sales.
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATION
Roper is subject to environmental laws and regulations concerning emissions to
the air, discharges to waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. These laws and
regulations are constantly changing and it is impossible to predict with
accuracy the effect they may have on Roper in the future. It is Roper's policy
to comply with all applicable environmental, health and safety laws and
regulations.
Roper is subject to various U.S. federal, state and local laws and foreign laws
affecting its businesses, as well as a variety of regulations relating to such
matters as working conditions and product safety. A variety of state laws
regulate Roper's contractual relationships with its distributors and
manufacturer representatives, some of which impose substantive standards on
these relationships.
COMPETITION
Roper has significant competition from a limited number of companies in each of
its markets. No single competitor competes with Roper over a significant number
of product lines. Roper's products compete primarily on the basis of
performance, innovation and price.
PATENTS AND TRADEMARKS
Roper owns the rights under a number of patents and trademarks relating to
certain of its products and businesses. While it believes that none of its
companies is substantially dependent on any single, or group, of patents,
trademarks or other items of intellectual property rights, the product
development and market activities of Compressor Controls, Gatan, Integrated
Designs, MASD and Roper Scientific, in particular, have been planned and
conducted in conjunction with important and continuing patent strategies.
Compressor Controls has been granted a series of U.S. and associated foreign
patents and a significant portion of its fiscal 1999 sales of Compressor
Controls-manufactured products was of equipment which incorporated innovations
that are the subject of several such patents which will not begin to expire
until 2004. Integrated Designs was granted a U.S. patent in 1994 related to
methods and apparatus claims embodied in its integrated dispense
8
<PAGE>
systems which accounted for the majority of its fiscal 1999 sales. The U.S.
patent will expire in 2011.
EMPLOYEES
As of October 31, 1999, Roper had approximately 2,200 total employees, of whom
approximately 1,800 were located in the United States.
ITEM 2. PROPERTIES
Roper's corporate offices, consisting of 9,500 square feet of leased space, are
located in Bogart, Georgia, which is adjacent to Athens, Georgia. Roper has
established sales and service locations around the world to support its
operating units. The principal operating company properties are on the table
that follows.
Roper considers each facility to be in good operating condition and adequate for
its present use and believes that it has sufficient plant capacity to meet its
current and anticipated operating requirements.
<TABLE>
<CAPTION>
Square footage
----------------------
Location Property Owned Leased Industry segment
- ------------------------ ------------- ------- ------- --------------------------
<S> <C> <C> <C> <C>
Phoenix, AZ Office / Mfg. - 45,900 Fluid Handling
Tucson, AZ Office / Mfg. - 37,300 Analytical Instrumentation
Morgan Hill, CA Office / Mfg. - 10,500 Analytical Instrumentation
Pleasanton, CA Office - 19,400 Analytical Instrumentation
Richmond, CA Office / Mfg. 66,000 - Industrial Controls
San Diego, CA Office / Mfg. - 48,000 Analytical Instrumentation
Verson, France Office / Mfg. - 22,500 Analytical Instrumentation
Commerce, GA Office / Mfg. 189,000 - Fluid Handling
Lauda, Germany Office / Mfg. 24,000 Analytical Instrumentation
Des Moines, IA Office / Mfg. - 75,200 Industrial Controls
Belle Chasse, LA Office / Mfg. - 66,400 Industrial Controls
Acton, MA Office / Mfg. - 32,700 Analytical Instrumentation
Trenton, NJ Office / Mfg. 40,000 - Analytical Instrumentation
Syosset, NY Office / Mfg. - 27,500 Fluid Handling
Portland, OR Office / Mfg. - 128,000 Fluid Handling
Warrendale, PA Mfg. - 22,800 Analytical Instrumentation
Carrollton, TX Office / Mfg. - 22,000 Fluid Handling
Houston, TX Office / Mfg. 12,600 - Industrial Controls
Houston, TX Office 10,500 Analytical Instrumentation
Houston, TX Office / Mfg. - 17,800 Analytical Instrumentation
San Antonio, TX Office / Mfg. 37,900 Analytical Instrumentation
Bury St. Edmunds, U.K. Office / Mfg. 90,000 - Industrial Controls
</TABLE>
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Roper is a defendant in various lawsuits involving product liability and other
matters, none of which Roper believes, if adversely determined, would have a
material adverse effect on its consolidated financial position or results of
operations. The majority of such claims are the subject of insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of Roper's security-holders during the fourth
quarter of fiscal 1999.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Roper's single class of common stock issued and outstanding trades on the New
York Stock Exchange ("NYSE") under the symbol "ROP". Following is the range of
high and low sales prices for Roper's common stock as reported by the NYSE
during each of its fiscal 1999 and 1998 quarters and the dividends declared per
share. The last sales price reported by the NYSE on December 31, 1999, was
$37.813.
<TABLE>
<CAPTION>
Dividend
High Low Declared
------- ------- --------
<S> <C> <C> <C> <C>
1999 4th Quarter $38.562 $29.750 $0.065
3rd Quarter 36.500 28.000 0.065
2nd Quarter 29.594 20.875 0.065
1st Quarter 22.500 15.750 0.065
1998 4th Quarter 23.250 13.313 0.060
3rd Quarter 34.063 20.000 0.060
2nd Quarter 33.500 25.750 0.060
1st Quarter 31.000 24.438 0.060
</TABLE>
Based on information available to Roper and its transfer agent, Roper believes
that as of December 31, 1999 there were approximately 273 record holders of its
common stock.
Dividend Policy. Roper has declared a cash dividend in each fiscal quarter
since its February 1992 initial public offering and has also increased its
dividend rate annually since the initial public offering. In November 1999,
Roper's Board of Directors increased the quarterly dividend rate to $0.07 per
share, an increase of 8%, from the prior rate. However, the timing, declaration
and payment of future dividends will be at the sole discretion of Roper's Board
of Directors and will depend upon Roper's profitability, financial condition,
capital needs, future prospects and other factors deemed relevant by the Board
of Directors. Therefore, there can be no assurance as to the amount, if any,
that will be available for the declaration of cash dividends in the future.
Recent Sales of Unregistered Securities. None
11
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION
The consolidated selected financial data presented below has been derived from
Roper's audited consolidated financial statements and should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and with Roper's Consolidated Financial Statements
and related notes thereto included elsewhere in this Annual Report. All per
share data have been restated to reflect the 2-for-1 stock split in August 1997.
<TABLE>
<CAPTION>
Year ended October 31,
-------------------------------------------------------------------------
1999/(1)/ 1998/(2)/ 1997/(3)/ 1996/(4)/ 1995/(5)/
------------- ------------- ------------ ------------- -------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operations data:
Net sales $ 407,256 $ 389,170 $ 298,236 $ 225,651 $ 175,421
Gross profit 210,503 190,953 153,389 115,924 93,803
Income from operations 77,955 66,092 60,870 47,272 37,411
Net earning applicable to common shares 47,346 39,316 36,350 28,857 23,271
Per share data:
Net earnings applicable to
common shares:
Basic $ 1.56 $ 1.27 $ 1.19 $ 0.96 $ 0.78
Diluted 1.53 1.24 1.16 0.93 0.77
Dividends 0.26 0.24 0.20 0.16 0.11
Balance sheet data:
Working capital $ 89,576 $ 82,274 $ 86,954 $ 45,007 $ 38,077
Total assets 420,163 381,533 329,320 242,953 155,381
Long-term debt, less current portion 109,659 120,307 99,638 63,373 20,150
Stockholders' equity 231,968 197,033 177,869 137,396 105,595
</TABLE>
(1) Reflects inclusion of Flow Technology, Acton Research, Photometrics (now
part of Roper Scientific) and PMC/Beta (now part of Metrix) for the full
year as compared to only part of 1998 and the inclusion of the fiscal 1999
Petroleum Analyzer acquisitions for four months in 1999.
(2) Reflects inclusion of Princeton Instruments (now part of Roper Scientific),
Petrotech and IDS (now part of Uson) for the full year as compared to only
part of 1997 and the inclusion of Flow Technology, Acton Research (now part
of Roper Scientific), Photometrics and PMC/Beta for part in 1998.
(3) Reflects inclusion of Gatan and Fluid Metering for the full year as compared
to five months in the prior year; and inclusion of Princeton Instruments (5
1/2 months), Petrotech (5 months) and IDS (balance sheet only) in 1997.
(4) Reflects inclusion of Uson for the full year as compared to eight months in
the prior year; inclusion of Metrix for the full year as compared to one
month in the prior year; and inclusion of Gatan and Fluid Metering for five
months in 1996.
(5) Reflects inclusion of ISL for the full year as compared to two months in the
prior year; and inclusion of Uson and Metrix for eight months and one month,
respectively, in 1995.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Roper's Consolidated
Financial Statements and selected financial data included elsewhere in this
Annual Report.
Results of Operations
General
The following table sets forth selected information for the years indicated.
Amounts are dollars in thousands and percentages are of net sales.
<TABLE>
<CAPTION>
Year ended October 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 48.3 50.9 48.6
-------- -------- --------
Gross profit 51.7 49.1 51.4
Selling, general and administrative expenses 32.6 32.1 31.0
-------- -------- --------
Income from operations 19.1 17.0 20.4
Interest expense 1.8 2.0 2.0
Other income 0.4 0.3 0.1
-------- -------- --------
Earnings before income taxes 17.7 15.3 18.5
Income taxes 6.1 5.2 6.3
-------- -------- --------
Net earnings 11.6% 10.1% 12.2%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended October 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
$ % $ % $ %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Industrial Controls:/(1)/
Net sales 160,090 177,258 123,129
Gross profit 78,957 49.3 84,386 47.6 61,756 50.2
Operating profit/(2)/ 29,973 18.7 31,458 17.7 22,402 18.2
Fluid Handling:/(3)/
Net sales 98,298 99,471 94,175
Gross profit 47,662 48.5 45,160 45.4 43,213 45.9
Operating profit/(2)/ 27,386 27.9 24,125 24.3 25,853 27.5
Analytical Instrumentation:/(4)/
Net sales 148,868 112,441 80,932
Gross profit 83,884 56.3 61,407 54.6 48,420 59.8
Operating profit/(2)/ 27,713 18.6 16,417 14.6 18,292 22.6
</TABLE>
/(1)/ Includes results of Petrotech from June 1, 1997 and the PMC/Beta
division of Metrix from May 1, 1998.
/(2)/ Operating profit excludes unallocated corporate administrative costs.
Such costs were $7,117, $5,908 and $5,677 for the years ended October
31, 1999, 1998 and 1997, respectively.
/(3)/ Includes results of Flow Technology from December 1, 1997.
/(4)/ Includes results of the Princeton Instruments division of Roper
Scientific from May 17, 1997, IDS from November 1, 1997, the Acton
Research division of Roper Scientific from March 1, 1998, the
Photometrics division of Roper Scientific from April 1, 1998 and the
fiscal 1999 Petroleum Analyzer acquisitions from June 21, 1999.
13
<PAGE>
Year Ended October 31, 1999 Compared to Year Ended October 31, 1998
Net sales for fiscal 1999 of $407.3 million represented the seventh consecutive
year that Roper established a record high. Roper core sales (excluding sales to
Gazprom) increased 7% for the year ended October 31, 1999 compared to the year
ended October 31, 1998. Total Industrial Controls sales decreased 10% due
mostly to difficult market conditions throughout the oil & gas industry, as oil
and natural gas prices were at historical lows in the early part of fiscal 1999,
and consolidation within the industry. Each of these factors caused reductions
in capital spending by Roper's customers during fiscal 1999. Sales to Gazprom
were $35.0 million for the year ended October 31, 1999, down 16% from fiscal
1998 as a result of dropping certain low margin, pass-through products from the
contract. Total Analytical Instrumentation sales increased 32% due to full-year
contributions from the fiscal 1998 acquisitions of Acton Research (February
1998) and Photometrics (March 1998), the partial-year contribution from the
fiscal 1999 Petroleum Analyzer acquisitions (June 1999) and improved market
conditions for the segment's digital imaging business. On a pro forma basis,
Analytical Instrumentation sales increased 11% in fiscal 1999 compared to the
prior year. Total Fluid Handling sales decreased 1% in fiscal 1999 compared to
fiscal 1998. Poor semiconductor equipment industry conditions that affected the
Fluid Handling segment primarily in the first half of fiscal 1999 offset the
strength in the segment's centrifugal pump business as several new product
offerings were very well received by the market.
Industrial Controls gross profit percentage increased 1.7 points in fiscal 1999
compared to the prior year. The major reason for the increase was the
elimination of certain low-margin business with Gazprom in fiscal 1999.
Analytical Instrumentation gross profit also increased 1.7 points in fiscal 1999
compared to the prior year. The major contributors to this increase were an
inventory write-down in the fourth quarter of fiscal 1998, the realization of
cost structure improvements at those businesses acquired over the past two years
and volume leverage. Fluid Handling gross profit increased 3.1 points in fiscal
1999 compared to the prior year. This gain resulted from a number of factors,
including improved product mix in fiscal 1999 from larger diameter centrifugal
pumps, an improved power generation market, the leverage of improved
semiconductor industry conditions in the second half of fiscal 1999, and
improved cost structures throughout the segment. Every one of this segment's
businesses improved gross margins in fiscal 1999 compared to fiscal 1998. In
addition, the consolidated gross profit percentage improvement of 2.6 points in
fiscal 1999 was due mostly to increased higher-margin Analytical Instrumentation
sales.
Selling, general and administrative ("SG&A") expenses increased 6% in fiscal
1999 compared to the year ended October 31, 1998 mostly due to the partial year
costs associated with Petroleum Analyzer. As a percentage of sales, these costs
were 32.5% in fiscal 1999 compared to 32.1% in fiscal 1998. This increase was
attributable mostly to the increased size of the Analytical Instrumentation
segment, whose businesses typically have higher engineering and amortization
costs compared to Roper's other business segments. Analytical Instrumentation
SG&A costs were 37.7% and 40.0% of sales in fiscal 1999 and 1998, respectively.
Comparative percentages for the Industrial Controls and Fluid Handling segments
were each within 1 point for these years. Excluding Russian-related reserves
recorded during the fourth quarter of fiscal 1998 in the Industrial Controls
segment, this segment's SG&A costs were about the same in fiscal 1999 as fiscal
1998.
14
<PAGE>
Interest expense was about 8% lower during the year ended October 31, 1999
compared to fiscal 1998, with lower interest rates throughout most of fiscal
1999 as compared to fiscal 1998. The German revolving credit facility opened in
June 1999 also accrued interest at a relatively low rate compared to U.S.
borrowings. Average debt levels were about 4% higher in fiscal 1999 compared to
the prior year.
The effective income tax rate was 34.5% for the year ended October 31, 1999 and
34.1% for the year ended October 31, 1998. The difference between these rates
and the differences between the reconciling items between the statutory income
tax rate and the effective income tax rate for these years are not considered
significant.
Average outstanding shares were less in fiscal 1999 than fiscal 1998 as a result
of the repurchase of 1.2 million shares by Roper during the fourth quarter of
fiscal 1998 through the second quarter of fiscal 1999. The buy-back program was
terminated in May 1999.
Other components of comprehensive earnings represented the change in cumulative
translation adjustments related to the net assets of non-U.S. subsidiaries whose
functional currency was not the U.S. dollar. The net change during each of
fiscal 1999 and fiscal 1998 was related to Roper's subsidiaries in Europe and
Japan.
Net cash provided by operating activities declined by $24.7 million, or 30.6%,
primarily as a result of a $10.6 million increase in accounts receivable as
compared to a $12.7 million decrease in the fiscal years ended October 31, 1999
and October 31, 1998, respectively. The reduction in 1998 was attributable to
exceptional Gazprom cash receipts and the increase in 1999 arose primarily at
Roper Scientific and Integrated Designs largely as a result of increased fourth
quarter business levels.
The following table summarizes bookings and backlog information (dollars in
thousands):
<TABLE>
<CAPTION>
Bookings Backlog
-------------------------------- --------------------------------
Year ended October 31, October 31,
-------------------------------- --------------------------------
1999 1998 Change 1999 1998 Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Analytical Instrumentation $148,478 $111,637 +33.0% $ 30,000 $ 28,898 +3.8%
Fluid Handling 100,600 94,470 +6.5 14,375 12,746 +12.8
Industrial Controls 150,604 176,228 -14.5 29,286 39,035 -25.0
-------- -------- -------- -------- -------- --------
$399,682 $382,335 +4.5% $ 73,661 $ 80,679 -8.7%
======== ======== ======== ======== ======== ========
</TABLE>
On a pro forma basis to include current year acquisitions for the comparable
prior year period, Analytical Instrumentation segment bookings and backlog were
up 8% and down 7%, respectively, in fiscal 1999 compared to fiscal 1998.
Consolidated pro forma bookings and backlog were down 3% and down 12%,
respectively. Actual compared to pro forma results were about the same for the
Fluid Handling and Industrial Controls segments. The 33% increase in
15
<PAGE>
Analytical Instrumentation segment bookings was due to the full-year
contributions of Acton Research and Photometrics, the partial-year contribution
of Petroleum Analyzer and strengthened digital imaging markets in fiscal 1999
(which also accounts for the pro forma increase). Fluid Handling segment
bookings increased from its stronger centrifugal pump business and the increased
backlog reflected much better semiconductor industry conditions. Decreased
Industrial Controls segment bookings reflected weak oil & gas industry
conditions.
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Roper's core sales increased 23% for the year ended October 31, 1998 compared to
the year ended October 31, 1997. Total Industrial Controls sales increased 44%
due mostly to the full year results from the May 1997 acquisition of Petrotech
and increased sales to Gazprom. Sales to Gazprom were $41.9 million for the
year ended October 31, 1998 as Gazprom entered into a financing agreement to
stabilize this business. This compared to $14.7 million in sales during fiscal
1997. Fluid Handling sales increased 6% because of the December 1997
acquisition of Flow Technology, which more than offset sales declines related to
this segment's oil & gas, power generation and semiconductor capital equipment
markets. Analytical Instrumentation sales increased 39% largely because of the
full year or partial-year results of four then-recent acquisitions.
Changes in overall gross profit derived mainly from the impact of the recently
acquired companies and increased sales to Gazprom. The gross profit percentage
for the Industrial Controls segment in fiscal 1998 compared to fiscal 1997 was
adversely affected by Petrotech, which was acquired in May 1997 and historically
experiences lower returns than the segment's other units. Excluding Petrotech,
Industrial Controls' gross profit percentage would have been 56.5% compared to
57.2% for fiscal 1997. Most of the other decline stemmed from lower margins at
Compressor Controls as a result of lower margins on Gazprom business from
increased engineering and procurement services in fiscal 1998. The decline in
Fluid Handling's gross profit percentage was not significant despite some
difficult market conditions that affected several of this segment's units that
more than offset strong results from Flow Technology. The gross profit
percentage for Analytical Instrumentation decreased primarily because of results
of Acton Research, Photometrics and Princeton Instruments, which reported
combined gross profit of 44.4%. Photometrics and Princeton Instruments were
merged into a single company named Roper Scientific. Analytical
Instrumentation's gross profit was also adversely affected by about 2% on an
inventory write-down at Roper Scientific that was identified upon implementation
of better business systems. Petrotech had the greatest effect that caused the
decrease in Roper's overall gross profit percentages in 1998 compared to 1997.
Other large factors were the lower margins at Compressor Controls and the
inventory write-down at Roper Scientific.
SG&A expenses increased 35% for the year ended October 31, 1998 compared to the
year ended October 31, 1997, primarily because of the expenses associated with
the then-recent acquisitions. As a percentage of sales, SG&A expenses were
32.1% for fiscal 1998 compared to 31.0% for fiscal 1997. This increase resulted
largely from additional reserves recorded during the fourth quarter of fiscal
1998 in response to a further deterioration of economic conditions in Russia and
the region that cast doubt on the collectibility of certain accounts receivable
related to sales in 1996.
16
<PAGE>
Interest expense increased $1.8 million for the year ended October 31, 1998
compared to the year ended October 31, 1997 principally because of higher debt
levels that resulted from the acquisition of seven companies during fiscal 1997
and 1998. Interest rates were slightly lower in fiscal 1998 compared to fiscal
1997 primarily because of more favorable terms negotiated into the U.S.
revolving credit facility agreement in May 1997. LIBOR rates became lower late
in fiscal 1998, but the effects on fiscal 1998 results were not significant.
The effective tax rate was 34.1% for fiscal 1998 compared to 34.0% for fiscal
1997. There were also no significant differences between years in the
reconciling items between the statutory rate and the effective rate for these
years.
Sales order bookings were $382.3 million during the year ended October 31, 1998
compared to $297.6 million for the year ended October 31, 1997, an increase of
28%. On a pro forma basis, to include acquisitions for similar periods in the
prior year, bookings were 4% higher in fiscal 1998 compared to fiscal 1997.
Industrial Controls' bookings were up 40% (20% on a pro forma basis) because of
Petrotech, which booked a large project, and Compressor Controls, because of
increased business with Gazprom following Gazprom establishing new financing
arrangements early in the year. Fluid Handling's bookings were up 2% (down 8%
on a pro forma basis) compared to fiscal 1997. The acquisition of Flow
Technology offset 46% lower bookings at Integrated Designs caused by the
depressed business conditions in the semiconductor capital equipment industry.
Bookings within Analytical Instrumentation increased 42% (down 6% on a pro forma
basis). Whereas the increase resulted from acquisitions, the pro forma decrease
reflected weak business conditions for all of the companies in this segment.
Sales order backlog was $80.7 million at October 31, 1998 compared to $82.6
million at October 31, 1997. On a pro forma basis, backlog was 13% lower than
fiscal 1997. Pro forma backlog at Industrial Controls was down 11% despite a
significant increase at Petrotech that resulted from increased bookings
discussed above. Backlog related to Russia-region shipments was down $8.5
million compared to fiscal 1997, largely because of delayed shipments at October
31, 1997 that were shipped during the first quarter of fiscal 1998. Excluding
the Russia-region decrease in backlog, actual and pro forma backlog at
Industrial Controls was up 12% and 11% at October 31, 1998 compared to October
31, 1997, respectively. Fluid Handling's pro forma backlog was 32% lower at the
end of fiscal 1998 compared to fiscal 1997 largely because of an 89% decline in
the backlog at Integrated Designs. Pro forma backlog was 6% lower at Analytical
Instrumentation due to the lower level of bookings.
17
<PAGE>
Financial Condition, Liquidity and Capital Resources
October 31, 1999 compared to October 31, 1998
Working capital was $89.6 million at October 31, 1999 compared to $82.3 million
at October 31, 1998. October 1999 cash was unusually high due to long-term
borrowings made immediately prior to October 31, 1999 that were used to fund the
acquisition of Redlake Imaging in early November. Accounts receivable increased
as a result of strong fourth quarter digital imaging sales and the balances at
the fiscal 1999 Petroleum Analyzer acquisitions that more than offset the
effects of lower fourth quarter oil & gas-related sales. The increase in notes
payable and current portion of long-term debt at October 31, 1999 compared to
1998 reflected borrowings under the $16 million German revolving credit facility
that was opened in June 1999.
Roper utilizes a $200 million U.S. revolving credit facility with a syndicate of
banks to provide most of its external financing requirements. Total borrowings
under this agreement were $109.0 million at October 31, 1999 and an additional
$49 million was borrowed subsequent to October 31, 1999 to fund the acquisition
of MASD. The German revolving credit facility was amended subsequent to October
31, 1999 to increase its size to $30 million. Total borrowings under the German
facility were $15.9 million at October 31, 1999. The debt to total
capitalization ratio was 36.0% (43.6% including the November borrowings of $49
million) at October 31, 1999 compared to 39.0% at October 31, 1998.
During fiscal 1998, Roper's largest customer, Gazprom, put in place a long-term
financing for its purchase of turbomachinery controls sourced from Roper's
Compressor Controls unit. This financing has facilitated a more consistent
supply of product to Gazprom. This financing arrangement is expected to be
available over the next several years for additional turbomachinery controls
purchases. However, given unstable political and economic conditions in Russia,
Roper's future shipments to Gazprom will continue to be subject to these
political, economic and other uncertainties, which could adversely affect the
timing and amount of future shipments and cannot be assured.
Roper believes its capital expenditures requirements are modest for an
industrial products company and were $5.1 million for the year ended October 31,
1999. Although the increased size of the business will drive increased capital
expenditure requirements, Roper does not believe there will be a change in the
order of magnitude of capital expenditures in fiscal 2000.
In November 1999, Roper's Board of Directors increased the quarterly cash
dividend paid on its outstanding common stock from $0.065 per share to $0.07 per
share. This represents the seventh consecutive year in which the quarterly
dividend has been increased since Roper's 1992 initial public offering.
Roper believes that internally generated cash flows and the remaining unused
credit under its U.S. and German revolving credit facilities will be adequate to
finance normal operating requirements and further acquisition activities.
Although Roper maintains an active acquisition program, any further acquisitions
will be dependent on numerous factors and it is not feasible to reasonably
18
<PAGE>
estimate if or when any such acquisitions will occur and what the impact will be
on Roper's activities, financial condition and results of operations. Roper may
also explore alternatives to increase its access to additional capital
resources.
Roper anticipates that the newly acquired companies as well as the existing
companies will generate positive cash flows from operating activities, and that
these cash flows will permit the reduction of currently outstanding debt at a
pace consistent with that which Roper historically has experienced. However,
the rate at which Roper can reduce its debt during fiscal 2000 (and reduce the
associated interest expense) will be affected by, among other things, the
financing and operating requirements of any new acquisitions and the financial
performance of its existing companies and cannot be predicted with certainty.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") 133 - Accounting for Derivative Instruments and
Hedging Activities that will be applicable to Roper in fiscal 2001, as amended
by SFAS 137. Once adopted, this standard is not expected to significantly
affect Roper's financial position, operating results or disclosures. See Note 1
to Roper's Notes to Consolidated Financial Statements for further discussion of
this pronouncement.
Year 2000 Issues ("Y2K" issues)
During recent years, Roper instigated processes to ensure that its operations
would not be exposed to material adverse effects as a result of Y2K issues. In
total, the past costs associated with Y2K compliance, including capital
expenditures, were less than $3 million. All of Roper's business and
infrastructure systems have operated substantially as normal since January 1,
2000. In general, Roper has very few products that are date sensitive and most
of those products do not rely on the date for their performance. Accordingly,
Roper does not believe that it has any materially increased liability for
product warranty.
Generally, Roper is not aware of any potential disruptions in the businesses due
to problems with Y2K issues which could have a materially adverse effect on its
operations. However, Roper cautions that it is not presently possible to
evaluate whether all of its customers and/or vendors have been unaffected by any
Y2K issues which could, in turn, have an adverse impact on the Company's
operations.
Market Risks
At October 31, 1999, Roper's interest rate swap agreements represented a
potential asset. This asset value is directly related to changes in interest
rates. A sufficient decline in interest rates would cause the current asset
position to become a liability position. Upon adoption of SFAS 133, the value
attributed to the swap agreements will be reflected in Roper's balance sheet and
changes in this valuation will mostly be reflected as a component of other
comprehensive earnings. The
19
<PAGE>
swap agreements are intended to reduce the volatility of interest payments
related to its long-term borrowings. See Note 1 to Roper's Notes to Consolidated
Financial Statements.
At October 31, 1999, Roper's total borrowings exceeded the notional value of the
interest rate swap agreements. These borrowings are generally at current market
rates and these rates have increased subsequent to October 31, 1999.
Some of Roper's fiscal 1999 sales were denominated in a currency other than U.S.
dollars (mostly Euro, U.K. sterling and Japanese yen) and some of Roper's net
assets at October 31, 1999 were maintained in a functional currency other than
U.S. dollars (mostly Euro and U.K. sterling). The effects of changes in foreign
currency exchange rates has not historically been significant to Roper's
operations or net assets.
The traded price of Roper's common stock influences the effects on Roper's
financial statements and disclosures with regard to Roper's stock option
programs and certain cash compensation arrangements.
Outlook
Fiscal 2000 is expected to be another record year for sales and earnings. The
November 1999 acquisitions of Redlake Imaging and MASD are expected to be
immediately accretive to earnings. The fiscal 1999 Petroleum Analyzer
acquisition will be included in Roper's results for the entire year and
increased quoting activity by Roper's oil & gas businesses is expected to
generate additional bookings and revenues (but not during the first fiscal
quarter).
Roper expects to continue an active acquisition program. However, completion of
future acquisitions and their impact on Roper's results or financial condition
cannot be accurately predicted.
Forward Looking Information
The information provided elsewhere in this Annual Report, in other Roper filings
with the Securities and Exchange Commission, and in other press releases and
public disclosures contains forward-looking statements about Roper's businesses
and prospects as to which there are numerous risks and uncertainties which
generally are beyond Roper's control. Some of these risks include the level and
timing of future business with Gazprom and other Eastern European customers,
changes in interest rates, Y2K effects and the future operating results of the
newly acquired companies. There is no assurance that these and other risks and
uncertainties will not have an adverse impact on Roper's future operations,
financial condition, or financial results.
20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Roper is exposed to interest rate risks on its outstanding interest rate swap
agreements and its outstanding variable-rate borrowings to the extent that such
borrowings exceed the notional value of the interest rate swap agreements.
Roper is exposed to foreign exchange risks pertaining to its business
denominated in currencies other than the U.S. dollar. Roper is exposed to
equity market risks pertaining to the traded price of its common stock.
Roper's interest rate swap agreements provide that Roper pays a fixed interest
rate in exchange for receiving a variable interest rate on a total notional
value of $75 million. These agreements mature in 2003 and the other party has
options to extend the agreements until 2008. At October 31, 1999, the fixed
rate obligation of Roper was less than the variable rate Roper was entitled to
receive. As a result, the fair value of the interest rate swap agreements was
determined to be an asset value of $1.2 million (assuming the options are not
exercised). At October 31, 1999, an interest rate movement up or down by 10
basis points would have increased or decreased the asset value by about
$250,000. Upon adoption of SFAS 133, changes in the valuation of the interest
rate swap agreements will be a direct charge to other comprehensive earnings.
Immediately after giving effect to the $49 million of additional borrowings in
November 1999 to finance the acquisition of MASD, Roper's outstanding variable
rate borrowings exceeded the notional value of the interest rate swap agreements
by about $103 million. Based on this level of debt, an increase or decrease in
interest rates by 10 basis points would increase or decrease annualized interest
expense by about $100,000.
Roper and its subsidiary companies generally do not enter into significant
transactions denominated in currencies other than the U.S. dollar or their
functional currency. Non-U.S. dollar balances and transactions at October 31,
1999 and for the year then ended were principally denominated in Western
European or Japanese currencies. At October 31, 1999 and for the year then
ended, 10-15% of Roper's consolidated net assets (and cumulative translation
adjustments were less than 1%) and sales were denominated in these currencies.
Roper expects that these currencies will remain relatively stable. Therefore,
foreign exchange risks are not expected to have a material effect on Roper's
financial statements.
Equity markets are influenced by many factors and changes in Roper's stock price
may be influenced by factors other than Roper's historical earnings and by
factors not within Roper's control. The volatility of Roper's common stock
prices preceding an option grant is directly related to the valuation of that
grant for purposes of determining pro forma earnings disclosures. Roper's stock
prices following an option grant directly influence the dilutive effect of these
options for earnings per share calculations. The sensitivity of these issues to
a change in Roper's stock price are not readily determinable, but a change in
Roper's stock price by $1.00 is not believed to have a material effect on
Roper's financial statements or disclosures.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item begin at
page F-1 hereof.
22
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report (fiscal 1999 auditors)........................................ F-2
Independent Auditors' Report (fiscal 1998 and 1997 auditors)............................... F-3
Consolidated Balance Sheets as of October 31, 1999 and 1998................................ F-4
Consolidated Statements of Earnings for the Years ended October 31, 1999, 1998 and 1997.... F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings for the
Years ended October 31, 1999, 1998 and 1997............................................... F-6
Consolidated Statements of Cash Flows for the Years ended October 31, 1999, 1998 and 1997.. F-7
Notes to Consolidated Financial Statements.................................................. F-8
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts for the Years ended
October 31, 1999, 1998 and 1997......................................................... S-1
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
To The Shareholders of Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Roper Industries,
Inc. (a Delaware corporation) as of October 31, 1999, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
earnings and cash flows for the year then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audit. The consolidated balance sheet
at October 31, 1998 and the consolidated statements of earnings, stockholders'
equity and comprehensive earnings, cash flows and the schedule referred to below
for the fiscal years ended October 31, 1998 and 1997 were audited by other
auditors whose report dated December 4, 1998 expressed an unqualified opinion on
those statements and schedule.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Roper Industries, Inc. as of
October 31, 1999, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule listed in the
index to the consolidated financial statements and supplementary data is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Atlanta, Georgia
December 2, 1999
F-2
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Roper Industries,
Inc. and subsidiaries as of October 31, 1998 and the related consolidated
statements of earnings, stockholders' equity and comprehensive earnings and cash
flows for the years ended October 31, 1998 and 1997. In connection with our
audits of the consolidated financial statements, we also audited the related
financial statement schedule for the years ended October 31, 1998 and 1997.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roper Industries,
Inc. and subsidiaries as of October 31, 1998, and the results of their
operations and their cash flows for the years ended October 31, 1998 and 1997,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
December 4, 1998
F-3
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1999 and 1998
(Dollar and share amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents $ 13,490 $ 9,350
Accounts receivable, net 89,154 76,999
Inventories 56,401 51,444
Other current assets 2,774 2,059
-------- --------
Total current assets 161,819 139,852
Property, plant and equipment, net 34,797 31,905
Intangible assets, net 215,020 197,179
Other assets 8,527 12,597
-------- --------
Total assets $420,163 $381,533
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 18,457 $ 21,051
Accrued liabilities 31,444 29,915
Income taxes payable 1,485 863
Current portion of long-term debt 20,857 5,749
-------- --------
Total current liabilities 72,243 57,578
Long-term debt 109,659 120,307
Other liabilities 6,293 6,615
-------- --------
Total liabilities 188,195 184,500
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value per share; 1,000 shares authorized;
none outstanding - -
Common stock, $.01 par value per share; 80,000 shares authorized;
31,551 shares issued and 30,282 outstanding at October 31, 1999 and
31,307 shares issued and 30,343 outstanding at October 31, 1998 316 313
Additional paid-in capital 71,084 67,145
Retained earnings 187,911 148,435
Accumulated other comprehensive earnings (2,172) (906)
Treasury stock, 1,269 shares October 31, 1999 and 964 shares at
October 31, 1998 (25,171) (17,954)
-------- --------
Total stockholders' equity 231,968 197,033
-------- --------
Total liabilities and stockholders' equity $420,163 $381,533
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended October 31, 1999, 1998 and 1997
(Dollar and share amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $407,256 $389,170 $298,236
Cost of sales 196,753 198,217 144,847
-------- -------- --------
Gross profit 210,503 190,953 153,389
Selling, general and administrative expenses 132,548 124,861 92,519
-------- -------- --------
Income from operations 77,955 66,092 60,870
Interest expense 7,254 7,856 6,048
Other income 1,583 1,380 278
-------- -------- --------
Earnings before income taxes 72,284 59,616 55,100
Income taxes 24,938 20,300 18,750
-------- -------- --------
Net earnings $ 47,346 $ 39,316 $ 36,350
======== ======== ========
Net earnings per common and common equivalent share:
Basic $ 1.56 $ 1.27 $ 1.19
======== ======== ========
Diluted $ 1.53 $ 1.24 $ 1.16
======== ======== ========
Weighted average common and common equivalent
shares outstanding:
Basic 30,268 31,001 30,580
======== ======== ========
Diluted 30,992 31,717 31,458
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Earnings
Years ended October 31, 1999, 1998 and 1997
(Dollar and share amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Retained comprehensive Treasury stockholders' Comprehensive
---------------
Shares Amount capital earnings earnings stock equity earnings
------- ------ ---------- --------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at October 31, 1996 30,323 $ 303 $ 50,742 $ 86,174 $ 177 $ - $ 137,396 $ -
Net earnings - - - 36,350 - - 36,350 36,350
Common shares issued for
acquisitions 416 4 8,708 - - - 8,712 -
Common shares issued under
incentive bonus plan 10 - 245 - - - 245 -
Exercise of stock options 171 2 2,255 - - - 2,257 -
Currency translation adjustments - - - - (1,114) - (1,114) (1,114)
Cash dividends ($0.195 per
share) - - - (5,977) - - (5,977) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1997 30,920 309 61,950 116,547 (937) - 177,869 $ 35,236
=============
Net earnings - - - 39,316 - - 39,316 $ 39,316
Common shares issued for
acquisitions 75 1 1,935 - - - 1,936 -
Exercise of stock options 312 3 3,260 - - - 3,263 -
Currency translation adjustments - - - - 31 - 31 31
Cash dividends ($0.24 per share) - - - (7,428) - - (7,428) -
Treasury stock purchases (964) - - - - (17,954) (17,954) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1998 30,343 313 67,145 148,435 (906) (17,954) 197,033 $ 39,347
=============
Net earnings - - - 47,346 - - 47,346 47,346
Common shares issued for
acquisitions (45) - - - - (1,667) (1,667) -
Exercise of stock options 244 3 3,939 - - - 3,942 -
Currency translation adjustments - - - - (1,266) - (1,266) (1,266)
Cash dividends ($0.26 per share) - - - (7,870) - - (7,870) -
Treasury stock purchases (260) - - - - (5,550) (5,550) -
------ ------ ---------- --------- ------------- --------- ------------- -------------
Balances at October 31, 1999 30,282 $ 316 $ 71,084 $ 187,911 $ (2,172) $ (25,171) $ 231,968 $ 46,080
====== ====== ========== ========= ============= ========= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 47,346 $ 39,316 $ 36,350
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization of property, plant
and equipment 6,620 6,106 5,367
Amortization of intangible assets 9,346 8,328 6,033
Changes in operating assets and
liabilities:
Accounts receivable (10,621) 10,084 (10,876)
Inventories 3,778 5,615 2,303
Accounts payable and accrued
liabilities (7,557) 7,118 (2,357)
Income taxes payable 4,112 (1,001) (1,585)
Other, net (198) 607 168
-------- -------- --------
Net cash provided by operating activities 52,826 76,173 35,403
-------- -------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (36,343) (62,676) (55,311)
Capital expenditures (5,148) (5,502) (4,984)
Other, net 167 (252) (163)
-------- -------- --------
Net cash used in investing activities (41,324) (68,430) (60,458)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 45,926 60,896 94,845
Principal payments on notes payable and long-term debt (41,867) (37,522) (65,180)
Cash dividends to stockholders (7,870) (7,428) (5,977)
Treasury stock purchases (5,550) (17,954) -
Proceeds from stock option exercises 3,942 3,263 1,762
Other, net (1,667) (200) (116)
-------- -------- --------
Net cash provided by (used in) financing activities (7,086) 1,055 25,334
-------- -------- --------
Effect of exchange rate changes on cash (276) (97) (53)
-------- -------- --------
Net increase in cash and cash equivalents 4,140 8,701 226
Cash and cash equivalents, beginning of year 9,350 649 423
-------- -------- --------
Cash and cash equivalents, end of year $ 13,490 $ 9,350 $ 649
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
(1) Summary of Accounting Policies
------------------------------
Accounts Receivable - Accounts receivable were stated net of an allowance
-------------------
for doubtful accounts of $3,760 and $6,915 at October 31, 1999 and 1998,
respectively.
Basis of Presentation - The consolidated financial statements include the
---------------------
accounts of Roper Industries, Inc. (the "Company") and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. On August 1, 1997, the Company effected a 2-for-1 stock split
on its common stock in the form of a 100% stock dividend. All amounts
related to fiscal 1997 reflect the stock split for the entire year.
Cash and Cash Equivalents - The Company considers highly liquid financial
-------------------------
instruments with original maturities of three months or less to be cash
equivalents. Cash equivalents at October 31, 1999 and October 31, 1998 were
none and $5,697, respectively, and were comprised of money market
investments and overnight Eurodollar funds.
Earnings Per Common and Common Equivalent Share - Basic earnings per share
-----------------------------------------------
was calculated using net earnings and the weighted average number of shares
of common stock outstanding during the respective year. Diluted earnings
per share was calculated using net earnings and the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during the respective year. There were no differences between net earnings
and net earnings available for common stockholders. Common stock
equivalents consisted of stock options. The effects of common stock
equivalents was determined using the treasury stock method.
For the year ended October 31, 1998, there were 365,000 options that were
not included in the determination of diluted earnings per share because
doing so would have been antidilutive. There were no such antidilutive
options in 1999 or 1997.
In financial reports issued prior to fiscal 1998, earnings per share were
expressed as either primary or fully diluted. Earnings per share amounts
for periods prior to fiscal 1998 have been restated to conform with SFAS
128 -Earnings per Share, which was implemented at the beginning of fiscal
1998.
Estimates - The preparation of financial statements in conformity with
---------
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Fair Value of Financial Instruments - The Company's carrying value of
-----------------------------------
long-term debt approximated fair value since most of the debt matures
within 30-90 days of incurrance and is renewed at current interest rates.
In February 1998 and April 1998, the Company entered into five-year
interest rate swap agreements for notional amounts of $50,000 and $25,000,
respectively. In both agreements, the Company pays a fixed interest rate
and the other party pays a variable interest rate. In June 1998, both of
these agreements were amended to lower the Company's fixed interest rate
obligations in exchange for granting the other party an option to extend
the agreements for an additional five years. At October 31, 1999, the
Company's weighted average fixed-rate obligation was 5.7% and the
applicable LIBOR rate was 6.2%. The Company accrues the effects of the
different interest rates as a charge or credit against current earnings
over the life of the
F-8
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
agreements. The earnings effects of these agreements during the years ended
October 31, 1999 and 1998 were not material.
The estimated fair value of these agreements at October 31, 1999 was an
asset of approximately $1,150 ($2,470 assuming the options are exercised)
that was not reflected in the Company's financial statements. This value
was determined by comparing the present value of the fixed interest
payments to the variable interest payments based on the interest rates at
October 31, 1999.
The carrying value of all other financial instruments approximated fair
value due to their short-term nature.
Foreign Currency Translation - Assets and liabilities of foreign
----------------------------
subsidiaries whose functional currency is not the U.S. dollar are
translated at the exchange rate in effect at the balance sheet date and
revenues and expenses are translated at average exchange rates for the
year. Translation adjustments are reflected as a component of other
comprehensive earnings.
Income Taxes - The Company has not provided deferred income taxes on the
------------
accumulated undistributed earnings of its non-U.S. subsidiaries, as
substantially all of such presently undistributed earnings are expected to
be permanently invested. At October 31, 1999, the accumulated undistributed
earnings were approximately $20,000. The amount of U.S. income tax due if
such earnings were repatriated would be approximately $7,000 and would be
substantially offset by allowable foreign income tax credits. The Company
also has not provided for any foreign withholding taxes that would be due
upon the repatriation of such earnings.
Intangible Assets - Intangible assets consisted principally of goodwill,
-----------------
which is amortized on a straight-line basis over periods ranging from 15 to
40 years. The accumulated amortization for intangible assets was $32,315
and $22,954 at October 31, 1999 and 1998, respectively. The Company
accounts for goodwill in a purchase business combination as the excess of
the cost over the fair value of net assets acquired. Other intangible
assets not arising out of acquisitions are recorded at cost. On an ongoing
basis, management reviews the valuation and amortization periods of
intangible assets. The Company assesses the recoverability of the goodwill
element of its intangible assets by determining whether the amortization of
the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired enterprise. Based
upon such reviews as of October 31, 1999 and 1998, management did not
consider the unamortized balances of goodwill or other intangible assets to
be impaired.
Inventories - Inventories are valued at the lower of cost or market.
-----------
Subsidiaries of the Company use primarily either the first-in, first-out
cost method ("FIFO") or the last-in, first-out cost method ("LIFO").
Inventories valued at LIFO cost comprised 15% and 16% of consolidated
inventories at October 31, 1999 and 1998, respectively.
One of the Company's subsidiaries had a decrement in its LIFO reserve
during 1999, 1998 and 1997. The impact of these decrements on the Company's
consolidated results of operations was immaterial for each of these years.
Inventories included $2,443 and $2,587 at October 31, 1999 and 1998,
respectively, of costs incurred in excess of billings related to long-term
contracts.
F-9
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Other Comprehensive Earnings - Effective November 1, 1998, the Company
----------------------------
adopted Statement of Financial Accounting Standards ("SFAS") No. 130 -
Reporting Comprehensive Income. Comprehensive income includes net earnings
and all other non-owner sources in a company's net assets. The difference
between net earnings and comprehensive earnings for the Company was
currency translation adjustments. Income taxes have not been provided on
currency translation adjustments because the net assets invested in the
Company's non-U.S. are considered to be permanently invested. Fiscal 1998
and 1997 were restated to reflect the adoption of SFAS 130.
F-10
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Property, Plant and Equipment and Depreciation - Property, plant and
----------------------------------------------
equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for using the
straight-line method over the estimated useful lives of the assets as
follows:
Buildings 20-30 years
Machinery 8-12 years
Tooling 3 years
Other equipment 3-5 years
Recently Released Accounting and Reporting Pronouncements - SFAS 133 -
---------------------------------------------------------
Accounting for Derivative Instruments and Hedging Activities establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. It requires recognition of all derivatives as either assets or
liabilities in the statement of financial position at their fair value.
SFAS 133 was subsequently amended by SFAS 137 to defer the effective date
of SFAS 133 such that it is currently applicable to the Company beginning
with its first quarter of fiscal 2001. The impact of SFAS 133 on the
Company's financial statements is not expected to be significant.
Reclassifications - Certain reclassifications were made to prior year
-----------------
amountsto conform to the fiscal 1999 presentation.
Research and Development - Research and development costs include salaries
------------------------
and benefits, rents, supplies, and other costs related to various products
under development. Research and development costs are expensed in the
period incurred and totaled approximately $16,700, $18,000 and $14,200 for
the years ended October 31, 1999, 1998 and 1997, respectively.
Revenue Recognition - Revenues under certain long-term contracts are
-------------------
recognized under the percentage-of-completion method using the ratio of
costs incurred to total estimated costs as the measure of performance.
Estimated losses on such contracts are recognized immediately. All other
revenue is recognized as products are shipped or services are rendered.
Stock Options - Stock-based compensation was measured at its fair value at
-------------
the grant date in accordance with an option pricing model. SFAS 123 -
Accounting for Stock-Based Compensation provides that the related expense
may be recorded in the basic financial statements or the pro forma effect
on earnings may be disclosed in the financial statements. The Company
provides the pro forma disclosures.
(2) Business Acquisitions
---------------------
Over the past three years, the following acquisitions have occurred, each
of which was accounted for using the purchase method of accounting. The
acquired assets and liabilities of the acquired entities were recorded at
their estimated fair values and the results of operations were included in
the Company's consolidated results of operations beginning from the date
acquired. Some recent allocations of fair value are preliminary, but the
Company does not believe that subsequent revisions will be significant.
F-11
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Acquisition costs
----------------------
Roper shares Goodwill
-------------
Date Cash 000's Value Segment period
-------- ------- ----- ------ -------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Petroleum Analyzer 06/18/99 $ 36,439 - $ - Analytical Instrumentation 25 years
PMC/Beta 04/30/98 6,600 - - Industrial Controls 20 years
Photometrics 03/31/98 36,400 - - Analytical Instrumentation 25 years
Acton Research 02/27/98 9,300 75 1,936 Analytical Instrumentation 15 years
Flow Technology 12/01/97 10,000 - - Fluid Handling 20 years
IDS 10/31/97 4,900 15 352 Analytical Instrumentation 15 years
Petrotech 05/30/97 14,900 262 5,720 Industrial Controls 15 years
Princeton Instruments 05/16/97 36,000 138 2,640 Analytical Instrumentation 30 years
</TABLE>
In November 1999, the Company acquired Redlake Imaging Corporation
("Redlake Imaging") and the Motion Analysis Systems Division ("MASD") of
Eastman Kodak Company. Total purchase costs were approximately $60,000
cash. Each of these companies designs, manufactures and markets high-speed
digital cameras used in automotive, industrial, military and research
markets. The MASD business also manufactures and markets high-resolution
digital cameras for the machine vision and image conversion markets. These
businesses will be included in the Company's Analytical Instrumentation
segment.
Petroleum Analyzer manufactures, markets and distributes instrumentation
products for petroleum analysis in the laboratory and process markets.
PMC/Beta manufactures and markets vibration-monitoring equipment and
operates as a division of the Company's Metrix unit.
Photometrics is a leading manufacturer and marketer of extremely sensitive
cooled CCD cameras and detectors for primary and applied research markets.
Subsequent to the acquisition of Photometrics, it was merged into Princeton
and the combined company was renamed Roper Scientific, Inc. ("Roper
Scientific").
Acton Research manufactures and markets spectrometers, monochromators and
optical components and coatings for various high-end analytical
applications.
Flow Technology manufactures and markets turbine flow meters, calibrators
and emissions measurement equipment for aerospace, automotive and
industrial markets.
IDS is a leading manufacturer of leak testing instrumentation primarily for
the medical and industrial supplies industry and operates as a division of
the Company's Uson unit.
Petrotech provides system integration of control products and systems for
turbines and compressors within the oil & gas, pipeline, process control
and power generation markets. Petrotech derives a considerable portion of
its revenues from manufacturing advanced turbine and compressor control
products.
Princeton Instruments (now part of Roper Scientific, see Photometrics
above) designs, manufactures and markets spectral and digital imaging
cameras supplied to a diverse end-user base including the scientific
F-12
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
research market, industrial research markets and various industrial process
markets. During 1999, the Company settled its dispute with the seller of
Princeton Instruments regarding alleged breeches by the seller of certain
re presentations and warranties related to the purchase of Princeton
Instruments. Pursuant to the settlement, approximately 45,000 shares of the
Company's common stock, valued at $1,667, were returned to the Company. The
excess of the settlement above the amount previously estimated by the
Company was not material.
Using applicable rules, the following unaudited pro forma summary presents
the Company's consolidated results of operations as if the acquisitions
during fiscal 1999 and 1998 had occurred at the beginning of fiscal 1998.
However, actual results may have been different had the acquisitions
occurred at an earlier date and this pro forma information provides no
assurance as to future results.
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Net sales $430,863 $445,403
Net earnings $ 46,914 $ 40,850
======== ========
Net earnings per share:
Basic $ 1.55 $ 1.32
======== ========
Diluted $ 1.51 $ 1.29
======== ========
</TABLE>
(3) Supplemental Cash Flow Information
----------------------------------
A summary of annual supplemental cash flow information for the years
ended October 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 7,471 $ 6,869 $ 7,409
======= ======= ========
Income taxes, net of refunds received $20,826 $19,906 $ 20,207
======= ======= ========
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $42,770 $69,755 $ 81,431
Liabilities assumed (6,427) (5,143) (17,408)
Common shares issued - (1,936) (8,712)
------- ------- --------
Cash paid, net of cash acquired $36,343 $62,676 $ 55,311
======= ======= ========
</TABLE>
(4) Inventories
-----------
The components of inventories at October 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials and supplies $27,811 $27,462
Work in process 14,556 10,700
</TABLE>
F-13
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollars amounts in thousands, except per share data)
Finished products 15,724 14,885
Less LIFO reserve (1,690) (1,603)
------- -------
$56,401 $51,444
======= =======
F-14
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(5) Property and Equipment
----------------------
The components of property and equipment at October 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land $ 1,524 $ 1,348
Buildings 20,604 14,682
Machinery, tooling and other equipment 58,712 53,579
-------- --------
80,840 69,609
Less accumulated depreciation and amortization (46,043) (37,704)
-------- --------
$ 34,797 $ 31,905
======== ========
</TABLE>
(6) Accrued Liabilities
-------------------
Accrued liabilities at October 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Wages and other compensation $ 14,478 $ 13,271
Commissions 4,317 4,489
Other 12,649 12,155
-------- --------
$ 31,444 $ 29,915
======== ========
</TABLE>
(7) Income Taxes
------------
Earnings before income taxes for the years ended October 31 consist of
the following components:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic $59,972 $48,065 $47,704
Foreign 12,312 11,551 7,396
------- ------- -------
$72,284 $59,616 $55,100
======= ======= =======
</TABLE>
Components of income tax expense for the years ended October 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $16,317 $17,188 $15,414
State 1,102 353 993
Foreign 5,449 3,941 2,574
Deferred expense (benefit) 2,070 (1,182) (231)
------- ------- -------
$24,938 $20,300 $18,750
======= ======= =======
</TABLE>
F-15
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for the years ended October 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Exempt Income of Foreign Sales Corporation (3.7) (3.5) (4.0)
Goodwill amortization 2.3 2.2 1.5
Other, net 0.9 0.4 1.5
------ ------ -----
34.5% 34.1% 34.0%
====== ====== =====
</TABLE>
Components of the deferred tax assets and liabilities at October 31 are
as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Reserves and accrued expenses $3,455 $4,511
Amortizable intangible assets 811 2,193
Postretirement medical benefits 584 540
Research and development 250 -
Inventories 880 422
------ ------
Total deferred tax assets 5,980 7,666
------ ------
Deferred tax liabilities:
Plant and equipment 760 629
Former IC-DISC recapture 872 1,019
------ ------
Total deferred tax liabilities 1,632 1,648
------ ------
Net deferred tax asset $4,348 $6,018
====== ======
</TABLE>
The Company has not recognized a valuation allowance since management has
determined that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize all
deferred tax assets.
(8) Long-Term Debt
--------------
Long-term debt at October 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
U.S. revolving credit facility $109,000 $119,000
German revolving credit facility 15,866 -
Other 5,650 7,056
-------- --------
130,516 126,056
Less current portion 20,857 5,749
-------- --------
$109,659 $120,307
======== ========
</TABLE>
F-16
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Future maturities of long-term debt during each of the next five years
ending October 31 and thereafter are as follows:
2000 $ 20,857
2001 127
2002 109,209
2003 110
2004 110
Thereafter 103
--------
$130,516
========
On May 15, 1997, the Company secured a new $200,000 U.S. revolving credit
facility by the amendment and restatement of its principal credit agreement
that theretofore had provided for a $100,000 facility. Financing under the
new agreement continues to be provided by a syndication of financial
institutions whose agent is Bank of America (following a merger between
Bank of America and NationsBank). The agreement requires annual commitment
fees ranging from 0.15% to 0.30% on the unused portion of the total credit
commitment, payable quarterly.
Borrowings under the U.S. revolving credit facility accrue interest at the
Company's option at either a function of the prime rate or LIBOR and are
secured only by a pledge of varying percentages of the capital stock of the
Company's subsidiaries to the lenders. The interest rate is also influenced
by certain financial ratios of the Company. There is a $10,000 sublimit for
letters of credit under this agreement. The weighted average interest rate
on the outstanding borrowings under this facility was 5.9% at October 31,
1999 and 5.9% at October 31, 1998.
At October 31, 1999, the Company had $88,055 in unused availability under
the U.S. revolving credit facility. In early November, the Company borrowed
$49,000 to fund its acquisition of MASD. The acquisition of Redlake Imaging
was financed with cash on hand at October 31, 1999.
The U.S. revolving credit facility generally provides for, among other
things, restrictions on certain future acquisitions and cash payments to
stockholders and for the Company to maintain certain minimum consolidated
tangible net worth and other financial ratios. Restricted payments to
stockholders include dividends and are limited to 50% of fiscal year net
earnings as defined in the agreement. The U.S. revolving credit facility is
effective through May 31, 2002.
In June 1999, the Company entered into a one year agreement with a German
bank to provide the Company with a $16,000 revolving credit facility.
Subsequent to the year-end, the revolving credit facility was increased to
$30,000. Outstanding borrowings under this facility may be denominated in
various currencies and such borrowings at October 31, 1999 were subject to
at a weighted average interest rate of 3.5%.
(9) Retirement and Other Benefit Plans
----------------------------------
The Company maintains two defined contribution retirement plans, under the
provisions of Section 401 of the Internal Revenue Code, covering
substantially all domestic employees not subject to collective bargaining
F-17
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
agreements. The Company partially matches employee contributions. Its costs
related to these two plans were $3,269, $3,293 and $2,530 in fiscal 1999,
1998 and 1997, respectively.
The Company also maintains a defined benefit retirement plan covering
employees of a foreign subsidiary, a plan that provides postretirement
medical benefits for employees at a number of its domestic subsidiaries and
a plan that supplements certain employees for the contribution ceiling
applicable to the Section 401 plans. The costs and accumulated benefit
obligations associated with each of these plans were not material.
Pursuant to the fiscal 1999 Petroleum Analyzer acquisitions, the Company
agreed to assume a defined benefit pension plan covering certain U.S.
employees subject to a collective bargaining agreement. Upon obtaining
necessary regulatory approvals, the Company intends to terminate this plan.
Total plan assets at October 31, 1999 were not material and the anticipated
costs associated with terminating this plan are not expected to be material
to the Company's financial statements.
In November 1999, the Company's Board of Directors (the "Board") approved
an employee stock purchase plan covering eligible employees whereby they
may designate up to 10% of eligible earnings to purchase the Company's
common stock at a 10% discount to the average closing price of the
Company's common stock at the beginning and end of a quarterly period. The
common stock sold to the employees may be either treasury stock, stock
purchased on the open market, or newly issued shares to be authorized by
the Board on a periodic basis.
(10) Common Stock Transactions
-------------------------
The Company's restated Certificate of Incorporation provides that each
outstanding share of the Company's common stock entitles the holder thereof
to five votes per share, except that holders of outstanding shares with
respect to which there has been a change in beneficial ownership during the
four years immediately preceding the applicable record date will be
entitled to one vote per share.
The Company's Board adopted a Shareholder Rights Plan whereby one Preferred
Stock Purchase Right (a "Right") accompanies each outstanding share of
common stock. Such Rights only become exercisable, or transferable apart
from the common stock, ten business days after a person or group acquires
various specified levels of beneficial ownership, with or without the
Board's consent. Each Right may be exercised to acquire one one-thousandth
of a newly issued share of the Company's Series A Preferred Stock, at an
exercise price of $170, subject to adjustment. Alternatively, upon the
occurrence of certain specified events, the Rights allow holders to
purchase the Company's common stock having a market value at such time of
twice the Right's exercise price. The Rights may be redeemed by the Company
at a redemption price of $.01 per Right at any time until the tenth
business day following public announcement that a 20% position has been
acquired or ten business days after commencement of a tender or exchange
offer. The Rights expire on January 8, 2006.
The Company periodically enters into agreements with the management of
newly-acquired companies for the issuance of Company common stock based on
the achievement of specified goals. A similar agreement was made with a
corporate executive. Under these agreements, 10,000 shares were issued
during fiscal 1997 and 20,000 shares are reserved for future issue.
F-18
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(11) Stock Options
-------------
The Company has a stock option plan (the "Plan"), as amended, which
authorizes the issuance of up to 3,500,000 shares of common stock to
certain directors, key employees, and consultants of the Company and its
subsidiaries as incentive and/or nonqualified options. Options under the
Plan may be granted through December 17, 2001 at prices not less than 100%
of market value of the underlying stock at the date of grant. These options
vest annually and ratably over a five-year period from the date of the
grant. Options expire ten years from the date of grant. Payment of the
option price may be made in cash, extension of loans by the Company, or by
tendering shares of the Company's common stock having a fair market value
equal to the aggregate option price.
The Company also has a stock option plan for non-employee directors (the
"Non-employee Director Plan"). The Non-employee Director Plan provides for
each non-employee director appointed or elected to the Board initial
options to purchase 4,000 shares of the Company's common stock and
thereafter options to purchase an additional 4,000 shares per annum under
terms and conditions similar to the Plan, except that following their
grant, all options will become fully vested at the time of the Annual
Meeting of Shareholders in the next fiscal year and will be exercisable
ratably over five years from the date of grant.
A summary of stock option transactions under these plans is shown below:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
------------------- -------------------
Average Average
exercise exercise
000's price 000's price
----- -------- ------ --------
<S> <C> <C> <C> <C>
October 31, 1996 2,178 $ 13.51 677 $ 10.43
Granted 205 22.18
Exercised (171) 10.29
Canceled (80) 16.06
-----
October 31, 1997 2,132 14.51 995 11.58
Granted 389 27.59
Exercised (316) 10.73
Canceled (118) 19.48
-----
October 31, 1998 2,087 17.24 1,109 13.08
Granted 350 18.71
Exercised (251) 13.66
Canceled (69) 22.22
-----
October 31, 1999 2,117 $ 17.67 1,226 $ 14.67
===== ======= ===== =======
</TABLE>
F-19
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Options outstanding and exercisable at October 31, 1999 are summarized
below.
<TABLE>
<CAPTION>
Outstanding options Exercisable options
------------------------------- -------------------
Average Average Average
exercise remaining exercise
Exercise price 000's price life 000's price
-------------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
$ 3.75 - 10.00 299 $ 6.31 3.1 years 299 $ 6.31
10.01 - 15.00 257 11.98 5.0 years 223 12.00
15.01 - 20.00 900 17.37 6.3 years 508 16.97
20.01 - 25.00 319 22.94 7.2 years 131 22.98
25.01 - 30.00 307 27.22 8.1 years 59 27.24
30.01 - 35.84 35 32.90 8.7 years 6 32.16
----- ------- --------- ----- -------
$ 3.75 - 35.84 2,117 $ 17.67 6.1 years 1,226 $ 14.67
===== ======= ========= ===== =======
</TABLE>
For pro forma disclosure purposes, the weighted-average grant-date fair
value of options granted during the years ended October 31, 1999, 1998 and
1997 was $8.95 per share, $11.73 per share and $8.66 per share,
respectively. All options granted during each of the years ended October
31, 1999, 1998 and 1997 were at exercise prices equal to the market price
of the Company's common stock when granted.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate (%) 5.75 6.25 6.25
Average expected option life (years) 7.00 7.00 7.00
Expected volatility (%) 35-41 28-36 24-26
Expected dividend yield (%) 0.75 0.75 0.75
</TABLE>
Had the Company recognized compensation expense for the fair value of
options granted during fiscal 1999, 1998 and 1997 in accordance with the
provisions of SFAS 123, pro forma earnings and pro forma earnings per share
would have been as presented below.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings, as reported $47,346 $39,316 $36,350
Net earnings, pro forma 44,177 36,094 35,110
Net earnings per share, as reported:
Basic 1.56 1.27 1.19
Diluted 1.53 1.24 1.16
Net earnings per share, pro forma:
Basic 1.46 1.16 1.15
Diluted 1.43 1.14 1.12
</TABLE>
The disclosed pro forma effects on earnings do not include the effects of
options granted prior to fiscal 1996 since the provisions of SFAS 123 are
not applicable to options for this purpose. The pro forma effects of
applying SFAS 123 to fiscal 1999, 1998 and 1997 may not be representative
of the pro forma effects in
F-20
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
future years. Based on the historical vesting schedule of the Company's
option grants, the pro forma effects on earnings are most pronounced in the
early years following each grant. The timing and magnitude of any future
grants is at the discretion of the Company's Board and cannot be assured.
(12) Contingencies
-------------
The Company, in the ordinary course of business, is the subject of, or a
party to, various pending or threatened legal actions, including those
pertaining to product liability. The Company is vigorously contesting all
product liability lawsuits which, in general, are based upon claims of the
kind which have been customary over the past several years. Based upon the
Company's past experience with resolution of its product liability claims
and the limits of the primary, excess, and umbrella liability insurance
coverages that are available with respect to pending claims, management
believes that adequate provision has been made to cover any potential
liability not covered by insurance, and that the ultimate liability, if
any, arising from these actions should not have a material adverse effect
on the consolidated financial position or results of operations of the
Company. Included in other noncurrent assets at October 31, 1999 are
estimated insurable settlements receivable from insurance companies of
$195.
Over the past five years, one of the Company's subsidiaries, Compressor
Controls, has made significant sales to large natural gas distribution
companies and compressor manufacturers in the countries of the former
Soviet Union. Certain of this business was on an open account basis. During
the fourth quarter of fiscal 1998, economic uncertainties in Russia and the
region deteriorated and a severe devaluation of the region's currencies
occurred. This created additional doubt concerning the collectibility of
certain accounts receivable from customers in this region. In response to
these events, the Company provided $3,800 to fully reserve all of these
receivables except those from RAO Gazprom. The Company believes that RAO
Gazprom receivables will be fully collected as most of these receivables
are secured by U.S. dollar letters of credit drawn on a European bank.
Accounts receivable at October 31, 1999 included amounts due from such
customers, primarily RAO Gazprom, of $8,383.
(13) Segment and Geographic Area Information
---------------------------------------
The Company's operations are grouped into three business segments based on
similarities between the Company's products and services: industrial
controls ("IC"), fluid handling ("FH") and analytical instrumentation
("AI"). The industrial controls segment's products include thermostatic
valves, pneumatic panel components, pressure and temperature sensors,
microprocessor-based turbomachinery control systems and associated
engineering services, and vibration monitoring instruments. Products
included within the fluid handling segment are rotary gear, progressing
cavity, positive displacement, centrifugal and piston-type metering pumps,
turbine flow meters, calibrators, emissions measuring equipment and
precision chemical dispensing products. The analytical instrumentation
segment's products include petroleum product analysis/test equipment,
microprocessor-based leak testers, CCD cameras and detectors and analytical
products used in the operation of transmission and scanning electron
microscopes.
There have been no material transactions between the Company's business
segments during any of the three years ended October 31, 1999. Sales
between geographic areas are primarily of finished products and are
accounted for at cost plus a profit margin. Operating profit by business
segment and by geographic area is
F-21
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
defined as sales less operating costs and expenses. Items below operating
profit on the Company's consolidated statement of earnings are not
allocated to the Company's business segments.
Identifiable assets are those assets used exclusively in the operations of
each business segment or geographic area, or which are allocated when used
jointly. Corporate assets were principally comprised of cash, recoverable
insurance claims, deferred compensation assets and property and equipment.
F-22
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Selected financial information by business segment for the years ended
October 31 follows:
<TABLE>
<CAPTION>
IC FH AI Corporate Total
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1999
----
Net sales $ 160,090 $ 98,298 $ 148,868 $ - $ 407,256
Operating profit 29,973 27,386 27,713 (7,117) 77,955
Total assets:
Operating assets 55,704 37,245 88,405 - 181,354
Intangible assets, net 44,314 41,055 129,612 39 215,020
Other 3,411 (1,981) 6,408 15,951 23,789
---------
Total 420,163
Capital expenditures 1,935 1,702 1,425 86 5,148
Depreciation and amortization 4,398 3,474 7,795 299 15,966
1998
----
Net sales $ 177,258 $ 99,471 $ 112,441 $ - $ 389,170
Operating profit 31,458 24,125 16,417 (5,908) 66,092
Total assets:
Operating assets 65,127 35,843 61,036 - 162,006
Intangible assets, net 46,312 42,648 108,005 214 197,179
Other 5,015 (2,004) 7,533 11,804 22,348
---------
Total 381,533
Capital expenditures 2,139 1,706 1,475 182 5,502
Depreciation and amortization 4,331 3,440 6,195 468 14,434
1997
----
Net sales $ 123,129 $ 94,175 $ 80,932 $ - $ 298,236
Operating profit 22,402 25,853 18,292 (5,677) 60,870
Total assets:
Operating assets 76,067 34,355 57,511 - 167,933
Intangible assets, net 42,836 36,226 74,719 474 154,255
Other (517) (1,464) 2,740 6,373 7,132
---------
Total 329,320
Capital expenditures 1,817 1,693 1,347 127 4,984
Depreciation and amortization 3,712 2,844 4,347 497 11,400
</TABLE>
F-23
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Noes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Summarized data for the Company's U.S. and foreign operations (principally in
Europe and Japan) for the years ended October 31 are as follows:
<TABLE>
<CAPTION>
Corporate
adjustments
United and elimi-
States Foreign nations Total
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
1999
----
Sales to unaffiliated customers $345,376 $61,880 $ - $ 407,256
Sales between geographic areas 20,282 4,760 (25,042) -
-------- ------- ---------- ---------
Net sales $365,658 $66,640 $ (25,042) $ 407,256
======== ======= ========== =========
Long-lived assets $229,898 $27,795 $ 651 $ 258,344
======== ======= ========== =========
1998
----
Sales to unaffiliated customers $336,985 $52,185 $ - $ 389,170
Sales between geographic areas 12,385 5,077 (17,462) -
-------- ------- ---------- ---------
Net sales $349,370 $57,262 $ (17,462) $ 389,170
======== ======= ========== =========
Long-lived assets $230,769 $ 7,178 $ 3,734 $ 241,681
======== ======= ========== =========
1997
----
Sales to unaffiliated customers $259,583 $38,653 $ - $ 298,236
Sales between geographic areas 7,326 3,795 (11,121) -
-------- ------- ---------- ---------
Net sales $266,909 $42,448 $ (11,121) $ 298,236
======== ======= ========== =========
Lon-lived assets $181,480 $10,691 $ 5,259 $ 197,430
======== ======= ========== =========
</TABLE>
Export sales from the United States during the years ended October 31, 1999,
1998 and 1997 were $163,000, $160,000 and $111,000, respectively. In the year
ended October 31, 1999 these exports were shipped primarily to Europe (25%),
Russia (23%), Asia and the Far East (19%) and Latin America (15%).
F-24
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
Sales to customers outside the United States accounted for a significant
portion of the Company's revenues. Sales are attributed to geographic areas
based upon the location to which the product is shipped. Foreign countries
that accounted for at least 10% of consolidated net sales in any of the
past three years have been individually identified in the following table.
Other countries have been grouped by region.
<TABLE>
<CAPTION>
IC FH AI Total
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1999
----
Europe $ 26,219 $ 5,009 $39,586 $ 70,814
Asia and Far East 9,342 3,280 29,743 42,365
Russia 36,715 16 232 36,963
Latin America 16,959 2,875 4,974 24,808
Other 20,113 7,461 4,178 31,752
-------- ------- ------- --------
Total $109,348 $18,641 $78,713 $206,702
======== ======= ======= ========
1998
----
Europe $ 28,159 $ 4,720 $28,370 $ 61,249
Asia and Far East 13,230 6,362 21,951 41,543
Russia 43,811 - 372 44,183
Latin America 15,021 1,827 2,668 19,516
Other 20,893 4,707 3,997 29,597
-------- ------- ------- --------
Total $121,114 $17,616 $57,358 $196,088
======== ======= ======= ========
1997
----
Europe $ 22,125 $ 3,439 $18,741 $ 44,305
Asia and Far East 9,337 5,762 17,412 32,511
Russia 15,805 4 734 16,543
Latin America 7,410 1,264 2,409 11,083
Other 22,754 6,398 4,516 33,668
-------- ------- ------- --------
Total $ 77,431 $16,867 $43,812 $138,110
======== ======= ======= ========
</TABLE>
F-25
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(14) Quarterly Financial Data (Unaudited)
------------------------------------
<TABLE>
<CAPTION>
Fiscal 1999 quarters
----------------------------------------------
First Second Third Fourth
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $89,078 $100,452 $104,095 $113,631
Gross profit 43,644 52,887 54,258 59,714
Earnings from operations 13,496 20,143 21,184 23,132
Net earnings 7,840 12,039 12,796 14,671
Earnings per common share:
Basic $ 0.26 $ 0.40 $ 0.42 $ 0.48
======= ======== ======== ========
Diluted $ 0.26 $ 0.39 $ 0.41 $ 0.47
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 quarters
-------------------------------------------------
First Second Third Fourth
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $90,099 $ 95,995 $ 97,412 $105,664
Gross profit 45,467 48,415 48,299 48,772
Earnings from operations 17,741 17,670 18,002 12,679
Net earnings 10,720 10,634 10,560 7,402
Earnings per common share:
Basic $ 0.35 $ 0.34 $ 0.34 $ 0.24
======= ======== ======== ========
Diluted $ 0.34 $ 0.33 $ 0.33 $ 0.24
======= ======== ======== ========
</TABLE>
F-26
<PAGE>
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end
of year expenses Deductions Other of year
---------- ---------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1999 $6,915 $1,618 $(5,072) $299 $3,760
Year ended October 31, 1998 1,866 4,643 (173) 579 6,915
Year ended October 31, 1997 992 1,053 (714) 535 1,866
Reserve for inventory obsolescence:
Year ended October 31, 1999 4,081 2,257 (1,519) 1,950 6,769
Year ended October 31, 1998 2,053 1,558 (911) 1,381 4,081
Year ended October 31, 1997 1,310 1,037 (516) 222 2,053
</TABLE>
Deductions from the allowance for doubtful accounts represented the net
write-off of uncollectible accounts receivable. Deductions from the
inventory obsolescence reserve represented the disposal of obsolete items.
Other included the allowance for doubtful accounts and reserve for
inventory obsolescence of acquired businesses at the dates of acquisition
and the effects of foreign currency translation adjustments for those
companies whose functional currency was not the U.S. dollar.
S-1
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Roper engaged Arthur Andersen LLP to serve as its independent public accountants
on May 13, 1999. Prior to that date, KPMG LLP had served as Roper's independent
public accountants. The decision to change public accountants was recommended by
the Audit Committee and approved by the Board of Directors.
In connection with the audits of Roper's two fiscal years ended October 31,
1998, and with respect to the subsequent period through May 13, 1999, there were
no disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction, would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement.
KPMG LLP's reports on Roper's consolidated financial statements as of and for
the two fiscal year periods ended October 31, 1998 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS - Proposal 1: Election of Three (3) Directors"
and "-- Executive Officers", and "VOTING SECURITIES -- Compliance with Section
16 (a) of the Securities and Exchange Act of 1934" in Roper's definitive Proxy
Statement which relates to the 2000 Annual Meeting of Shareholders of Roper to
be held on March 17, 2000 (the "Proxy Statement"), to be filed within 120 days
after the close of Roper's 1999 fiscal year, which information is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS - Meetings of the Board and Board Committees;
Compensation of Directors", "-- Related Transactions", "-- Compensation
Committee Interlocks and Insider Participation in Compensation Decisions", and
"--Executive Compensation" contained in the Proxy Statement, which information
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information included under the captions "VOTING
SECURITIES" in the Proxy Statement, which information is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Related Transactions" in the Proxy
Statement, which information is incorporated herein by this reference.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Consolidated Financial Statements listed in Item 8 of Part II
are filed as a part of this Annual Report.
(a)(2) The following consolidated financial statement schedule on page S-1
is filed in response to this Item. All other schedules are omitted
or the required information is either inapplicable or is presented
in the consolidated financial statements or related notes:
II. Consolidated Valuation and Qualifying Accounts for the Years ended
October 31, 1999, 1998 and 1997.
(b). Reports on Form 8-K
-------------------
Roper did not file any Current Reports on Form 8-K during the fourth
quarter of fiscal 1999.
(c). Exhibits
--------
The following exhibits are separately filed with this Annual Report.
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Stock Purchase Agreement (Varlen Instruments, Inc.)
2.2 Stock Purchase Agreement (Walter Herzog GmbH)
2.3 Agreement to Purchase Partnership Interest (Herzog-Varlen
Instruments)
2.4 Asset Purchase Agreement (Kodak MASD Division)
2.5 Agreement and Plan of Merger (Redlake Imaging Corporation)
3.1/(a)/ Amended and Restated Certificate of Incorporation, including Form
of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock
3.2/(b)/ Amended and Restated By-Laws
4.01/(c)/ Rights Agreement between Roper Industries, Inc. and SunTrust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (Exhibit A), Form of Rights Certificate
(Exhibit B) and Summary of Rights (Exhibit C)
25
<PAGE>
4.02/(b)/ Third Amended and Restated Credit Agreement dated May 15, 1997 by
and between Roper Industries, Inc. and NationsBank, N.A. (South)
and the lender parties thereto
4.03/(d)/ Amendment Agreement No. 1 to Amended and Restated Credit
Agreement
4.04/(d)/ Amendment Agreement No. 2 to Amended and Restated Credit
Agreement
4.05/(e)/ Amendment Agreement No. 3 to Amended and Restated Credit
Agreement
10.01/(a)/ 1991 Stock Option Plan, as amended
10.02/(e)/ Non-employee Director Stock Option Plan, as amended
10.03/(f)/ Form of Amended and Restated Indemnification Agreement
10.04/(a)/ Consulting Agreement (G.L. Ohrstrom & Co., Inc.)
10.06/(g)/ Amendment to G.L. Ohrstrom & Co., Inc. Consulting Agreement
21 List of Subsidiaries
23.1 Consent of Independent Auditors - Arthur Andersen LLP
23.2 Consent of Independent Auditors - KPMG LLP
27 Financial Data Schedule
__________________________
(a) Incorporated herein by reference to Exhibits 3.1, 10.2 and 10.5 to the
Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998.
(b) Incorporated herein by reference to Exhibits 3 and 4 to the Roper
Industries, Inc. Current Report on Form 8-K filed June 2, 1997.
(c) Incorporated herein by reference to Exhibit 4.02 to the Roper
Industries, Inc. Current Report on Form 8-K filed January 18, 1996.
(d) Incorporated herein by reference to Exhibits 4.03 and 4.04 to the
Roper Industries, Inc. Quarterly Report on Form 10-Q filed
August 21, 1998.
(e) Incorporated herein by reference to Exhibits 4.05 and 10.03 to the
Roper Industries, Inc. Annual Report on Form 10-K filed
January 20, 1999.
(f) Incorporated herein by reference to Exhibit 10.04 of the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed August 31, 1999.
(g) Incorporated herein by reference to Exhibit 10.06 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed June 11, 1999.
+ Management contract or compensatory plan or arrangement.
26
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Roper has duly caused this Report to be signed on its behalf by the
undersigned, therewith duly authorized.
ROPER INDUSTRIES, INC.
(Registrant)
By /S/ DERRICK N. KEY January 26, 2000
------------------------------------------
Derrick N. Key
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Roper and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ DERRICK N. KEY Chairman of the Board, President January 26, 2000
- --------------------------------
Derrick N. Key and Chief Executive Officer
/s/ MARTIN S. HEADLEY Vice President and January 26, 2000
- --------------------------------
Martin S. Headley Chief Financial Officer
/s/ KEVIN G. McHUGH Controller January 26, 2000
- --------------------------------
Kevin G. McHugh
/s/ W. LAWRENCE BANKS Director January 26, 2000
- --------------------------------
W. Lawrence Banks
/s/ LUITPOLD VON BRAUN Director January 26, 2000
- --------------------------------
Luitpold von Braun
/s/ DONALD G. CALDER Director January 26, 2000
- --------------------------------
Donald G. Calder
/s/ JOHN F. FORT III Director January 26, 2000
- --------------------------------
John F. Fort III
/s/ WILBUR J. PREZZANO Director January 26, 2000
- --------------------------------
Wilbur J. Prezzano
/s/ GEORG GRAF SCHALL-RIAUCOUR Director January 26, 2000
- --------------------------------
Georg Graf Schall-Riaucour
/s/ ERIBERTO R. SCOCIMARA Director January 26, 2000
- --------------------------------
Eriberto R. Scocimara
/s/ CHRISTOPHER WRIGHT Director January 26, 2000
- --------------------------------
Christopher Wright
</TABLE>
27
<PAGE>
EXHIBIT INDEX
- -------------
Number Exhibit
- ------ -------
/a/2.1 Stock Purchase Agreement (Varlen Instruments, Inc.)
/b/2.2 Stock Purchase Agreement (Walter Herzog GmbH)
/c/2.3 Agreement to Purchase Partnership Interest (Herzog-Varlen
Instruments)
/d/2.4 Asset Purchase Agreement (Kodak MASD Division)
/e/2.5 Agreement and Plan of Merger (Redlake Imaging Corporation)
3.1 Amended and Restated Certificate of Incorporation, including Form
of Certificate of Designation, Preferences and Rights of Series A
Preferred Stock incorporated herein by reference to Exhibit 3.1
to the Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998
3.2 Amended and Restated By-Law incorporated herein by reference to
Exhibit 3 to the Roper Industries, Inc. Current Report on Form 8-
K filed June 2, 1997
4.01 Rights Agreement between Roper Industries, Inc. and Sun Trust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A (Exhibit A), Form of Rights Certificate (Exhibit B) and
Summary of Rights (Exhibit C), incorporation by reference to
Exhibit 4.02 to the Roper Industries, Inc. Current Report on Form
8-K filed January 18, 1996
4.02 Third Amended and Restated Credit Agreement dated May 15, 1997 by
and between Roper industries, Inc. and Nationsbank, N.A. (South
and the lender parties thereto, incorporated herein by reference
to Exhibit 4 to the Roper Industries, Inc. Current Report on Form
8-K filed June 2, 1997
4.03 Amendment Agreement No. 1 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.03 to
Roper Industries, Inc.'s Quarterly Report on Form 10-Q filed
August 21, 1998
<PAGE>
4.04 Amendment Agreement No.2 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.04 to
Roper Industries, Inc.'s Quarterly Report on Form 10-Q filed
August 21, 1998
4.05 Amendment Agreement No.3 to the Amended and Restated Credit
Agreement incorporated herein by reference to Exhibit 4.05 to
Roper Industries, Inc.'s Annual Report on Form 10-K filed January
20, 1999
10.01 1991 Stock Option Plan, as amended incorporated herein by
reference to Exhibit 10.2 to the Roper Industries, Inc. Annual
Report on Form 10-K filed January 21, 1998
10.02 Non-employee Director Stock Option Plan, as amended incorporated
herein by reference to Exhibit 10.03 to the Roper industries,
Inc. Annual Report on Form 10-K filed January 20, 1999
10.03 Form of Amended and Restated Indemnification Agreement
incorporated herein by reference to Exhibit 10.06 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed August 31,
1999
10.04 Consulting Agreement (G.L. Ohrstrom & Co., Inc.) incorporated
herein by reference to Exhibit 10.05 to the Roper Industries,
Inc. Annual Report on Form 10-K filed January 21, 1998
10.06 Amendment to G.L. Ohrstrom & Co., Inc. Consulting Agreement
incorporated herein by reference to Exhibit 10.04 of the Roper
Industries, Inc. Quarter Report on Form 10-Q filed June 11, 1999
21 List of Subsidiaries
23.1 Consent of Independent Auditors - Arthur Anderson LLP
23.2 Consent of Independent Auditors - KPMG LLP
27 Financial Data Schedule
_____________________
/a/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(b) Consents, Authorization and Binding Effect
2.1(d) Capitalization of the Company
<PAGE>
2.1(e) Subsidiaries
2.1(f) Minute Books and Stock Records
2.1(g) Financial Statements
2.1(h) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(j) Litigation; Compliance with Laws
2.1(k) Company Contacts
2.1(l) Pension and Other Employee Plans and Agreements
2.1(m)(iii) Tax Matters
2.1(p) Inventories
2.1(q) Intangible Assets
2.1(s) Employees
2.1(t) Real Estate
/b/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(b) Consents, Authorization and Binding Effect
2.1(d) Capitalization of the Company
2.1(f) Financial Statements
2.1(g) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(j) Company Contacts
2.1(k) Pension and Other Employee Plans and Agreements
2.1(l) Tax Matters
2.1(n) Receivables
2.1(o) Inventories
2.1(p) Intangible Assets
2.1(s) Real Estate
/c/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedule:
2.1(a) Organization and Standing
2.1(d) Capitalization of the Company
2.1(f) Minute Books and Stock Records
2.1(g) Financial Statements
2.1(h) Absence of Certain Changes
2.1(i) Title and Condition of Assets
2.1(k) Company Contacts
2.1(s) Real Estate
/d/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Exhibits:
A-1 Agreement - Patent and Intellectual Property Licenses to Buyer
and Buyer's Covenant Not to Asset Buyer's Patient Rights
<PAGE>
A-2 Seller License Agreement for Seller-Licensed Software
B Agreement - Patent and Intellectual Property Licenses to Buyer
and Buyer's Covenant Not to Asset Buyer's Patient Rights
C Image Sensor Supply Agreement between East Kodak Company and
Roper Industries, Inc.
D Transition Distribution Agreement
E Summary of Terms of Master License Agreement
F Development Agreement Term Sheet
Schedules:
1.1(a) Required Approvals
1.2(e) Persons with Knowledge
2.1(e) Assumed Leases and Assumed Contracts
2.1(f)(i) Transferred Patents
2.1(f)(ii) Transferred Trademarks
2.1(f)(iii) Transferred Product Development Projects
2.1(f)(iv) Transferred Software and firmware
2.1(f)(vi) Transferred Licenses
2.1(l) Certain Transferred Assets
2.2(o) Certain Excluded Assets
2.3(a)(i) Seller-Licensed Intellectual Property: Patents
2.3(a)(ii) Seller-Licensed Intellectual Property: Software
2.8 Closing Balance Sheet
3.3 Consents Other Than Required Approvals
3.6(b) September Balance Sheet
3.6(c) Financial Statement
3.6(d) Certain Liabilities
3.9(a) Litigation and Claims
3.9(b) Orders and Judgements
3.10(b) Intellectual Property: Infringement
3.11(a) Employee Benefits: U.S. Plans
3.11(b) Employee Benefits: Litigation
3.12 Environmental Matters
3.13(a) Labor Matters
3.16 Subsequent Changes
3.19 Year 2000 Compliance Plan
5.6(f) Licensed Trademarks
6.1 Employees
6.2 Roper Scientific Benefits for MASD Employees
/c/ The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Exhibits:
Exhibit A Escrow Agreement
Exhibit B Lease Consent
Exhibit C Financial Statements
Exhibit D Third Party Consents
Exhibit E Noncompetition Agreements
Exhibit F Employment Agreements
Exhibit G RPI Opinion
Exhibit H PGFM Opinion
<PAGE>
Exhibit I Stockholder Notice Addresses
Schedules:
3(a) Organization of the Company
3(b) Noncontravention
3(d) Brokers Fees
3(e) Title to Assets
3(f) The Company Shares
3(h) Events Subsequent to September 30, 1999
3(k) Tax Matters
3(l) Real Property
3(m) Intellectual Property
3(p) Contracts
3(q) Accounts Receivable aged by Due Date
3(s) Insurance
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
VARLEN CORPORATION,
VARLEN INSTRUMENTS, INC.
AND
ROPER INDUSTRIES, INC.
DATED AS OF JUNE 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Purchase and Sale of Shares............................................................ 1
1.1. Purchase of Shares.................................................................... 1
1.2. Preparation of Closing Date Schedule.................................................. 1
1.3. Adjustment of Purchase Price.......................................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES......................................................... 3
2.1. Representations and Warranties of Seller.............................................. 3
2.2. Representations and Warranties of Buyer............................................... 17
ARTICLE III CLOSING; CONDITIONS OF CLOSING AND TERMINATION......................................... 18
3.1. Closing............................................................................... 18
3.2. Conditions to Obligations of Buyer.................................................... 18
3.3. Conditions to Obligations of Seller................................................... 19
ARTICLE IV INDEMNIFICATION........................................................................ 20
4.1. Indemnification of Buyer.............................................................. 20
4.2. Indemnification of Seller............................................................. 21
4.3. Survival.............................................................................. 22
4.4. Claims................................................................................ 22
4.5. Limitations........................................................................... 23
ARTICLE V CERTAIN POST CLOSING MATTERS........................................................... 24
5.1. Certain Tax Matters................................................................... 24
5.2. Income Tax Matters Generally.......................................................... 24
5.3. Access to Records After Closing....................................................... 26
5.4. Covenant Not to Compete............................................................... 27
5.5. Employee Matters...................................................................... 28
5.6. General, Auto and Product Liability................................................... 31
5.7. Cooperation on Claims................................................................. 31
5.8. Name Change........................................................................... 32
5.9. Letters of Credit..................................................................... 32
ARTICLE VI MISCELLANEOUS.......................................................................... 32
6.1. Further Actions....................................................................... 32
6.2. Brokerage............................................................................. 32
6.3. Expenses.............................................................................. 33
6.4. Entire Agreement...................................................................... 33
6.5. Descriptive Headings.................................................................. 33
6.6. Notices............................................................................... 33
6.7. Governing Law......................................................................... 34
6.8. Assignability......................................................................... 34
6.9. Waivers and Amendments................................................................ 34
6.10. Third Party Rights.................................................................... 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.11. Illegality............................................................................. 34
6.12. Release................................................................................ 34
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of June 21, 1999 (this "Agreement"), by
and among (i) VARLEN CORPORATION, a Delaware corporation ("Seller"), (ii) VARLEN
INSTRUMENTS INC., a Delaware corporation (the "Company") and (iii) ROPER
INDUSTRIES, INC., a Delaware corporation ("Buyer"). Seller, the Company and
Buyer will be sometimes referred to herein as a "Party" and collectively as the
"Parties".
The Company is engaged in the design, manufacture and sale of petroleum
analytical instrumentation products and related services (the "Business").
Seller owns and has the legal right and authority to sell, transfer, assign and
deliver One Hundred (100) shares (the "Shares") of the capital stock of the
Company, which Shares constitute all of the issued and outstanding shares of the
capital stock of the Company, and Seller desires to sell, and Buyer desires to
purchase, all the Shares upon the terms and conditions set forth in this
Agreement. In addition, simultaneously with the execution and delivery of this
Agreement, (i) Seller is entering into an agreement with Buyer with respect to
the sale by Seller to Roper Industries Deutschland GmbH i. Gr. of all the
outstanding capital stock of Walter Herzog GmbH ("Herzog"), a German corporation
(the "German Sales Agreement"), and (ii) Seller and Acieries de Ploermel, a
French corporation, are entering into an agreement with Buyer and
Instrumentation Scientifique de Laboratoire with respect to the sale of a 99%
partnership interest of Herzog Varlen Instruments (the "French Sales
Agreement").
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
of the mutual promises, covenants, representations, warranties and agreements
herein contained, and intending to be legally bound hereby, Seller, the Company
and Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. Purchase of Shares.
-------------------
Upon the terms and subject to the conditions set forth in this Agreement
and the representations and warranties herein made by each of the Parties to the
other, Seller agrees to sell to Buyer, free and clear of Liens (as defined in
Section 2.1(i)), and Buyer agrees to purchase from Seller, on the Closing Date
(as hereinafter defined), the Shares for a purchase price of $14,200,000,
subject to adjustment as hereinafter provided (the "Purchase Price"), payable in
cash at closing by wire transfer to an account designated by Seller to Buyer two
days prior to the Closing Date.
1.2. Preparation of Closing Date Schedule.
-------------------------------------
(a) Within two days following the Closing Date, Buyer shall be
responsible for the taking of a physical inventory of all inventories of the
Company as of the close of business on the Effective Date; no goods or items in
inventory shall be moved while the physical inventory is being conducted.
Promptly after the Closing, Buyer shall prepare a schedule showing the working
capital of the Company as of the close of business on the Effective Date
<PAGE>
(the "Closing Date Schedule"). Amounts on the Closing Date Schedule with respect
to inventories shall be derived from the physical inventory taken by Buyer. The
Closing Date Schedule shall be prepared with the accounting principles and
procedures used in the preparation of the Financial Statements described in
Section 2.1(g) hereof, except as noted in Section 2.1(g) of the Disclosure
Schedule. Buyer agrees to use all reasonable efforts to cause the Closing Date
Schedule to be prepared and delivered to Seller within 90 days after the
Closing.
(b) Seller and its authorized representatives and designees, at
Seller's expense, shall have the right to observe the physical inventory.
Seller and its authorized representatives and designees, at Seller's expense,
shall have the right to review the Closing Date Schedule and perform other
review procedures, including a review of any working papers with respect to its
preparation.
(c) Seller shall be deemed to have accepted the Closing Date
Schedule unless within thirty (30) days after delivery thereof to Seller, Seller
gives written notice to Buyer of Seller's objection to any item therein. In the
event Seller gives such written notice of objection, and Buyer and Seller have
been unable to resolve such dispute by a date twenty (20) days after delivery of
such notice of objection, either party may require that such dispute be resolved
by arbitration under the rules, but not the jurisdiction, of the American
Arbitration Association by one arbitrator (the "Arbitrator") who shall be a
certified public accountant and a partner in the Dallas, Texas, office of Price
Waterhouse Coopers.
(d) The Arbitrator shall have access to all documents and
facilities necessary to perform its function as Arbitrator. The Arbitrator's
determination with respect to any dispute shall be final and binding upon the
parties hereto. Seller and Buyer shall each pay one-half of the fees and
expenses of the Arbitrator for such services.
1.3. Adjustment of Purchase Price.
-----------------------------
(a) Within thirty (30) days after delivery of the Closing Date
Schedule to Seller pursuant to Section 1.2 hereof, or, if disputed, within ten
(10) days after the final resolution of such dispute pursuant to Section 1.2(c),
the Purchase Price shall be adjusted as follows. For the purposes of this
adjustment, Pro Forma Working Capital shall mean the working capital of the
Company calculated in the same manner as the working capital on the Financial
Statements described in Section 2.1(g) hereof, except as noted in Section 2.1(g)
of the Disclosure Schedule, but shall include all indebtedness of the Company
without regard to whether such indebtedness is classified as working capital
under United States generally accepted accounting principles ("GAAP"). To the
extent there is a liability which Seller has assumed or agreed to indemnify
Buyer for, the accrual for such item shall not be counted in the determination
of the Pro Forma Working Capital on the Closing Date Schedule. Any
intercompany indebtedness of the Company set forth on the Financial Statements
which has been cancelled as a contribution to capital as of a date prior to the
close of business on the Effective Date shall not be reflected on the Closing
Date Schedule.
(b) If Pro Forma Working Capital as set forth on the Closing Date
Schedule exceeds $4,094,000, the Purchase Price will be increased by, and Buyer
will pay to Seller, the amount of such excess.
2
<PAGE>
(c) If Pro Forma Working Capital as set forth on the Closing Date
Schedule is less than $4,094,000, the Purchase Price will be decreased by, and
Seller will pay to Buyer, the amount of such deficiency.
(d) All payments to be made pursuant to this Section shall (i) be
made by wire transfer of immediately available funds to an account designated by
the recipient at least two business days prior to the transfer, except that
payments of less than $10,000 may be made by check subject to collection and
(ii) be accompanied by a payment of interest thereon at the "Prime Rate" from
time to time in effect on such amount from the Closing Date until paid. As used
in this Agreement, "Prime Rate" means the rate of interest equal to the "Prime
Rate" reported from time to time in the "Money" column of The Wall Street
---------------
Journal, and shall change from time to time effective with any changes in the
- -------
reporting of such rate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Simultaneously with the execution and delivery of this Agreement, Seller is
delivering to Buyer the Disclosure Schedule referred to herein.
2.1. Representations and Warranties of Seller.
-----------------------------------------
Except as and to the extent set forth in the specific section of the
Disclosure Schedule to which such representation and warranty relates, Seller
represents and warrants to Buyer, as of the Effective Date, as follows:
(a) Organization and Standing.
-------------------------
(i) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Seller is qualified to transact business as a
foreign corporation in each jurisdiction where it is required to qualify in
order to conduct its business as presently conducted.
(ii) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to carry on its business as it is now
being conducted. The Company is qualified to transact business as a foreign
corporation in the jurisdictions (which are listed on Section 2.1(a) of the
Disclosure Schedule hereto) where it is required to qualify in order to conduct
its business as presently conducted.
(b) Consents, Authorizations and Binding Effect. Each of Seller and
the Company has full corporate power and authority to execute, deliver and
perform its respective obligations under this Agreement without the necessity of
obtaining any consent, approval, authorization, advice or waiver or giving any
notice, except for such consents, approvals, authorizations, advice or waivers
(individually a "Consent" and collectively "Consents") which have been obtained
and are unconditional and in full force and effect and such notices
(individually a "Notice" and collectively "Notices") which have been duly given,
all of which
3
<PAGE>
are listed on Section 2.1(b) of the Disclosure Schedule, and except for Consents
and Notices which are required under immaterial contracts the absence of which
would not have a material adverse effect on the assets, business, financial
condition or results of operations of the Company or Seller. The board of
directors of each of Seller and the Company have duly authorized the execution,
delivery and performance of this Agreement by Seller and the Company. This
Agreement has been duly executed and delivered by each of Seller and the Company
and constitutes their respective legal, valid and binding obligations,
enforceable against them in accordance with its terms, except as may be limited
by bankruptcy, reorganization, insolvency and similar laws of general
application relating to or affecting the enforcement of rights of creditors. The
execution, delivery and performance of this Agreement by Seller and the Company,
and the consummation of the transactions contemplated thereby will not:
(i) conflict with, result in the breach of, or constitute a
default under, or the acceleration of any contract, agreement, commitment,
undertaking, restriction or instrument to which Seller or the Company is a party
or by which either of them may be bound or affected;
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon Seller or the Company; or
(iii) violate any provision of the Articles of Incorporation or
Bylaws of Seller or the Company.
(c) Shares. Seller has good title to the Shares, and has the right,
------
title, power and authority to sell and transfer to Buyer the Shares. The Shares
are owned by Seller, and are being transferred by Seller to Buyer, free and
clear of all Liens (as defined in Section 2.1(i)), other than customary
restrictions under Federal and state securities laws. There are no options,
proxies, voting trusts or other agreements or understandings with respect to the
issuance, transfer or voting of the Shares. All issuances, sales and
repurchases of equity interests by the Company have been effected in compliance
with all applicable laws, including, without limitation, applicable federal and
state securities laws.
(d) Capitalization of the Company.
-----------------------------
(i) The Company's total authorized capitalization consists
solely of 1,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of which a total of only 100 shares are presently issued and
outstanding, all of which are owned by Seller. The Company does not hold any
shares of its capital stock in its treasury. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable.
(ii) There are no authorized, outstanding or existing:
(A) proxies or other agreements or understandings with
respect to the voting of any capital stock of the Company;
(B) depositary receipts of shares issued by the Company;
4
<PAGE>
(C) securities convertible into or exchangeable for any
capital stock of the Company (including notes, bonds or
debentures);
(D) options, warrants or other rights to purchase or
subscribe for any capital stock of the Company (other than this
Agreement), or securities convertible into or exchangeable for
any capital stock of the Company;
(E) agreements of any kind relating to the sale or
issuance of any capital stock of the Company, any such
convertible or exchangeable securities or any such options,
warrants or rights; or
(F) agreements of any kind which may obligate the Company
to sell, issue or purchase any of its securities.
Subsequent to January 31, 1999, the Company has not declared or paid, and has no
obligation to declare or pay, any dividends, and the Company has not made, and
has no obligation to make, any distribution or payment to the stockholders of
the Company or its affiliates, except that (x) to reduce the Buyer's risk with
respect to its acquisition of the Company, the Company has dividended, otherwise
distributed or sold to Seller or its designee all of the Company's accounts
receivable and cash as of the close of business on the day immediately prior to
the Effective Date and Seller is responsible for the collection of such
receivables, (y) the Company has distributed to Seller four small parcels of
real property that have nominal value, are not recorded in the Company's
Financial Statements, are not utilized in the Company's business operations and
are near to former operations of the Company and (z) the Company is indebted to
Seller to the extent set forth in the Financial Statements (as hereinafter
defined).
(e) The Company. The Company is engaged only in the Business and has
-----------
no subsidiaries, except as set forth in Section 2.1(e) of the Disclosure
Schedule. Copies of the Articles of Incorporation and Bylaws of the Company
have heretofore been delivered to Buyer or Buyer's counsel and are correct and
complete and reflect all amendments or changes in effect.
(f) Minute Books and Stock Records. The minute books of the Company
------------------------------
have been furnished to Buyer for inspection and in the form so furnished are
correct and complete in all material respects and current (including
signatures). The stock record books of the Company are correct and complete in
all material respects and current (including signatures). Section 2.1(f) of the
Disclosure Schedule includes a list of the directors and officers of the
Company.
(g) Financial Statements and Financial Condition. Attached as Section
--------------------------------------------
2.1(g) of the Disclosure Schedule are the following financial statements:
(i) the unaudited balance sheets of the Company as of January
31, 1998 and 1999 and statements of income of the Company for the fiscal years
ended January 31, 1998 and 1999 (collectively, the "Annual Financial
Statements"); and
(ii) the unaudited balance sheet of the Company as of May 1,
1999, and statement of income of the Company for the period then ended (the
"Interim Financial
5
<PAGE>
Statements" and together with the Annual Financial Statements, sometimes
collectively referred to herein as the "Financial Statements").
The Financial Statements have been prepared in accordance with GAAP consistently
applied (except such deviations described in Section 2.1(g) of the Disclosure
Schedule) and the amounts set forth therein were used by Seller in connection
with the preparation of its financial statements. The Financial Statements are
consistent with the books and records of the Company. The Financial Statements
present fairly the financial condition and results of operations of the Company
at the dates and for the periods specified, except as otherwise noted therein
and subject, in the case of Interim Financial Statements, to recurring year-end
adjustments that are not expected to be material in amount.
As of the date hereof, the Company has no obligations or liabilities other than:
(A) those set forth or reserved against in the Financial
Statements;
(B) those incurred since May 1, 1999 in the ordinary course
of business in arms-length transactions and consistent in nature
and scope with past practice, which liabilities will not have, in
the aggregate, a material adverse effect upon the business,
operations or financial condition of the Company as it exists on
the Effective Date;
(C) those under the executory portion of contracts and
agreements to which the Company is a party or by which it is
bound that are listed in the Disclosure Schedule or are not
required by the terms of this Agreement to be listed in the
Disclosure Schedule; and
(D) those incurred in the ordinary course of business and
consistent in nature and scope with past practice, which
liabilities are not required by GAAP to be shown on a balance
sheet (other than in notes thereto) and which liabilities,
individually and in the aggregate, are not material.
The Company has maintained its books of account and other records in accordance
with applicable laws, rules and regulations, and such books and records are and,
during the periods covered by the Financial Statements and from May 1, 1999,
through the Effective Date were, correct and complete in all material respects,
and provide or provided a fair and accurate basis for the preparation of the
Financial Statements and the Closing Date Schedule and reflect all material
transactions to which the Company has been a party.
(h) Absence of Certain Changes. Etc. Since January 31, 1999, there
-------------------------------
has been no material adverse change in the business, operations, financial
condition or assets, of the Company. Without limiting the generality of the
foregoing, since January 31, 1999, except as set forth on the Disclosure
Schedule, the Company has not:
(i) issued, sold or delivered any shares of capital stock or
notes, bonds or other debt instruments of the Company, or granted any rights
calling for the issuance, sale or
6
<PAGE>
delivery of any thereof (including without limitation options, warrants,
convertible securities, stock appreciation rights or similar rights);
(ii) made any payments or distribution of assets (other than
in cash or as otherwise described in this Agreement) in the form of management
fees or otherwise to Seller or any Affiliate of Seller or of the Company. (As
used herein, the term "Affiliate" means a person or entity which controls, is
controlled by or is under common control with the person with respect to which
the determination is being made. "Control" means the power to direct or cause
the direction of the management and policies of a person or entity through
voting securities, by contract or otherwise.)
(iii) purchased or redeemed any of the shares of capital stock
of the Company;
(iv) subdivided, combined, reclassified or recapitalized any
of the shares of capital stock of the Company;
(v) amended the Articles of Incorporation or Bylaws of the
Company or changed the Company's corporate name or permitted the use thereof by
any other person;
(vi) agreed to merge or consolidate the Company with any other
entity or to acquire any corporation, association, partnership, joint venture or
other entity;
(vii) changed the methods of accounting or accounting
principles or practices of the Company from those set forth in or reflected by
the Financial Statements or increased or experienced any adverse change in any
assumption underlying any method of calculating contingencies or other reserves
from that reflected in the Financial Statements;
(viii) cancelled or waived a claim of substantial value or sold,
transferred or otherwise disposed of (or agreed to sell, transfer or otherwise
dispose of) any assets of the Company, except for sales of inventory in the
ordinary course of business consistent with past practices or as otherwise set
forth on the Disclosure Schedule;
(ix) failed to maintain in full force and effect with respect
to the assets, employees and business of the Company all insurance coverage of
the types and in the amounts as were in effect on and as of January 31, 1999;
(x) made any legally binding commitment for additions to
property, plant or equipment having an individual cost in excess of $25,000 or
an aggregate cost of $75,000 for all such items taken together;
(xi) disposed of or permitted to lapse any right listed or
described on the Disclosure Schedule pursuant to Section 2.1(q);
(xii) made or agreed to make any increase in the compensation
payable to any of the officers, directors or employees of the Company, other
than in accordance with continuing obligations disclosed in the Disclosure
Schedule;
7
<PAGE>
(xiii) except as previously disclosed to Buyer, entered into or
amended any Company Plan (as that term is defined in Section 2.1(l));
(xiv) suffered any significant casualty, damage, destruction or
loss, or interruption in use, of any significant asset or property (whether or
not covered by insurance), on account of fire, flood, riot, strike or other
hazard or act of God;
(xv) hired or terminated any employee who has an annual salary
in excess of $30,000;
(xvi) imposed or permitted any Liens upon any of its assets,
tangible or intangible;
(xvii) without limitation by the enumeration of any of the
foregoing, entered into any agreement or transaction other than in the usual and
ordinary course of business in accordance with past practices, except for
actions taken in connection with the transactions contemplated by this
Agreement; or
(xviii) agreed, whether in writing or not, to do any of the
foregoing.
(i) Title and Condition of Assets. The Company has good and
-----------------------------
marketable title to all of its assets (other than leased assets), free and clear
of all Liens. The Company's tangible assets, taken as a whole, are in good
operating condition, ordinary wear and tear excepted and constitute all of the
assets necessary to conduct the Business of the Company as the same is presently
conducted. As used herein, "Liens" shall mean any mortgage, pledge, lien,
encumbrance, charge or other security interest, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes (as defined in Section
2.1(m)) not yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other liens
arising in the ordinary course of business and not incurred in connection with
the borrowing of money.
(j) Litigation; Compliance With Laws.
--------------------------------
(i) Except as set forth in the Disclosure Schedule, there are
no suits, actions, claims, arbitrations, administrative or legal or other
proceedings, whether in equity or at law, or governmental or administrative
investigations pending (i.e., where Seller or the Company has received service
of process or other formal action to commence such a proceeding) or, to the best
of Seller's knowledge, threatened (A) against or related to (x) Seller with
respect to the transactions contemplated by this Agreement, (y) the Company or
(z) any material asset or property owned, leased or used by the Company, or (B)
which question or challenge the validity of this Agreement or any action taken
or to be taken pursuant to this Agreement. Except as set forth on the Disclosure
Schedule, no material product liability claim is pending or, to the best of
Seller's knowledge, threatened against the Company with respect to the products
of the Company. The Disclosure Schedule lists all product liability claims with
respect to the products or services of the Company arising out of occurrences
from January 1, 1995 through the date of this Agreement.
8
<PAGE>
(ii) The Company is in compliance with federal, state or local
governmental or judicial laws, ordinances, permits, requirements, decrees,
rules, regulations, arbitration awards and orders applicable to the Company or
the business, operations or properties of the Company, except where
noncompliance would not have a material adverse effect on the Company. There is
no order, writ, injunction, judgment or decree of any court or Federal, state or
local department, official, commission, authority, board/bureau, agency, or
other instrumentality issued or pending against the Company. The Company has
duly filed all reports and returns required to be filed by it with governmental
authorities and obtained all governmental permits and licenses and other
governmental consents which are required in connection with the businesses and
operations of the Company; all of such permits, licenses and consents are in
full force and effect, and no proceedings for the suspension or cancellation of
any of them are pending or threatened, except where any of the above would not
have a material adverse effect on the Company.
(k) Company Contracts. Except as set forth on the Disclosure
-----------------
Schedule, all Company Contracts (as defined herein) are valid, subsisting, in
full force and effect and binding upon the parties thereto in accordance with
their terms, subject to the qualifications that enforcement of the rights and
remedies created thereby is subject to (A) bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and (B) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law), and the Company is not in default under any of them, nor does any
condition exist that with notice or lapse of time or both would constitute such
a default. To the knowledge of the Seller, no other party to any such Company
Contract is in default thereunder, nor does any condition exist that with notice
or lapse of time or both would constitute such a default. Subject to obtaining
any consents required under the terms of the Company Contracts, all of the
Company's rights under such Company Contracts will remain in full effect upon
consummation of the transactions contemplated by this Agreement. For purposes of
this Agreement, the term "Company Contracts" means and includes, and the
Disclosure Schedule lists, all contracts, mortgages, debt instruments, security
agreements, licenses, commitments, guaranties, leases, charters, franchises,
powers of attorney and agency and other agreements to which the Company is a
party or by which it is bound (excluding purchase and sale orders, inventory
acquisition agreements and product distribution agreements, in each case made in
the ordinary course of business in arms-length transactions and consistent in
nature and scope with prior practices of the Company) as of the date of this
Agreement and that:
(i) involve or would involve the payment by the Company of in
excess of $25,000 during any fiscal year, unless cancelable by the Company with
notice of less than six (6) months and premium or penalty of less than $10,000;
(ii) relate to the payment of royalties with respect to any
products sold by the Company;
(iii) guarantee, indemnify or otherwise cause the Company to be
liable for the obligations or liabilities of another;
9
<PAGE>
(iv) involve the borrowing or lending of money, or the
granting of any Lien;
(v) involve an agreement with any bank, finance company or
similar organization for the sale of any products of the Company on credit;
(vi) involve the sale by or to the Company of products on
consignment;
(vii) are or contain a power of attorney;
(viii) contain any renegotiation or redetermination provision;
(ix) require or are otherwise contingent upon the payment of
commissions or compensation to any person not a party to such Company Contract;
(x) concern the formation of a partnership or joint venture;
(xi) impose material noncompetition or confidentiality
obligations on the Company with respect to a third party;
(xii) involve any significant license agreement or arrangement;
or
(xiii) require the Company to supply any other party with such
party's requirements for products or services.
The Disclosure Schedule specifically describes the arrangements (formal and
informal, written or oral) between the Company and any Related Party (as defined
below) (including Seller) and the services or functions (administrative or
otherwise) provided to the Company by any Related Party. No Related Party owns
any assets which are used in the Company's business, and no Related Party which
is under the control of the Seller is engaged in any business which competes
with the Business. As used herein, the term "Related Party" means (A) Seller or
any Affiliate (as defined below) of Seller or the Company, or (B) any
corporation, partnership, association, limited liability company or other entity
(other than the Company), in which any of the foregoing persons has any relation
by blood or marriage, has any material interest, direct or indirect. As used
herein, "Affiliate" shall mean any person, firm, corporation, partnership,
association or entity that directly or indirectly or through one or more
intermediaries controls, is controlled by or is under common control with
another person, firm, corporation, partnership, association or entity.
(l) Pension and Other Employee Plans and Agreements.
-----------------------------------------------
(i) "Varlen Affiliate Plan" shall mean each employee benefit
plan (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), each employment, severance, salary
continuation or other similar contract, stock purchase plan, stock option plan,
stock appreciation plan, vacation, sick leave or other fringe benefit plan,
incentive plan, insurance plan or arrangement, bonus plan and any deferred
compensation agreement, plan, policy or funding arrangement sponsored,
maintained or to which contributions are made by the Seller or any of its
affiliates with respect to which the
10
<PAGE>
Seller or any of its affiliates has any potential liability. "Company Plan"
shall mean each Varlen Affiliate Plan which is sponsored, maintained or
contributed to by the Company for the benefit of employees or retirees of the
Company (or their dependents) or with respect to which the Company has or will
have any actual liability (a "Company Plan"). The Disclosure Statement lists
each Company Plan.
(ii) With respect to the Company Plans, Seller will deliver to
Buyer accurate and complete copies of the Company Plans and, to the extent
applicable, for each Company Plan, copies of the most recent, if any,
(A) determination letters,
(B) Form 5500 and any attachments required to be annexed
thereto (including any related actuarial valuation report, if
any) with respect to the last three plan years for each Company
Plan subject to section 401 of the Internal Revenue Code of 1986,
as amended (the "Code"),
(C) collective bargaining arrangements,
(D) Form 5310 and any related filings with the Pension
Benefit Guaranty Corporation (the "PBGC") with respect to the
last five plan years for each such Company Plan,
(E) related trust agreements,
(F) related insurance and/or "annuity contracts",
(G) summary plan descriptions,
(H) all communications to employees regarding any
Company Plan, which communications modify any such Company Plan,
(I) Form 990 for the past three (3) years, and
(J) PBGC Form-I with respect to the last three plan
years for each Company Plan subject to section 412 of the Code.
(iii) Except to the extent Buyer is indemnified under Section
4.1(e)(vii), each Company Plan (and any related trust agreements or annuity
contracts) has been administered in all material respects in accordance with its
terms and the Company and each Company Plan (and any related trust agreements or
annuity contracts) are in compliance in all material respects with the
applicable provisions of ERISA, the Code and other laws applicable thereto (or
is considered to be in compliance pursuant to any remedial amendment period
applicable to such plan pursuant to section 401(b) of the Code or any other
ruling, notice, or procedure issued by the Internal Revenue Service).
11
<PAGE>
(iv) All reports, returns and similar documents with respect
to each Company Plan required to be filed with any governmental agency or
distributed to any participant of each Company Plan have been duly and timely
filed or distributed in all material respects.
(v) Each Company Plan which is an employee pension benefit
plan (as such term is defined in Section 3(2) of ERISA) intended to qualify
under section 401(a) of the Code has received a favorable determination letter
as to its qualification under the Code and each such favorable determination
letter remains in effect with respect to the form of the Company Plan other than
compliance as to any aspect of form with respect to which the applicable
remedial amendment period has not expired.
(vi) (A) No actions, suits or claims (other than routine
claims for benefits in the ordinary course, qualified domestic relations orders
or qualified medical child support orders) are pending or, to the best of
Seller's knowledge, threatened with respect to any Company Plan, (B) to the best
of Seller's knowledge, neither the Company, Seller nor any Company Plan
fiduciary has, with respect to the Company Plans, engaged in a non-exempt
prohibited transaction, as such term is defined in section 4975 of the Code or
section 406 of ERISA and (C) except with respect to this transaction or as set
forth on the Disclosure Schedule, for the current plan year and the immediately
preceding five consecutive plan years, no event or condition exists or may be
reasonably expected to occur prior to the Effective Date with respect to any
Company Plan that is subject to section 412 of the Code or the funding
requirements of section 302 of ERISA, which constitutes a reportable event
within the meaning of section 4043 of ERISA with respect to which the 30-day
notice requirement has not been waived. No event has occurred which presents a
material risk for which the Company would have any present or future liability
that any Company Plan subject to Title IV of ERISA has experienced a partial
termination within the meaning of section 411(d)(3) of the Code.
(vii) The Company has made all contributions or payments to or
under each Company Plan required by law or by the terms of such Company Plan.
The Company is not obligated to make any nondeductible contributions to any
Company Plan and no excise taxes are assessable against the Company as a result
of any other contributions made or not made to a Company Plan. The liabilities
of the Company with respect to each Company Plan are reported on the Financial
Statements in accordance with GAAP consistently applied except as set forth on
the Disclosure Schedule. As of May 28, 1999, the assets of the Union Plan (as
defined in Section 5.5 below) are reported at their fair market value on the
books and records of such Company Plan.
(viii) The Company has no obligation to make contributions to a
multiemployer plan (within the meaning of section 414(f)(1) of the Code), with
respect to its employees. The Company has no actual present or future liability
for post-retirement health or death benefits with respect to employees or
directors, past or present, other than with respect to one existing retiree
under the Retiree Health and Dental Insurance Plan.
(ix) The Company has incurred no liability to the PBGC as a
result of the voluntary or involuntary termination of any Company Plan which is
subject to Title IV of ERISA. There is currently no active filing with the PBGC
(and no proceeding has been
12
<PAGE>
commenced by the PBGC) to terminate any Company Plan which is subject to Title
IV of ERISA. As of the Effective Date, the Company has no liability for unpaid
premium payments for Company Plans subject to Title IV of ERISA and all required
premium payments for the Company Plans for plan years commencing in the plan
year which would include the Effective Date and which are due on or before the
Effective Date have been made to the PBGC. No Company Plan subject to Title IV
of ERISA has suffered any accumulated funding deficiency within the meaning of
section 302 of ERISA or section 412 of the Code for which the Company would have
any present or future liability.
(x) No assets of the Company are subject to any lien under
section 302(f) or section 4068 of ERISA or under section 412(n) or section
401(a)(29) of the Code.
(xi) Solely as a result of the consummation of the
transactions contemplated by this Agreement, no payment required to be made to
any Company employee will, if made, constitute an excess parachute payment
within the meaning of section 280G of the Code and, except as set forth in the
Disclosure Schedule, no severance payment will become due and payable with
respect to any Company employee.
(xii) Neither the Company nor the Buyer shall incur any actual
liability attributable to those Varlen Affiliate Plans that are not also Company
Plans.
(m) Tax Matters.
-----------
(i) As used in this Agreement, the following terms shall have
the following meanings: (A) the term "Taxes" means all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto; (B)
the term "Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes; and (C) the term
"Sales and Use Tax" means all sales taxes, use taxes, retailer's occupation
taxes and other taxes commonly understood to be sales or use taxes. All
citations to the Code, or to the Treasury Regulations promulgated thereunder,
shall include any amendments or any substitute or successor provisions thereto.
Any reference in this Section to the Company includes a reference to a person or
entity acting on behalf of or with respect to the Company (including, without
limitation, Seller). The Company has duly and timely filed all Returns required
to have been filed by it prior to the Effective Date. Except for Taxes which
will be paid by Seller when due, all Taxes and Sales and Use Taxes required to
have been paid prior to the Effective Date, or accruing with respect to the
period ending on the Effective Date, have been fully paid on or prior to the due
date thereof, or will be fully accrued on the Closing Date Schedule. Except for
this Agreement, there are no tax sharing agreements to which the Company is a
party or by which the Company is affected.
(ii) The Company is not a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement.
13
<PAGE>
(iii) The Company has not agreed to make, nor is it required to
make, any adjustment under section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(iv) The Company is not a party to or bound by any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(n) Environmental.
-------------
(i) The Company has complied with all Environmental Laws (as
defined herein), the failure to comply with which could result in Damages (as
defined herein) in excess of $25,000, and no action, suit, proceeding, hearing,
charge, complaint, claim, demand, or notice, and no investigation has been filed
or commenced against the Company alleging such failure.
(ii) Except (i) to the extent accrued in the Closing Balance
Sheet and (ii) liabilities for storage, handling, transportation, use and
disposal of Hazardous Substances (as defined herein) which are incurred by the
Company in the ordinary course of business, the Company has no liability for
Hazardous Substances (and has not handled, used, stored, recycled or disposed of
any Hazardous Substance (as defined herein)), arranged for the disposal of any
Hazardous Substance, exposed any employee or other individual to any Hazardous
Substance or condition, or owned or operated any property or facility, in any
manner that could reasonably be expected to form the basis for any present or
future action, suit, proceeding, hearing, investigations, charge, complaint,
claim or demand giving rise to any liability for Hazardous Substances,
including, without limitation, liability under CERCLA or similar state statutes,
which in each case could result in Damages in excess of $25,000 for any reason
under any Environmental Laws.
(iii) Except (i) to the extent accrued in the Closing Balance
Sheet and (ii) liabilities for storage, handling, transportation, use and
disposal of Hazardous Substances which are incurred by the Company in the
ordinary course of business, all properties and equipment used in the Business
are free of any amounts of Hazardous Substances, the use and disposal of which
could result in Damages (as defined herein) in excess of $25,000.
(iv) There are no in service or out of service underground
storage tanks located in or on real property owned by the Company or, to the
extent the Company is responsible for such tanks or any environmental damage
resulting therefrom, real property leased by the Company.
(v) The Company has not received notice and has no knowledge
of any reasonably likely claim under any Environmental Laws regarding the
Business, or any real property owned or leased by the Company.
(vi) As used herein, the term Environmental Laws shall mean
all federal, state and local laws, statutes, ordinances, rules, regulations,
decrees, orders and settlements regarding the protection of human health, safety
and the environment and pollution,
14
<PAGE>
in effect as of the date of this Agreement and applicable to the Facilities and
the operations conducted thereon, including, but not limited to, the following
statutes, as amended, and any regulations promulgated thereunder, as they
existed on the date hereof:
(A) Clean Air Act, 42 USC (S)7401 et sec.;
-------
(B) Federal Water Pollution Control Act, as amended by
the Clean Water Act, 33 USC (S)1251 et sec.;
-------
(C) Resource Recovery and Conservation Act, 42 USC
(S)6901 et sec.;
-------
(D) Comprehensive Environmental Response, Compensation,
and Liability Act, 42 USC (S)9601 et sec. as amended by the
------
Superfund Amendments and Reauthorization Act of 1986 ("CERCLA");
(E) Toxic Substance Control Act, 15 USC (S)2601 et sec.;
-------
and
(F) applicable state or local statutes, regulations,
laws or ordinances pertaining to the subject matter embodied in
the Environmental Laws set forth in (D) above, as they existed on
the Closing Date.
"Hazardous Substances" shall mean materials, substances or wastes defined
by or regulated by applicable Environmental Laws.
(o) Receivables. To the knowledge of Seller, all of the accounts
-----------
receivable of the Company arose in the ordinary course of business, and are good
and collectable in the ordinary course of business, net of reserves therefor in
the Financial Statements.
(p) Inventories. The inventory of the Company consists of raw
-----------
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured. The inventories of the Company have been
valued in the Financial Statements at the lower of cost (LIFO) or market and in
a consistent manner with respect to all periods covered thereby. Section 2.1(p)
of the Disclosure Schedule sets forth the Company's practices and procedures
with respect to the valuation of inventories which are consistent with those
used in the preparation of the Financial Statements (and will be used in the
preparation of the Closing Balance Sheet). The Company is not under any
liability or obligation with respect to the return of inventory or merchandise
in the possession of wholesalers, distributors, retailers or other customers.
Except as described on Section 2.1(p) of the Disclosure Schedule, no inventory
of the Company is on consignment.
(q) Intangible Assets. The Disclosure Schedule lists all material
-----------------
patents, trademarks and service marks, patent, trademark and service mark
registrations and applications, trade names, copyrights, copyright registrations
and applications, and licenses with respect thereto owned by the Company or used
by the Company in its business operations (collectively, "Intellectual
Property"). Intellectual Property which is owned by a third party and used by
the Company has been duly licensed to the Company and the Company has sufficient
rights to use such Intellectual Property to conduct its business as presently
conducted. There is no material
15
<PAGE>
item of Intellectual Property not owned by or licensed to the Company which is
necessary for the conduct of the Company's business as presently conducted.
There are no claims, demands or proceedings instituted, pending or, to the best
of Seller's knowledge, threatened pertaining to or challenging the right of the
Company to use any of the Intellectual Property or alleging that any of the
Intellectual Property infringes or otherwise violates the patent, trade name,
trademark, copyright or other rights of any other person. Except as set forth in
the Disclosure Schedule, the Company has not granted any licenses or other
rights under, or authorized or permitted anyone else to use, any of the
Intellectual Property.
(r) Customers. To the best of Seller's knowledge, since May 31,
---------
1999, there has not been any termination, cancellation or material limitation,
modification or change in the business relationship of the Company with any
significant customer of the Company.
(s) Employees. With respect to employees of the Company: (i) there
---------
is no pending, or to the best of Seller's knowledge threatened, unfair labor
practice charge or employee grievance charge; (ii) there is no request for union
representation, labor strike, dispute, slowdown or stoppage pending, or to the
best of Seller's knowledge threatened, against or directly affecting the Company
and (iii) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor exist.
Within the last 90 days, no key employee of the Company has advised Seller that
he intends to terminate his employment with the Company and Seller has not
encouraged any employee of the Company to terminate his employment with the
Company.
(t) Real Estate.
-----------
(i) The Company does not own any real estate.
(ii) The Disclosure Schedule lists and describes briefly all
real property leased to the Company. The Company has delivered to the Buyer
correct and complete copies of the leases listed in the Disclosure Schedule.
With respect to each lease listed in the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in accordance with its
terms.
(B) the Company is not, and to the knowledge of the
Company, no party to the lease or sublease is, in breach or
default, and no event has occurred and is continuing which, with
notice or lapse of time, would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(C) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease;
(D) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold; and
16
<PAGE>
(E) all facilities leased thereunder have received all
approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and
have been operated and maintained in all material respects in
accordance with applicable laws, rules, and regulations.
(u) No Other Representations and Warranties by Seller; Specific
-----------------------------------------------------------
Disclosure.
- ----------
(i) Seller shall not be deemed to have made to Buyer any
representation or warranty other than as expressly made by Seller in this
Section 2.1.
(ii) Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by Seller in Section
2.1, Seller is not making any representation and warranty with respect to:
(A) any projections, estimates or budgets of future
revenues, expenses or expenditures, results of operations (or any
component thereof) or financial condition (or any component
thereof) of the Company, or
(B) any other information or documents made available to
Buyer or any of its representatives or investors with respect to
the Company.
(iii) For purposes of this Agreement, references to the
"knowledge of Seller", "Seller's knowledge" or "Seller's awareness" or words of
similar import shall mean and include the actual knowledge of Seller after due
inquiry of the individuals listed on Section 2.1(u) of the Disclosure Schedule
with respect to the indicated matters.
(iv) A disclosure in one section of the Disclosure Schedule
shall not be effective with respect to another representation and warranty
unless such section is specifically cross-referenced.
2.2. Representations and Warranties of Buyer.
----------------------------------------
Buyer hereby represents and warrants to Seller, as of the Effective Date,
as follows:
(a) Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware and has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. Buyer is qualified to do
business as a foreign corporation in each jurisdiction where it is required to
qualify in order to conduct its business as presently conducted.
(b) Consents, Authorizations and Binding Effect. Buyer has full
-------------------------------------------
corporate power and authority to execute, deliver and perform its obligations
under this Agreement without the necessity of obtaining any Consent or giving
any Notice, except for such Consents which have been obtained and are
unconditional and in full force and effect and such Notices which have been duly
given. The board of directors of Buyer has duly authorized the execution,
delivery and performance of this Agreement by Buyer. This Agreement has been
duly executed
17
<PAGE>
and delivered by Buyer and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency and similar laws of general application
relating to or affecting the enforcement of rights of creditors. The execution,
delivery and performance of this Agreement by Buyer will not:
(i) conflict with, result in the breach of or constitute a
default under or the acceleration of any contract, agreement commitment,
undertaking, restriction or instrument to which Buyer is a party or by which
Buyer may be bound or affected, or
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon Buyer, or
(iii) violate any provision of the Articles of Incorporation or
Bylaws of Buyer.
(c) Acquisition of Shares for Investment. Buyer acknowledges that in
------------------------------------
acquiring the Shares under this Agreement, Buyer has relied solely on its own
due diligence investigation, the representations and warranties set forth in
Section 2.1, including the information in the Disclosure Schedule related
thereto and the documents and information referred to therein, and the other
covenants and statements of Seller set forth in this Agreement, and not upon any
other representations, warranties, covenants or statements of any kind. Buyer
is an "accredited investor", as defined in Rule 501 of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"), and has sufficient
knowledge, experience and sophistication to enable it properly and fully to
evaluate and understand the merits and risks associated with its acquisition of
the Shares. Buyer is acquiring the Shares for its own account for investment and
with no present intention of distributing or reselling such Shares or any part
thereof in any transaction which would constitute a "distribution" within the
meaning of the Securities Act. Buyer understands that the Shares have not been
registered under the Securities Act or any state securities laws and may not be
sold or transferred except in compliance therewith or pursuant to an exemption
thereunder and are being transferred to Buyer, in part, in reliance on the
foregoing representation and warranty.
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND TERMINATION
3.1. Closing.
--------
The Closing and the sale, purchase and transfer of the Shares will take
place at the offices of Powell, Goldstein, Frazer & Murphy LLP, 16/th/ Floor,
191 Peachtree Street, N.E., Atlanta, Georgia 30303, on June 21, 1999 (the
"Closing Date"), effective as of the close of business on June 18, 1999 (the
"Effective Date").
3.2. Conditions to Obligations of Buyer.
-----------------------------------
The obligations of Buyer to consummate the sale and purchase under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Buyer.
18
<PAGE>
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects. Seller shall have performed in all
material respects the covenants and obligations necessary to be performed by it
under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize
--------------------------
the execution, delivery and performance of this Agreement by Seller shall have
been duly and validly taken, and Seller shall have full right, power and
authority to consummate the transactions contemplated hereby on the terms
provided herein.
(c) Security Interests, Encumbrances, Liens, etc. Buyer shall have
---------------------------------------------
received written advice to the effect that a search of the public records has
disclosed that no Liens, other than those reflected in Section 2.1(h) of the
Disclosure Schedule, have been filed or recorded with respect to the Company,
and all Liens requested by Buyer to have been released or satisfied shall have
been released or satisfied.
(d) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(e) Corporate Matters. Buyer shall have received (i) such
-----------------
resignations of the directors and officers of the Company as it may have
requested, such resignations to be effective as of immediately following the
Closing and (ii) the minute books and stockholder registers and corporate seal
of the Company.
(f) Other Agreements. The sellers under the German Sales Agreement
----------------
and under the French Sales Agreement are closing the transactions contemplated
under such agreements simultaneously with the Closing.
(g) Shares. Buyer shall have received stock certificates for the
------
Shares, duly endorsed for transfer.
(h) Opinion. Buyer shall have received a legal opinion from Seller's
-------
General Counsel containing customary opinions with respect to the Company and
the transactions contemplated hereby.
3.3. Conditions to Obligations of Seller.
------------------------------------
The obligations of Seller to consummate the sale and purchase under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Seller:
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects. Buyer shall have performed in all
material respects the covenants and obligations necessary to be performed by it
under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize the
--------------------------
execution, delivery and performance of this Agreement by Buyer shall have been
duly and
19
<PAGE>
validly taken and Buyer shall have full right, power and authority to consummate
the transactions contemplated hereby on the terms provided herein.
(c) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(d) Other Agreements. The buyers under the German Sales Agreement
----------------
and under the French Sales Agreement are closing the transactions contemplated
under such agreements simultaneously with the Closing.
(e) Purchase Price. Seller shall have received the Purchase Price.
--------------
(f) Opinion. Seller shall have received a legal opinion from Buyer's
-------
counsel with respect to Buyer and the transactions contemplated by this
Agreement.
ARTICLE IV
INDEMNIFICATION
4.1. Indemnification of Buyer.
-------------------------
Subject to the terms and conditions of this Article IV, Seller shall
defend, at its own expense, and shall indemnify Buyer and Company against, and
hold Buyer and Company harmless from, any and all loss, damage or liability, and
all expenses, including without limitation reasonable legal fees and costs of
investigation, remediation or other response action and other costs
(collectively "Damages"), asserted against or incurred by Buyer arising out of:
(a) a breach of the representations and warranties made by Seller in
this Agreement or in any certificate or other instrument furnished or to be
furnished to Buyer hereunder;
(b) the non-fulfillment of any agreement or covenant made by Seller
in or pursuant to this Agreement or in any certificate or other instrument
furnished or to be furnished to Buyer hereunder;
(c) all Income Taxes (as defined in Section 5.1 hereof) for all
periods (or portions thereof) ending on or before the Effective Date for which
the Company is liable;
(d) the Company having been a member of a consolidated, affiliated or
controlled group for Tax purposes (excluding the Company's own liabilities);
(e) the following liabilities:
(i) Any liability or obligation arising under that certain Asset
Purchase Agreement dated June 26, 1996, between the Company and Jouan, Inc., and
Jouan S.A.;
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(ii) Any liability or obligation arising out of that certain
Asset Purchase Agreement between Seller, the Company and Boston Advanced
Technologies, dated October 31, 1997, relating to earnout or cost reduction
payments due or to be due thereunder;
(iii) Any liability or obligation arising out of that certain
Indenture dated August 25, 1947, through September 15, 1997, for property
commonly known as 3737 North Cortland Avenue, Chicago, Illinois, which was the
subject of such lease;
(iv) Any liability or obligation arising out of that certain
litigation titled Expotech USA, Inc. v. Varlen Instruments, Inc., et al., Case
------------------------------------------------------
Civil Action No. 98-61449, pending in the 129/th/ Judicial District, Harris
County, Texas;
(v) Any liability or obligation arising out of the sale or
resale of laboratory appliance products to Iran, including any claims by the
United States Department of Commerce or others with respect to claims, fines or
similar penalties or in respect of any prohibition or restriction placed upon
the Company arising out of such activities;
(vi) Any liability or obligation arising out of ownership,
use, condition of or activities at the four parcels of real property formerly
owned by the Company described on Section 2.1(t)(i) of the Disclosure Schedule,
previously sold or transferred by the Company; or
(vii) Any liability arising out of the Retiree Health and
Dental Insurance Plan for one retiree described on the Disclosure Schedule or
deferred compensation obligations described in Section 5.5(h) or any liability
attributable to the disqualification of the Union Plan under section 401(a) of
the Code if such disqualification relates to events occurring on or after
January 1, 1998, and prior to the Effective Date.
(f) any liability or obligation of the Company arising out of or in
connection with the conduct of the Business prior to the Effective Date, except
to the extent such liability or obligation (i) is described in Paragraphs (A),
(B), (C) or (D) of Section 2.1(g) (without regard to any materiality qualifier
contained therein); or (ii) results in an indemnifiable claim for a breach of
representation and warranty for which Buyer otherwise recovers under Section
4.1(a) above.
4.2. Indemnification of Seller.
--------------------------
Subject to the terms and conditions of this Article IV, Buyer shall defend,
at its own expense, and shall indemnify Seller against, and hold Seller harmless
from, any and all Damages asserted against or incurred by Seller arising out of:
(a) any breach of the representations and warranties made by Buyer in
this Agreement or in any certificate or other instrument furnished or to be
furnished to Seller hereunder,
(b) the non-fulfillment of any agreement or covenant made by Buyer in
or pursuant to this Agreement,
(c) any liability arising under the letters of credit listed on
Section 2.1(b) of the Disclosure Schedule; or
21
<PAGE>
(d) the operations of the Company following the Effective Date.
4.3. Survival.
---------
All representations and warranties contained herein or made pursuant
hereto, whether by Seller or Buyer, and the indemnification provided under
Section 4.1(f) shall survive the closing hereunder until the second anniversary
of the Closing Date, except that:
(a) the representations and warranties of Seller contained in or made
pursuant to Sections 2.1(a) (other than the last sentence thereof), 2.1(b),
2.1(c) and 2.1(d), and of Buyer contained in Sections 2.2(a), 2.2(b) and 2.2(c)
shall survive the Closing hereunder without any limitation as to time; and
(b) the representations and warranties of Seller contained in or made
pursuant to Section 2.1(m) hereof or otherwise with respect to Tax matters shall
survive the Closing until six months after the date on which the right to file
any claim in respect of such matters by the appropriate governmental or
administrative authority or any other Person has expired.
The expiration of any representation and warranty or any indemnification
obligation hereunder shall not affect any claim made by the giving of written
notice by a Party to the other in the manner provided by this Agreement, prior
to the date of such expiration. All covenants, indemnities and agreements shall
survive the Closing forever, subject to applicable time periods and limitations
specified in this Agreement.
4.4. Claims.
-------
(a) Promptly after receipt by an indemnified party of written notice
of the commencement of any investigation, claim, proceeding or other action in
respect of which indemnity may be sought from the indemnitor (an "Action"), such
indemnified party shall notify the indemnitor in writing of the commencement of
such Action; but the omission to so notify the indemnitor shall not relieve it
from any liability that it may otherwise have to such indemnified party, except
to the extent that the indemnitor is materially prejudiced or forfeits
substantive rights or defenses as a result of such failure. In connection with
any Action in which the indemnitor and any indemnified party are parties, the
indemnitor shall be entitled to participate therein, and may assume the defense
thereof. So long as the indemnifying party is diligently defending in good
faith any such Action, the indemnifying party may control the defense thereof;
in such event, the indemnified party may participate in the defense of the
Action at its own expense. Neither the indemnifying party nor the indemnified
party will settle or compromise the Action without the consent of the other,
which consent will not be unreasonably withheld.
(b) In the event a Party should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the Party
seeking indemnification shall promptly send notice of such claim to the Party
from whom indemnification is sought. If the latter does not dispute such claim,
the latter shall pay such claim in full within 10 business days. If the latter
disputes such claim, such dispute shall be resolved by agreement of the Parties
or in any other manner available under law.
22
<PAGE>
(c) The indemnified party shall make available to the indemnifying
party or its representatives all records and other materials reasonably required
by them for use in connection with any such claim and shall cooperate with the
indemnifying party in the defense of all third party claims.
4.5. Limitations.
------------
Any claims for breach of any representation or warranty made hereunder
shall be subject to the following limitations and adjustments:
(a) indemnification under Section 4.1(a) and 4.1(f) shall only be
required to be provided by Seller when the aggregate amount of all claims for
which indemnification is sought from Seller under Sections 4.1(a) and 4.1(f) of
this Agreement, the German Sales Agreement and the French Sales Agreement
exceeds US $250,000, in which case Seller shall be liable for all such amounts
in excess thereof.
(b) no individual claim for indemnity under Sections 4.1(f) may be
brought unless the aggregate Damages in respect of such claim exceeds US
$20,000, but in such event Damages shall be recoverable without regard to such
US $20,000 threshold, subject to any other limitations imposed under this
Section 4.5;
(c) no claim for indemnity under Sections 4.1 or 4.2 shall be
effective unless noticed, pursuant to Section 4.4, within the survival period
specified under Section 4.3;
(d) in no event shall Seller's indemnification obligation with
respect to a breach of representations and warranties under Section 4.1(a) (but
excluding Sections 2.1(a), except the last sentence thereof, 2.1(b), 2.1(c) and
2.1(d)) of this Agreement, the German Sales Agreement and the French Sales
Agreement exceed the amount of US $4,200,000. The indemnification obligations of
either Seller or Buyer respectively, for representations and warranties set
forth in Sections 2.1(a), except the last sentence thereof, 2.1(b), 2.1(c) and
2.1(d) and Sections 2.2(a), 2.2(b) and 2.2(c) of this Agreement, the German
Sales Agreement and the French Sales Agreement, shall not exceed the aggregate
purchase price under this Agreement, the German Sales Agreement and the French
Sales Agreement;
(e) in no event shall either Seller's or Buyer's respective
indemnification obligations under Section 4.1(f) or 4.2(d) exceed the amount of
US $5,000,000.
(f) under no circumstances shall any Party be liable to another Party
for punitive, consequential or non-compensatory damages;
(g) any indemnifiable claim shall be reduced by the amounts actually
recovered by the indemnified party from insurance carriers and any amount
recovered by the indemnified party subsequent to the payment by the indemnitor
with respect to the same claim shall be remitted to the indemnitor, provided
that such remittance shall not exceed the amount of such indemnification payment
by the indemnitor;
(h) notwithstanding the foregoing, the provisions of this Section 4.5
shall not apply to any indemnification obligations arising out of the
indemnities contained in Sections
23
<PAGE>
4.1(b), 4.1(c), 4.1(d), 4.1(e), or 4.2(b) of this Agreement, but all such
indemnification obligations of either party shall be limited to and shall not
exceed the aggregate purchase price under this Agreement, the German Sales
Agreement and the French Sales Agreement; and
(i) the Parties agree that the sole liability and the sole remedy of
Seller, Buyer and the Company for any claim with respect to the transactions
contemplated under this Agreement (including without limitation under
Environmental Laws) shall be limited to indemnification under Article IV of this
Agreement, and in connection therewith each Party waives any and all statutory
and common law rights and remedies (including without limitation rights of
indemnification and contribution) which any such Party may have against another
Party (except equitable remedies such as injunction and specific performance).
(j) For purposes of this Section 4.5, any amounts paid as Damages
under the French Sales Agreement or the German Sales Agreement in foreign
currency shall be valued at the US Exchange rate on the Effective Date.
ARTICLE V
CERTAIN POST CLOSING MATTERS
5.1. Certain Tax Matters.
--------------------
The following will apply with respect to the Income Taxes (as hereinafter
defined) relating to the Company. The term "Income Taxes" shall mean (i) all
U.S. Federal income taxes and (ii) all taxes imposed by states, territories and
possessions of the United States and political subdivisions thereof which are
based on or measured by net income or net profits together with all interest,
penalties and additions imposed with respect to such taxes.
5.2. Income Tax Matters Generally.
-----------------------------
(a) Pre-Closing Tax Returns. The consolidated Federal and other
-----------------------
Income Tax returns, reports and filings of Seller and the Company shall include
all items of income, gain, loss, deduction or credit of the Company attributable
to all Income Tax periods (or portions thereof) ending on or prior to the
Effective Date, including transactions required to be recognized as a result of
the sale of the Shares hereunder (such periods or portions thereof being herein
referred to as the "Seller Income Tax Periods"); and Seller shall be responsible
for and shall pay all Income Taxes payable (other than in respect of deferred
Income Taxes) as a consequence of the inclusion or omission of such items in the
consolidated Income Tax returns, reports and filings of Seller for Seller Income
Tax Periods and shall timely file such tax returns and reports.
(b) Post-Closing Tax Returns. The Income Tax returns, reports and
------------------------
filings of Buyer or the Company shall include all items of income, gain, loss,
deduction or credit of Buyer or the Company attributable to all Income Tax
periods (or portions thereof) commencing after the Effective Date (such periods
or portions thereof being herein referred to as the "Buyer Income Tax Periods");
and Buyer shall be responsible for and shall pay all Income Taxes payable
(including without limitation any deferred Income Taxes) as a consequence of the
inclusion of such items in such Income Tax returns, reports and filings of Buyer
or the Company for Buyer Income Tax Periods.
24
<PAGE>
(c) Tax Cooperation.
---------------
(i) With respect to the taxable year of the Company ended
January 31, 1999 and the short period ending on the Effective Date, Buyer shall
cause to be prepared and delivered to Seller (to the extent not already prepared
and delivered) in the normal timeframe followed by Seller and the Company
consistent with past practice and in all events within 15 days after it shall
have been requested by Seller, the package of income tax information materials
heretofore provided to Seller by the Company in accordance with past practice,
including past practice as to information schedules and work papers and as to
the method of computation of separate taxable income or other relevant measure
of income of the Company.
(ii) Without limiting the generality of the foregoing or of
Section 5.3 hereof, Buyer shall cause the employees of Buyer and the Company to
cooperate fully and to assist Seller (including without limitation allowing
access by Seller to the books and records of the Company relating to Seller
Income Tax Periods and any period (or portion thereof) ending on or before (or
including) the Effective Date, and the right to make copies thereof) in
connection with the preparation by Seller of its consolidated Income Tax
returns, reports and filings for the Seller Income Tax Periods or the resolution
of any Income Tax Dispute (as hereinafter defined); and Seller shall not be
charged with any cost or expense for the reasonable assistance rendered by
officers and employees of Buyer and the Company in connection therewith.
(iii) Refunds. Seller shall be entitled to all refunds of
-------
Income Taxes paid in connection with any Income Tax returns, reports and filings
of Seller and/or of the Company with respect to any Seller Income Tax Period.
Applications for refunds of such Income Taxes, and the filing of amended
returns, reports and filings, shall be made and prosecuted only by Seller; but
Buyer and the Company shall provide to Seller such cooperation and reasonable
assistance in connection therewith as shall be reasonably requested by Seller,
and Seller shall not be charged with any cost or expense for the assistance
rendered by officers and employees of the Company and Buyer in connection
therewith.
(d) Amendments. Neither Buyer nor the Company will amend, or take
----------
any similar action with respect to, any Federal, state or local Income Tax
returns, reports and filings filed with respect to any Seller Income Tax Period
without the prior written consent of Seller, which consent shall not be
unreasonably withheld. Seller shall not amend, or take any similar action with
respect to any Federal, state or local Income Tax returns, reports and filings
filed with respect to any Seller Income Tax Period which would result in adverse
tax consequences to Buyer without the prior written consent of Buyer, which
consent shall not be unreasonably withheld. Neither Buyer nor the Company will
extend the applicable statute of limitations with respect to any Federal, state
or local Income Tax returns, reports and filings filed with respect to any
Seller Income Tax Period without the prior written consent of Seller, which
consent shall not be unreasonably withheld. This Section shall not apply to any
amended return which may be required by law following resolution of an Income
Tax Dispute (as defined herein).
25
<PAGE>
(e) Income Tax Disputes. Etc.
-------------------------
(i) Except as required by law (but subject to Section
5.2(e)(ii) hereof), neither Buyer nor the Company will take any position on any
Federal, state or local Income Tax return, report or filing for any tax period
which might result in any:
(A) increase for any Seller Income Tax Period in the
liability of Seller in respect of the consolidated Income Tax
liabilities of Seller for periods while the Company was part of
Seller's consolidated tax group; or
(B) reduction in any tax attributes as to which Seller
may receive a benefit with respect to any Seller Income Tax
Period.
(ii) Subsequent to the Closing, Buyer and the Company shall
promptly forward to Seller any notice received by Buyer or the Company of any
Federal, state or local pending or threatened Income Tax audit, examination or
proposed assessment or the like relating to the Company or Seller's consolidated
tax group with respect to any Seller Income Tax Period (an "Income Tax
Dispute"). Seller, Buyer and the Company shall cooperate with and assist each
other, and shall cause their respective counsel and accountants to cooperate
with and assist each other, in connection with any such Income Tax Dispute
(including without limitation any currently pending Income Tax Dispute involving
state or local Income Taxes of the Company). Any Income Tax Dispute relating to
any consolidated Income Tax return, report or filing made by the Seller
consolidated tax group shall be investigated, conducted, prosecuted, contested,
defended, settled or compromised by Seller with counsel and accountants chosen
by Seller at the expense of Seller. Neither Buyer nor the Company will settle or
compromise any Federal, state or local Income Tax Dispute, or any issue or
determination related thereto, without the prior written consent of Seller,
which consent shall not be unreasonably withheld.
(f) Tax Sharing Arrangements. All tax sharing arrangements and any
------------------------
other contracts with respect to Taxes between Seller (and its affiliates) and
the Company are terminated as of the Effective Date, and this Section 5.2 will
govern the obligations of Buyer and the Company to make payments of Taxes
applicable to the Company.
5.3. Access to Records After Closing.
--------------------------------
(a) Following the Closing, Buyer shall give to Seller, without
charge, reasonable access to (and the right to make copies at the expense of
Seller of) the books, files, records and tax returns of the Company to the
extent that such relate to the business and operations of the Company on or
prior to the Closing Date and are in the Company's possession on the Closing
Date or subsequently come into Buyer's possession, but any access pursuant to
this Section 5.3 shall be conducted by Seller in good faith, with a reasonable
purpose and in such manner as not to interfere unreasonably with the operations
of Buyer following the Closing. For a period of five years after the Closing,
Buyer shall maintain such books, files, records and tax returns and thereafter,
prior to destroying or disposing of any of them, Buyer shall give, or shall
cause the Company to give, 30 days' advance notice to Seller of their intended
destruction or disposition, and during such 30-day period Seller shall have the
right to take possession of the same or to make copies of the same, all at
Seller's expense.
26
<PAGE>
(b) Following the Closing, Seller shall give to Buyer, without
charge, reasonable access to (and the right to make copies at the expense of
Buyer of) the books, files, records and tax returns of Seller to the extent that
such relate to the business and operations of the Company on or prior to the
Closing Date and are in Seller's possession on the Closing Date or subsequently
come into Seller's possession, but any access pursuant to this Section 5.3 shall
be conducted by Buyer in good faith, with a reasonable purpose and in such
manner as not to interfere unreasonably with the operations of Seller following
the Closing. For a period of five years after the Closing, Seller shall maintain
such books, files, records and tax returns and thereafter, prior to destroying
or disposing of any of them, Seller shall give, 30 days' advance notice to Buyer
of their intended destruction or disposition, and during such 30-day period
Buyer shall have the right to take possession of the same or to make copies of
the same, all at Buyer's expense.
(c) For a period of one hundred twenty (120) days following the
Closing, Buyer shall cause to be prepared and delivered to Seller (to the extent
not already prepared and delivered) in the normal time frame followed by Seller
and the Company consistent with past practice and in all events within fifteen
(15) days after it shall have been requested by Seller, the financial reporting
package for the Company (but only in respect of periods ending on or prior to
the Closing Date) for (i) the quarterly closing for Seller's fiscal quarter
ending July 31, 1999, and (ii) Seller's fiscal year ending January 31, 2000.
After such one hundred twenty (120) day period, Buyer shall cooperate and use
reasonable diligence to provide Seller with all information requested by Seller
to assist Seller in preparing a financial reporting package for the Company (but
only in respect of periods ending on or prior to the Effective Date) for (i) the
quarterly closing for Seller's fiscal quarter ending July 31, 1999, and (ii)
Seller's fiscal year ending January 31, 2000.
5.4. Covenant Not to Compete.
------------------------
As an inducement for Buyer to enter into this Agreement, Seller agrees
that:
(a) Non-Compete. For a period of three (3) years after the Closing,
-----------
Seller shall not do, and shall cause any Affiliate of Seller controlled by it
not to do, any one or more of the following, directly or indirectly:
(i) engage, manage, operate, finance, control or participate,
as an owner, partner, shareholder, member, consultant, or (without limitation by
the specific enumeration of the foregoing) otherwise, in any business whose
products or activities compete, in whole or in part, with the products or
activities which the Company manufactures or distributes (which products or
activities include those currently sold and under active development) on the
Effective Date (any such business is referred to herein as a "Competitive
Business"). For purposes of this Section, "active development" shall mean
efforts for which resources have been committed by the Company having a value in
excess of $50,000.
(ii) solicit or attempt to solicit, with respect to a
Competitive Business, any customer of Buyer which has been a customer of the
Company within the past three (3) years; or
27
<PAGE>
(iii) except as set forth in the Disclosure Schedule, induce or
attempt to induce any person or entity that is an employee or agent of the
Company on the Effective Date to terminate his, her or its relationship with, or
employment by, the Company.
(b) Limitation. Notwithstanding the foregoing, the provisions of
----------
Section 5.4(a) hereof shall not be deemed to prohibit or restrict in any manner
(i) the acquisition by Seller or any Affiliate of Seller of any company
partially engaged in a Competitive Business, provided that if such Competitive
Business accounts for more than the lesser of $10,000,000 or five percent (5%)
of the net revenues of the acquired company, Seller or such Affiliate shall use
commercially reasonable efforts promptly after the consummation of the
acquisition to divest itself of the Competitive Business within eighteen (18)
months after such consummation, or (ii) acquisition or ownership by Seller or
any Affiliate of Seller of up to five percent (5%) of the debt or equity
interest in any company partially engaged in a Competitive Business whose
securities are traded on a national securities exchange or NASDAQ, so long as
such Competitive Business does not account for more than the lesser of
$10,000,000 or five percent (5%) of the net revenues of such company and neither
Seller nor an Affiliate of Seller is an Affiliate of such company.
(c) Modifications. Seller recognizes that the time and scope
-------------
limitations set forth in this Section 5.4 are reasonable and are required for
the protection of Buyer and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, Buyer and Seller agree to the reduction of either of such time or
scope limitations to such a period or scope as such court shall deem reasonable
under the circumstances.
(d) Injunctive Relief. The Parties specifically recognize that any
-----------------
breach of Section 5.4(a) may cause irreparable injury and that actual damages
may be difficult to ascertain, and in any event, may be inadequate. Accordingly
(and without limiting the availability of legal or equitable, including
injunctive, remedies under any other provisions of this Agreement), each Party
agrees that in the event of any such breach, the other Party shall be entitled
to injunctive relief in addition to such other legal and equitable remedies that
may be available.
5.5. Employee Matters.
-----------------
(a) Union Plan. As of the Effective Date, the Company shall continue
----------
to sponsor and maintain the Precision Scientific Instruments and Precision
Scientific Petroleum Instruments Defined Benefit Pension Plan (the "Union
Plan"). The Seller shall make all contributions to the Union Plan that are
required to be made (whether by applicable law or by the terms of the Plan)
prior to the Effective Date, and the Seller shall be liable for no further
contributions to the Union Plan after such payments have been made. As soon as
practical after the Effective Date, but no more than 60 days thereafter, the
Buyer shall direct the Seller and the Seller shall transfer all Union Plan
assets and liabilities from the Varlen Corporation Defined Benefit Master Trust
("Varlen Master Trust") to an employee benefit trust to be established and
maintained by the Company. If there is any delay in the transfer of Union Plan
assets and liabilities beyond the 60-day period referred to above that is caused
by Buyer or its agents and administrators with respect to the transfer of Union
Plan assets from the Varlen Master Trust, Buyer shall reimburse Seller for all
costs and expenses associated with the Company's delayed
28
<PAGE>
withdrawal from the Varlen Master Trust. If any dispute arises between the
Seller and the Buyer concerning the amount or nature of the Varlen Master Trust
assets which are attributable to the Union Plan, the matter shall be resolved by
a public accounting firm mutually selected by the Seller and Buyer.
(b) Defined Contribution Plans. Effective as of the Effective Date,
--------------------------
Company employees who are participants in the Varlen Corporation Profit-Sharing
and Retirement Savings Plan (the "Seller DC Plan") shall become participants in
one of the Buyer's defined contribution plans that has a qualified cash or
deferred arrangement under section 401(k) of the Code (the "Buyer DC Plan").
The Buyer DC Plan shall recognize for all purposes service recognized by the
Seller DC Plan on the Effective Date with respect to all employees of the
Company that are participants in the Seller DC Plan on the Effective Date. The
Buyer shall cause the Buyer DC Plan to accept the rollover contribution of any
Company employee who is a participant in the Seller DC Plan and who elects to
rollover his or her interest in the Seller DC Plan to the Buyer DC Plan. If,
consistent with the foregoing, a Company employee makes a rollover contribution
to the Buyer DC Plan, a corresponding transfer shall be made of that employee's
outstanding participant loan, if any, from the Seller DC Plan to the Buyer DC
Plan, and such transfer shall include such employee's repayment obligations
thereunder. Seller will make, within thirty (30) days of the Closing Date, any
matching or profit-sharing contribution with respect to the Company's current
fiscal year, at least to the extent of the accruals therefore on the Closing
Date Schedule, and the accrual for the same on the Closing Date Schedule shall
be eliminated.
(c) COBRA. Seller shall provide COBRA benefits, to the extent
-----
required by law, to any Company employee (or dependent thereof) who experiences
a qualifying event prior to the Effective Date. The Company or Buyer shall be
responsible to provide COBRA benefits, to the extent required by law, to any
Company employee (or dependent thereof) who experiences a qualifying event on or
after the Effective Date.
(d) Health Benefits.
---------------
(i) Seller's group health, dental and vision plans shall be
liable for any and all claims under such group health, dental or vision plan
(within the meaning of section 5000(b)(1) of the Code) maintained by Seller or
the Company for employees of the Company, and their dependents, with respect to
which covered health or medical service expenses were incurred prior to the
Effective Date. The Company shall be liable for any and all such claims with
respect to which any health or medical service was incurred on or after the
Effective Date, (1) as provided for in sub-paragraph (iii) below during the
period of time beginning on the Effective Date and ending on June 30, 1999 (the
"Extended Coverage Period"), and (2) on and after July 1, 1999, Buyer or Company
will provide a plan for employees of the Company, and their dependents, who are
covered by the corresponding group health, dental or vision plan of the Seller
on the Effective Date or otherwise within the Extended Coverage Period, which
will have no eligibility waiting periods, will waive pre-existing conditions and
"actively at work" requirements and which will credit any health or medical
service expenses incurred during the 1999 plan year and throughout the Extended
Coverage Period for purposes of applying the deductible and out of pocket limits
under the Company's or the Buyer's group health, dental or vision plan.
29
<PAGE>
(ii) Seller's group health, dental and vision plans shall be
liable for any administrative expenses associated with such plans maintained by
the Seller or the Company for employees and retirees of the Company, and their
dependents, where such administrative expenses were incurred prior to the
Effective Date. The Company or Buyer shall be responsible for any administrative
expenses associated with establishing or maintaining a group health, dental or
vision plan for Company employees, and their dependents, on and after July 1,
1999, and shall be responsible for such administrative expenses as are provided
for in sub-paragraph (iii) below with respect to the Extended Coverage Period.
(iii) During the Extended Coverage Period, Company employees
and their dependents shall continue to be eligible for coverage under the
Seller's group health, dental and vision plans pursuant to the eligibility rules
of those plans; however, the Company or Buyer shall reimburse the Seller for (1)
its administrative expenses associated with providing such coverage to Company
employees and their dependents during the Extended Coverage Period, and (2) all
covered health or medical service expenses actually paid by the Seller, for
which the Seller does not otherwise receive reimbursements from an insurer, with
respect to covered health or medical service expenses by Company employees or
their dependents under such plans incurred during the Extended Coverage Period.
Company or Buyer shall deliver such reimbursements to Seller within thirty (30)
days of receipt of notice and supporting documentation from the Seller regarding
any such expenses.
(iv) The Company shall not be liable for (and, to the extent
applicable, shall not claim) any retrospective adjustments pertaining to the
operation of the Seller's group health, dental and vision plans for the 1999
plan year.
(e) Insured Welfare Benefits. Seller shall be liable for (A) any and
------------------------
all long-term disability benefits under the terms of its long term disability
plan, payable to all current and former employees of the Company who are
determined to have become disabled under such plan prior to the Effective Date;
and (B) any and all benefits payable to all current and former employees of the
Company or their dependents under any life insurance or accidental death and
dismemberment plan maintained by the Seller for the benefit of such employees,
or their dependents, where such benefits are payable with respect to events
occurring prior to the Effective Date. The Company or Buyer shall be liable for
any and all insured welfare benefits, to the extent required by law, payable to
all employees of the Company and their dependents who become entitled to such
benefits on or after the Effective Date.
(f) Workers Compensation. Seller shall be liable for any and all
--------------------
workers compensation claims (including reasonable administrative costs in
accordance with past practice) to the extent (A) of occurrences prior to the
Effective Date and (B) in excess of the reserves therefor on the Closing Date
Schedule to the extent the claims are made prior to the second anniversary of
the Effective Date. The Company shall be liable for any and all other workers
compensation claims (including administrative costs).
(g) Payments. Accruals under the management bonus plan for the
--------
current fiscal year shall be reflected on the Closing Date Schedule in a manner
consistent with past practice. The bonus plan will be terminated for Company
employees as of the Effective Date.
30
<PAGE>
(h) Certain Obligations. Seller shall be liable for all obligations,
-------------------
whether or not accrued prior to the Effective Date (unless such obligations are
created by Buyer or the Company after the Closing Date) to employees or former
employees of the Company, and their dependents, under any Varlen Affiliate Plan
maintained by the Seller and/or the Company at any time prior to the Effective
Date to the extent such obligations constitute (i) retiree health obligations;
and (ii) deferred compensation obligations arising under any arrangement that is
not intended to be subject to section 401(a) of the Code. Seller shall be
liable for all severance obligations under any Varlen Affiliate Plan maintained
by Seller and/or the Company to the extent such obligations accrued prior to the
Closing Date or to the extent such obligations are attributable solely to the
transactions contemplated herein (unless such obligations are created by Buyer
or the Company after the Closing Date).
(i) Governmental Actions. Buyer and Seller shall take, or cause to be
--------------------
taken, such action as may be necessary or reasonably appropriate to accomplish
the actions described in this Section 5.5, such as notifying any agency of the
federal government which is required by law to receive such notice, and to
provide such further information or documents as the IRS (or any other agency)
may require. Further, Buyer and Seller agree to use their respective reasonable
efforts to obtain any necessary IRS (or other United States federal governmental
agency) approval without material modification of the transactions contemplated
hereby.
(j) Cooperation. Buyer and Seller agree to provide each other with
-----------
such records, information and assistance as they may reasonably request to carry
out their respective obligations under this Section or the administration of the
employee benefit plans (and, where applicable, their associated trusts) referred
to in this Section 5.5.
(k) No Employee Rights. No participating employee or other employee
------------------
of the Company, nor his spouse, former spouse or other beneficiary under any
employee benefit plan of Seller or the Company shall be entitled to assert any
claim under any provision of this Agreement (including, but not limited to, this
Section 5.5).
5.6. General, Auto and Product Liability.
------------------------------------
(a) Liability. Seller shall be liable for all general, auto and
---------
product liability claims with respect to occurrences on or before the Effective
Date to the extent such claims are made prior to the second anniversary of the
Effective Date.
(b) Insurance. In the event the proceeds of any insurance of Seller
---------
are available with respect to the matters covered by Sections 5.5 and 5.6(a),
such proceeds of insurance shall belong and inure to the benefit of Seller.
Buyer shall cooperate with Seller in all reasonable respects in recovering such
proceeds as long as Seller reimburses Buyer for any out-of-pocket expenses
incurred by Buyer in connection therewith.
5.7. Cooperation on Claims.
----------------------
Without limiting the generality of any other provision of this Agreement,
with respect to any claim of any kind for which Seller has retained liability
under this Agreement, (i) Buyer will not settle or compromise any such claim
without the consent of Seller, (ii) Buyer will make available to Seller, its
insurer and their respective representatives all records and other materials
31
<PAGE>
as may be reasonably requested by them for use in handling any such claim and
(iii) Buyer will reasonably cooperate, and will use its best efforts to cause
its employees to cooperate, with Seller, its insurer and their respective
representatives in the handling of all such claims.
5.8. Name Change.
------------
Within two (2) days of the Closing Date, the Company shall file an
amendment to its Articles of Incorporation changing its name to one that does
not include "Varlen" or any variation thereof, and shall provide Seller with a
copy of such amendment upon its effectiveness. The Company shall have the right
to use the "Varlen" name or any variation thereof in connection with the
continuing conduct of the Business for a period of thirty (30) days (and for
such longer period as shall be reasonably required to consume existing
inventories of trademarked items, but in no event to exceed six months).
5.9. Letters of Credit.
------------------
Within thirty (30) days following the Closing Date, Buyer shall obtain a
stand-by letter of credit from a nationally recognized financial institution to
support the letters of credit reflected on Section 2.1(b) of the Disclosure
Schedule.
ARTICLE VI
MISCELLANEOUS
6.1. Further Actions.
----------------
From time to time, as and when requested by Buyer and at Buyer's expense,
Seller shall execute and deliver, or cause to be executed and delivered, all
such documents and instruments and shall take, or cause to be taken, all such
further or other actions as Buyer may reasonably deem necessary or desirable to
carry out the intent and purposes of this Agreement, to convey, transfer, assign
and deliver on the Closing Date to Buyer, and its successors and assigns, the
Shares (or to evidence the foregoing) and to consummate the other transactions
contemplated hereby.
6.2. Brokerage.
----------
Seller represents and warrants to Buyer that Seller has no obligation or
liability to any broker or finder by reason of the transactions which are the
subject of this Agreement; Seller shall indemnify Buyer and the Company against,
and shall hold Buyer and the Company harmless from, at all times after the date
hereof, any and all liabilities (including without limitation legal fees), and
shall pay any final judgment obtained by any person claiming brokerage
commissions or finder's fees, or rights to similar compensation, on account of
services purportedly rendered on behalf of Seller, or prior to Closing the
Company, in connection with this Agreement or the transactions contemplated
hereby. Buyer represents and warrants to Seller that Buyer has no obligation or
liability to any broker or finder by reason of the transactions which are the
subject of this Agreement; Buyer shall indemnify Seller against, and shall hold
Seller harmless from, at all times after the date hereof, any and all
liabilities (including without limitation legal fees), and shall pay any final
judgment obtained by any person claiming brokerage commissions or finder's fees,
or rights to similar compensation, on account of services
32
<PAGE>
purportedly rendered on behalf of Buyer, or after Closing the Company, in
connection with this Agreement or the transactions contemplated hereby.
6.3. Expenses.
---------
Each of Buyer and Seller shall pay their respective expenses in connection
with the negotiation, execution, delivery and performance of this Agreement.
6.4. Entire Agreement.
-----------------
This Agreement, which includes the Schedules and Exhibits hereto and the
other documents, agreements and instruments executed and delivered pursuant to
or in connection with this Agreement, contains the entire agreement between
Buyer, the Company and Seller with respect to the transactions contemplated by
this Agreement and supersedes all prior arrangements or understandings with
respect thereto.
6.5. Descriptive Headings.
---------------------
The descriptive headings of this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
6.6. Notices.
--------
All notices and other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
overnight delivery service or by registered or certified mail, postage prepaid,
addressed as follows:
If to Seller, or pre-Closing to the Company:
Varlen Corporation
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
Attn: Vicki Casmere
General Counsel
If to Buyer, or post-Closing to the Company:
Roper Industries, Inc.
160 Ben Burton Road
Bogart, Georgia 30622
Attn: President
Any party may by notice change the address to which notices or other
communications to it are to be delivered or mailed.
33
<PAGE>
6.7. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. Each of the parties hereto irrevocably submits
to the jurisdiction of the Courts of the State of Delaware, and of any Federal
Court located in the State of Delaware, in connection with any action or
proceeding arising out of or relating to, or breach of, this Agreement or of any
document or instrument delivered pursuant to or in connection with this
Agreement.
6.8. Assignability.
--------------
This Agreement shall not be assignable otherwise than by operation of law
by any Party without the prior written consent of the other Parties, and any
purported assignment by any Party without the prior written consent of the other
Parties shall be void. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and permitted
assigns.
6.9. Waivers and Amendments.
-----------------------
Any waiver of any term or condition, or any amendment or supplementation,
of this Agreement shall be effective only if in writing. A waiver of any breach
of any of the terms or conditions of this Agreement shall not in any way be
construed as a waiver of any subsequent breach.
6.10. Third Party Rights.
-------------------
This Agreement shall be effective only as between the Parties hereto, their
successors and permitted assigns.
6.11. Illegality.
-----------
In the event that any one or more of the provisions contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in any other respect and the remaining provisions of this Agreement
shall not, at the election of the Party for whom the benefit of the provision
exists, be in any way impaired.
6.12. Release.
--------
As of the Effective Date, the Company hereby releases, acquits and forever
discharges each officer, director and stockholder of the Company from any and
all liabilities, obligations, claims, demands, actions and causes of action
which the Company ever had, now has or hereafter may have based upon, relating
to or arising out of any event, occurrence, act, omission or condition occurring
or existing as of or prior to the Effective Date in any way connected with such
officer's, director's or stockholder's status as such or actions taken in such
capacity. Buyer consents to the foregoing release. Seller and Buyer agree that
this release shall not in any manner limit or otherwise affect the rights and
obligations of Seller and Buyer under this Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
Seller:
VARLEN CORPORATION
By:___________________________________________
Name:_________________________________________
Title:________________________________________
The Company:
VARLEN INSTRUMENTS INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
Buyer:
ROPER INDUSTRIES, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
<PAGE>
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
VARLEN CORPORATION,
WALTER HERZOG GmbH,
ROPER INDUSTRIES DEUTSCHLAND GmbH i. Gr.
AND
ROPER INDUSTRIES, INC.
DATED AS OF JUNE 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Purchase and Sale of Shares....................... 1
1.1. Purchase of Shares................................... 1
1.2. Preparation of Closing Date Schedule................. 1
1.3. Adjustment of Purchase Price......................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES................... 3
2.1. Representations and Warranties of Seller............. 3
2.2. Representations and Warranties of Parent and Buyer... 14
ARTICLE III CLOSING; CONDITIONS OF CLOSING AND TERMINATION.. 16
3.1. Closing.............................................. 16
3.2. Conditions to Obligations of Buyer................... 16
3.3. Conditions to Obligations of Seller.................. 17
ARTICLE IV INDEMNIFICATION.................................. 17
4.1. Indemnification of Parent and Buyer.................. 17
4.2. Indemnification of Seller............................ 18
4.3. Survival............................................. 18
4.4. Claims............................................... 19
4.5. Limitations.......................................... 19
ARTICLE V CERTAIN POST CLOSING MATTERS...................... 21
5.1. Certain Tax Matters.................................. 21
5.2. Tax Sharing Arrangements............................. 21
5.3. Access to Records After Closing...................... 21
5.4. Covenant Not to Compete.............................. 22
5.5. Cooperation on Claims................................ 23
ARTICLE VI MISCELLANEOUS.................................... 23
6.1. Further Actions...................................... 23
6.2. Brokerage............................................ 24
6.3. Expenses............................................. 24
6.4. Entire Agreement..................................... 24
6.5. Descriptive Headings................................. 24
6.6. Notices.............................................. 24
6.7. Governing Law........................................ 25
6.8. Assignability........................................ 25
6.9. Waivers and Amendments............................... 25
6.10. Third Party Rights................................... 25
6.11. Illegality........................................... 26
6.12. Release.............................................. 26
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of June 21, 1999 (this "Agreement"), by
and among VARLEN CORPORATION, a Delaware corporation ("Seller"), WALTER HERZOG
GmbH, a German limited liability company (the "Company"), and ROPER INDUSTRIES,
INC., a Delaware corporation ("Parent"), and ROPER INDUSTRIES DEUTSCHLAND GmbH
i. Gr., a German corporation in formation ("Buyer"). Seller, the Company,
Parent and Buyer will be sometimes referred to herein as a "Party" and
collectively as the "Parties".
The Company is engaged in the design, manufacture and sale of petroleum
analytical instrumentation products and related services (the "Business").
Seller owns and has the legal right and authority to sell, transfer, assign and
deliver one hundred percent (100%) of the share capital (the "Shares") of the
Company, and Seller desires to sell, and Buyer desires to purchase, all the
Shares upon the terms and conditions set forth in this Agreement. This
Agreement only creates contractual obligations, and the transfer of the Shares
shall be made pursuant to a Share Assignment Agreement, which shall be notarized
in Germany and governed by German law. In addition, simultaneously with the
execution and delivery of this Agreement, (i) Seller is entering into an
agreement with Roper Industries, Inc., a Delaware corporation ("Roper") with
respect to the sale by Seller to Roper of all the outstanding capital stock of
Varlen Instruments, Inc., a Delaware corporation (the "U.S. Sales Agreement"),
and (ii) Seller and Acieries de Ploermel, a French corporation, are entering
into an agreement with Parent and Instrumentation Scientifique de Laboratoire
with respect to the sale of a 99% partnership interest of Herzog Varlen
Instruments (the "French Sales Agreement").
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
of the mutual promises, covenants, representations, warranties and agreements
herein contained, and intending to be legally bound hereby, Seller, the Company
and Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. Purchase of Shares.
-------------------
Upon the terms and subject to the conditions set forth in this Agreement
and the representations and warranties herein made by each of the Parties to the
other, Seller agrees to sell to Buyer, free and clear of Liens (as defined in
Section 2.1(h)), and Buyer agrees to purchase from Seller, on the Closing Date
(as hereinafter defined), the Shares for a purchase price of $16,029,513,
subject to adjustment as hereinafter provided (the "Purchase Price"), payable in
cash at closing by wire transfer to an account designated by Seller to Buyer two
days prior to the Closing Date.
1.2. Preparation of Closing Date Schedule.
-------------------------------------
(a) Within two (2) days following the Closing Date, Buyer shall be
responsible for the taking of a physical inventory of all inventories of the
Company as of the
<PAGE>
close of business on the Effective Date; no goods or items in inventory shall be
moved while the physical inventory is being conducted. Promptly after the
Closing, Buyer shall prepare a schedule showing the working capital of the
Company as of the close of business on the Effective Date (the "Closing Date
Schedule"). Amounts on the Closing Date Schedule with respect to inventories
shall be derived from the physical inventory taken by Buyer. The Closing Date
Schedule shall be prepared with the accounting principles and procedures used in
the preparation of the Financial Statements described in Section 2.1(f) hereof,
except as noted in Section 2.1(f) of the Disclosure Schedule. Buyer agrees to
use all reasonable efforts to cause the Closing Date Schedule to be prepared and
delivered to Seller within 90 days after the Closing.
(b) Seller and its authorized representatives and designees, at
Seller's expense, shall have the right to observe the physical inventory.
Seller and its authorized representatives and designees, at Seller's expense,
shall have the right to review the Closing Date Schedule and perform other
review procedures, including a review of any working papers with respect to its
preparation.
(c) Seller shall be deemed to have accepted the Closing Date Schedule
unless within thirty (30) days after delivery thereof to Seller, Seller gives
written notice to Buyer of Seller's objection to any item therein. In the event
Seller gives such written notice of objection, and Buyer and Seller have been
unable to resolve such dispute by a date twenty (20) days after delivery of such
notice of objection, either party may require that such dispute be resolved by
arbitration under the rules, but not the jurisdiction, of the American
Arbitration Association by one arbitrator (the "Arbitrator") who shall be a
certified public accountant and a partner in the Dallas, Texas, office of Price
Waterhouse Coopers.
(d) The Arbitrator shall have access to all documents and facilities
necessary to perform its function as Arbitrator. The Arbitrator's determination
with respect to any dispute shall be final and binding upon the parties hereto.
Seller and Buyer shall each pay one-half of the fees and expenses of the
Arbitrator for such services.
1.3. Adjustment of Purchase Price.
-----------------------------
(a) Within thirty (30) days after delivery of the Closing Date
Schedule to Seller pursuant to Section 1.2 hereof, or, if disputed, within ten
(10) days after the final resolution of such dispute pursuant to Section 1.2(c),
the Purchase Price shall be adjusted as follows. For the purposes of this
adjustment, Pro Forma Working Capital shall mean the working capital of the
Company calculated in the same manner as the working capital on the Financial
Statements described in Section 2.1(f) hereof, except as noted in Section 2.1(f)
of the Disclosure Schedule, but shall include all indebtedness of the Company
(including indebtedness to Seller existing on the Effective Date) without regard
to whether such indebtedness is classified as working capital under United
States generally accepted accounting principles ("GAAP"). To the extent there
is a liability which Seller has assumed or agreed to indemnify Buyer for, the
accrual for such item shall not be counted in the determination of the Pro Forma
Working Capital on the Closing Date Schedule.
2
<PAGE>
(b) If Pro Forma Working Capital as set forth on the Closing Date
Schedule exceeds $4,145,000, the Purchase Price will be increased by, and Buyer
will pay to Seller, the amount of such excess.
(c) If Pro Forma Working Capital as set forth on the Closing Date
Schedule is less than $4,145,000, the Purchase Price will be decreased by, and
Seller will pay to Buyer, the amount of such deficiency.
(d) All payments to be made pursuant to this Section shall (i) be made
by wire transfer of immediately available funds to an account designated by the
recipient at least two business days prior to the transfer, except that payments
of less than $10,000 may be made by check subject to collection and (ii) be
accompanied by a payment of interest thereon at the "Prime Rate" from time to
time in effect on such amount from the Closing Date until paid. As used in this
Agreement, "Prime Rate" means the rate of interest equal to the "Prime Rate"
reported from time to time in the "Money" column of The Wall Street Journal, and
-----------------------
shall change from time to time effective with any changes in the reporting of
such rate. The Closing Date Schedule shall value currency at the rate of 1.058
Euro to the US Dollar.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Simultaneously with the execution and delivery of this Agreement, Seller is
delivering to Buyer the Disclosure Schedule referred to herein.
2.1. Representations and Warranties of Seller.
-----------------------------------------
Except as and to the extent set forth in the specific section of the
Disclosure Schedule to which such representation and warranty relates, Seller
represents and warrants to Parent and Buyer, as of the Effective Date, as
follows:
(a) Organization and Standing.
-------------------------
(i) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Seller is qualified to transact business as a foreign
corporation in each jurisdiction where it is required to qualify in order to
conduct its business as presently conducted.
(ii) The Company is a limited liability company ("Gesellschaft
mit beschrankter Haftung")duly organized, validly existing and in good standing
under the laws of Germany and has all requisite power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to carry on
its business as it is now being conducted.
(b) Consents, Authorizations and Binding Effect. Each of Seller and
-------------------------------------------
the Company has full corporate power and authority to execute, deliver and
perform its respective obligations under this Agreement without the necessity of
obtaining any consent, approval, authorization, advice or waiver or giving any
notice, except for such consents, approvals, authorizations, advice or waivers
(individually a "Consent" and collectively "Consents") which
3
<PAGE>
have been obtained and are unconditional and in full force and effect and such
notices (individually a "Notice" and collectively "Notices") which have been
duly given, all of which are listed on Section 2.1(b) of the Disclosure
Schedule, and except for Consents and Notices which are required under
immaterial contracts the absence of which would not have a material adverse
effect on the assets, business, financial condition or results of operations of
the Company or Seller. The board of directors of each of Seller and the Company
have duly authorized the execution, delivery and performance of this Agreement
by Seller and the Company. This Agreement has been duly executed and delivered
by each of Seller and the Company and constitutes their respective legal, valid
and binding obligations, enforceable against them in accordance with its terms,
except as may be limited by bankruptcy, reorganization, insolvency and similar
laws of general application relating to or affecting the enforcement of rights
of creditors. The execution, delivery and performance of this Agreement by
Seller and the Company, and the consummation of the transactions contemplated
thereby will not:
(i) conflict with, result in the breach of, or constitute a
default under, or the acceleration of any contract, agreement, commitment,
undertaking, restriction or instrument to which Seller or the Company is a party
or by which either of them may be bound or affected;
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon Seller or the Company; or
(iii) violate any provision of the Articles of Incorporation or
Bylaws of Seller or the Articles of Association of the Company.
(c) Shares. Seller has good title to the Shares, and has the right,
------
title, power and authority to sell to Buyer the Shares. The Shares are owned by
Seller, and will be sold by Seller to Buyer, free and clear of all Liens (as
defined in Section 2.1(h)), other than customary restrictions under applicable
securities laws. There are no options, proxies, voting trusts or other
agreements or understandings with respect to the issuance, transfer or voting of
the Shares. All issuances, sales and repurchases of equity interests by the
Company have been effected in compliance with all applicable laws, including,
without limitation, applicable federal and state securities laws.
(d) Capitalization of the Company.
-----------------------------
(i) The Company's share capital is DM 1,000,000, 100% of which
is owned by Seller. The Note has been duly authorized and validly issued.
(ii) There are no authorized, outstanding or existing:
(A) proxies or other agreements or understandings with
respect to the voting of any capital stock of the Company;
(B) depositary receipts of shares issued by the Company;
4
<PAGE>
(C) securities convertible into or exchangeable for any
capital stock of the Company (including notes, bonds or
debentures);
(D) options, warrants or other rights to purchase or
subscribe for any capital stock of the Company (other than this
Agreement), or securities convertible into or exchangeable for
any capital stock of the Company;
(E) agreements of any kind relating to the sale or issuance
of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights;
or
(F) agreements of any kind which may obligate the Company to
sell, issue or purchase any of its securities.
Subsequent to January 31, 1999, the Company has not declared or paid, and has no
obligation to declare or pay, any dividends that are payable after the Effective
Date, and as of the Effective Date, the Company has no obligation to make, any
distribution or payment to the stockholders of the Company or its affiliates,
except that the Company is indebted to Seller as described in Section 3.3(g).
(e) The Company. The Company is engaged only in the Business and has
-----------
no subsidiaries, except as set forth in Section 2.1(e) of the Disclosure
Schedule. Copies of the Articles of Association of the Company have heretofore
been delivered to Buyer or Buyer's counsel and are correct and complete and
reflect all amendments or changes in effect.
(f) Financial Statements and Financial Condition. Attached as Section
--------------------------------------------
2.1(f) of the Disclosure Schedule are the following financial statements:
(i) the unaudited balance sheets of the Company as of December
31, 1997 and 1998 and statement of income of the Company for the fiscal years
ended December 31, 1997 and 1998 (collectively, the "Annual Financial
Statements"); and
(ii) the unaudited balance sheet of the Company as of April 30,
1999, and statement of income of the Company for the period then ended (the
"Interim Financial Statements" and together with the Annual Financial
Statements, sometimes collectively referred to herein as the "Financial
Statements").
The Financial Statements have been prepared in accordance with GAAP consistently
applied (except such deviations described in Section 2.1(f) of the Disclosure
Schedule) and the amounts set forth therein were used by Seller in connection
with the preparation of its financial statements. The Financial Statements are
consistent with the books and records of the Company. The Financial Statements
present fairly the financial condition and results of operations of the Company
at the dates and for the periods specified, except as otherwise noted therein
and subject, in the case of Interim Financial Statements, to recurring year-end
adjustments that are not expected to be material in amount.
As of the date hereof, the Company has no obligations or liabilities other than:
5
<PAGE>
(A) those set forth or reserved against in the Financial
Statements;
(B) those incurred since April 30, 1999 in the ordinary
course of business in arms-length transactions and consistent in
nature and scope with past practice, which liabilities will not
have, in the aggregate, a material adverse effect upon the
business, operations or financial condition of the Company as it
exists on the Effective Date;
(C) those under the executory portion of contracts and
agreements to which the Company is a party or by which it is
bound that are listed in the Disclosure Schedule or are not
required by the terms of this Agreement to be listed in the
Disclosure Schedule; and
(D) those incurred in the ordinary course of business and
consistent in nature and scope with past practice, which
liabilities are not required by GAAP to be shown on a balance
sheet (other than in notes thereto) and which liabilities,
individually and in the aggregate, are not material.
The Company has maintained its books of account and other records in accordance
with applicable laws, rules and regulations, and such books and records are and,
during the periods covered by the Financial Statements and from April 30, 1999,
through the Effective Date were, correct and complete in all material respects,
and provide or provided a fair and accurate basis for the preparation of the
Financial Statements and the Closing Date Schedule and reflect all material
transactions to which the Company has been a party.
(g) Absence of Certain Changes. Etc. Since December 31, 1998, there
-------------------------------
has been no material adverse change in the business, operations, financial
condition or assets, of the Company. Without limiting the generality of the
foregoing, since December 31, 1998, except as set forth on the Disclosure
Schedule, the Company has not:
(i) issued, sold or delivered any shares of capital stock or
notes, bonds or other debt instruments of the Company, or granted any rights
calling for the issuance, sale or delivery of any thereof (including without
limitation options, warrants, convertible securities, stock appreciation rights
or similar rights);
(ii) made any payments or distribution of assets (other than in
cash or as otherwise described in this Agreement) in the form of management fees
or otherwise to Seller or any Affiliate of Seller or of the Company. (As used
herein, the term "Affiliate" means a person or entity which controls, is
controlled by or is under common control with the person with respect to which
the determination is being made. "Control" means the power to direct or cause
the direction of the management and policies of a person or entity through
voting securities, by contract or otherwise.)
(iii) purchased or redeemed any share capital of the Company;
6
<PAGE>
(iv) subdivided, combined, reclassified or recapitalized any
of the share capital of the Company;
(v) amended the Articles of Association of the Company or
changed the Company's corporate name or permitted the use thereof by any other
person;
(vi) agreed to merge or consolidate the Company with any other
entity or to acquire any corporation, association, partnership, joint venture or
other entity;
(vii) changed the methods of accounting or accounting
principles or practices of the Company from those set forth in or reflected by
the Financial Statements or increased or experienced any adverse change in any
assumption underlying any method of calculating contingencies or other reserves
from that reflected in the Financial Statements;
(viii) cancelled or waived a claim of substantial value or sold,
transferred or otherwise disposed of (or agreed to sell, transfer or otherwise
dispose of) any assets of the Company, except for sales of inventory in the
ordinary course of business consistent with past practices or as otherwise set
forth on the Disclosure Schedule;
(ix) failed to maintain in full force and effect with respect
to the assets, employees and business of the Company all insurance coverage of
the types and in the amounts as were in effect on and as of December 31, 1998;
(x) made any legally binding commitment for additions to
property, plant or equipment having an individual cost in excess of $25,000 or
an aggregate cost of $75,000 for all such items taken together;
(xi) disposed of or permitted to lapse any right listed or
described on the Disclosure Schedule pursuant to Section 2.1(p);
(xii) made or agreed to make any increase in the compensation
payable to any of the officers, directors or employees of the Company, other
than in accordance with continuing obligations disclosed in the Disclosure
Schedule;
(xiii) entered into or amended any Company Plan (as that term is
defined in Section 2.1(k));
(xiv) suffered any significant casualty, damage, destruction or
loss, or interruption in use, of any significant asset or property (whether or
not covered by insurance), on account of fire, flood, riot, strike or other
hazard or act of God;
(xv) hired or terminated any employee who has an annual salary
in excess of $30,000;
(xvi) imposed or permitted any Liens upon any of its assets,
tangible or intangible;
7
<PAGE>
(xvii) without limitation by the enumeration of any of the
foregoing, entered into any agreement or transaction other than in the usual and
ordinary course of business in accordance with past practices, except for
actions taken in connection with the transactions contemplated by this
Agreement; or
(xviii) agreed, whether in writing or not, to do any of the
foregoing.
(h) Title and Condition of Assets. The Company has good and
-----------------------------
marketable title to all of its assets (other than leased assets), free and clear
of all Liens. The Company's tangible assets, taken as a whole, are in good
operating condition, ordinary wear and tear excepted and constitute all of the
assets necessary to conduct the Business of the Company as the same is presently
conducted. As used herein, "Liens" shall mean any mortgage, pledge, lien,
encumbrance, charge or other security interest, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes (as defined in Section
2.1(l)) not yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other liens
arising in the ordinary course of business and not incurred in connection with
the borrowing of money.
(i) Litigation; Compliance With Laws.
--------------------------------
(i) Except as set forth in the Disclosure Schedule, there are no
suits, actions, claims, arbitrations, administrative or legal or other
proceedings, whether in equity or at law, or governmental or administrative
investigations pending (i.e., where Seller or the Company has received service
of process or other formal action to commence such a proceeding) or, to the best
of Seller's knowledge, threatened (A) against or related to (x) Seller with
respect to the transactions contemplated by this Agreement, (y) the Company or
(z) any material asset or property owned, leased or used by the Company, or (B)
which question or challenge the validity of this Agreement or any action taken
or to be taken pursuant to this Agreement. Except as set forth on the
Disclosure Schedule and except for routine claims for benefits, no actions,
suits or claims are pending or, to the best of Seller's knowledge, threatened
with respect to any Employee Benefit Plan and no material product liability
claim is pending or, to the best of Seller's knowledge, threatened against the
Company with respect to the products of the Company. The Disclosure Schedule
lists all product liability claims with respect to the products or services of
the Company arising out of occurrences from January 1, 1995 through the date of
this Agreement.
(ii) The Company is in compliance with Federal or local
governmental or judicial laws, ordinances, permits, requirements, decrees,
rules, regulations, arbitration awards and orders applicable to the Company or
the business, operations or properties of the Company, except where
noncompliance would not have a material adverse effect on the Company. There is
no order, writ, injunction, judgment or decree of any court or Federal or local
department, official, commission, authority, board/bureau, agency, or other
instrumentality issued or pending against the Company. The Company has duly
filed all reports and returns required to be filed by it with governmental
authorities and obtained all governmental permits and licenses and other
governmental consents which are required in connection with the businesses and
operations of the Company; all of such permits, licenses and consents are in
full
8
<PAGE>
force and effect, and no proceedings for the suspension or cancellation of
any of them are pending or threatened, except where any of the above would not
have a material adverse effect on the Company.
(j) Company Contracts. Except as set forth on the Disclosure
-----------------
Schedule, all Company Contracts (as defined herein) are valid, subsisting, in
full force and effect and binding upon the parties thereto in accordance with
their terms, subject to the qualifications that enforcement of the rights and
remedies created thereby is subject to (A) bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and (B) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law), and the Company is not in default under any of them, nor does any
condition exist that with notice or lapse of time or both would constitute such
a default. To the knowledge of the Seller, no other party to any such Company
Contract is in default thereunder, nor does any condition exist that with notice
or lapse of time or both would constitute such a default. Subject to obtaining
any consents required under the terms of the Company Contracts, all of the
Company's rights under such Company Contracts will remain in full effect upon
consummation of the transactions contemplated by this Agreement. For purposes of
this Agreement, the term "Company Contracts" means and includes, and the
Disclosure Schedule lists, all contracts, mortgages, debt instruments, security
agreements, licenses, commitments, guaranties, leases, charters, franchises,
powers of attorney and agency and other agreements to which the Company is a
party or by which it is bound (excluding purchase and sale orders, inventory
acquisition agreements and product distribution agreements, in each case made in
the ordinary course of business in arms-length transactions and consistent in
nature and scope with prior practices of the Company) as of the date of this
Agreement and that:
(i) involve or would involve the payment by the Company of in
excess of $25,000 during any fiscal year, unless cancelable by the Company with
notice of less than six (6) months and premium or penalty of less than $10,000;
(ii) relate to the payment of royalties with respect to any
products sold by the Company;
(iii) guarantee, indemnify or otherwise cause the Company to be
liable for the obligations or liabilities of another;
(iv) involve the borrowing or lending of money, or the granting
of any Lien;
(v) involve an agreement with any bank, finance company or
similar organization for the sale of any products of the Company on credit;
(vi) involve the sale by or to the Company of products on
consignment;
(vii) are or contain a power of attorney;
(viii) contain any renegotiation or redetermination provision;
9
<PAGE>
(ix) require or are otherwise contingent upon the payment of
commissions or compensation to any person not a party to such Company Contract;
(x) concern the formation of a partnership or joint venture;
(xi) impose material noncompetition or confidentiality
obligations on the Company with respect to a third party;
(xii) involve any significant license agreement or arrangement;
or
(xiii) require the Company to supply any other party with such
party's requirements for products or services.
The Disclosure Schedule specifically describes the arrangements (formal and
informal, written or oral) between the Company and any Related Party (as defined
below) (including Seller) and the services or functions (administrative or
otherwise) provided to the Company by any Related Party. No Related Party owns
any assets which are used in the Company's business, and no Related Party which
is under the control of the Seller is engaged in any business which competes
with the Business. As used herein, the term "Related Party" means (A) Seller or
any Affiliate (as defined below) of Seller or the Company, or (B) any
corporation, partnership, association, limited liability company or other entity
(other than the Company), in which any of the foregoing persons has any relation
by blood or marriage, has any material interest, direct or indirect. As used
herein, "Affiliate" shall mean any person, firm, corporation, partnership,
association or entity that directly or indirectly or through one or more
intermediaries controls, is controlled by or is under common control with
another person, firm, corporation, partnership, association or entity.
(k) Pension and Other Employee Plans and Agreements.
-----------------------------------------------
(i) As used in this Agreement, "Company Plan" shall mean each
employment, severance, salary continuation or other contract, stock purchase
plan, stock option plan, stock appreciation plan, vacation, sick leave or other
fringe benefit plan, incentive plan, insurance plan arrangement, bonus plan and
any deferred compensation arrangement, plan, policy or funding arrangement
sponsored, maintained or to which contributions are made by the Company or with
respect to which the Company or any of its subsidiaries has any potential
liability.
(ii) Each Company Plan has been administered in all material
respects in accordance with its terms and is in compliance in all material
respects with the applicable provisions of applicable German law. All reports,
returns and similar documents required to be filed with any governmental agency
or distributed to any participant of each Company Plan have been duly and timely
filed or distributed in all material respects.
(iii) No actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the best of Seller's
knowledge, threatened with respect to any Company Plan and no event or condition
exists or may be reasonably expected to occur which would result in the Company
having any liability in respect of any Company Plan not reflected on the
Financial Statements.
10
<PAGE>
(iv) The Company has made all contributions or payments to or
under each Company Plan required by law or by the terms of such Company Plan.
(l) Tax Matters.
-----------
(i) As used in this Agreement, the following terms shall have
the following meanings: (A) the term "Taxes" means all Federal, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, including without limitation German
taxes as defined in Section 3, paragraph 1 of the German General Tax Code,
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto, including without limitation supplementary taxes
as defined in Section 3, paragraph 3 of the German General Tax Code; (B) the
term "Returns" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes; and (C) the term "Sales and
Use Tax" means all sales taxes, use taxes, retailer's occupation taxes and other
taxes commonly understood to be sales or use taxes. Any reference in this
Section to the Company includes a reference to a person or entity acting on
behalf of or with respect to the Company (including, without limitation,
Seller). The Company has duly and timely filed all Returns required to have been
filed by it prior to the Effective Date. All Taxes and Sales and Use Taxes
required to have been paid prior to the Effective Date, or accruing with respect
to the period ending on the Effective Date, have been fully paid on or prior to
the due date thereof, or will be fully accrued on the Closing Date Schedule.
Except for this Agreement, there are no tax sharing agreements to which the
Company is a party or by which the Company is affected.
(ii) The Company is not a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement.
(m) Environmental.
-------------
(i) The Company has complied with all Environmental Laws (as
defined herein), the failure to comply with which could result in Damages (as
defined herein) in excess of $25,000, and no action, suit, proceeding, hearing,
charge, complaint, claim, demand, or notice, and no investigation has been filed
or commenced against the Company alleging such failure.
(ii) Except (i) to the extent accrued in the Closing Balance
Sheet and (ii) liabilities for storage, handling, transportation, use and
disposal of Hazardous Substances (as defined herein) which are incurred by the
Company in the ordinary course of business, the Company has no liability for
Hazardous Substances (and has not handled, used, stored, recycled or disposed of
any Hazardous Substance (as defined herein), arranged for the disposal of any
Hazardous Substance, exposed any employee or other individual to any Hazardous
Substance or condition, or owned or operated any property or facility, in any
manner that could reasonably be expected to form the basis for any present or
future action, suit, proceeding, hearing, investigations, charge, complaint,
claim or demand giving rise to any liability for Hazardous Substances which
could result in Damages in excess of $25,000 for any reason under any
Environmental Laws.
11
<PAGE>
(iii) Except (i) to the extent accrued in the Closing Balance Sheet
and (ii) liabilities for storage, handling, transportation, use and disposal of
Hazardous Substances which are incurred by the Company in the ordinary course of
business, all properties and equipment used in the Business are free of any
amounts of Hazardous Substances, the use and disposal of which could result in
Damages (as defined herein) in excess of $25,000.
(iv) There are no in service or out of service underground storage
tanks located in or on real property owned by the Company or, to the extent the
Company is responsible for such tanks or any environmental damage resulting
therefrom, real property leased by the Company.
(v) The Company has not received notice and has no knowledge of any
reasonably likely claim under any Environmental Laws regarding the Business, or
any real property owned or leased by the Company.
(vi) As used herein, the term Environmental Laws shall mean all
federal and local laws, statutes, ordinances, rules, regulations, decrees,
orders and settlements regarding the protection of human health, safety and the
environment and pollution, in effect as of the date of this Agreement and
applicable to the Facilities and the operations conducted thereon, as amended,
and any regulations promulgated thereunder, as they existed on the date hereof.
"Hazardous Substances" shall mean materials, substances or wastes defined
by or regulated by applicable Environmental Laws.
(n) Receivables. To the knowledge of Seller, all of the accounts
-----------
receivable of the Company arose in the ordinary course of business, and are good
and collectable in the ordinary course of business, net of reserves therefor in
the Financial Statements.
(o) Inventories. The inventory of the Company consists of raw
-----------
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured. The inventories of the Company have been
valued in the Financial Statements at the lower of average cost or market and in
a consistent manner with respect to all periods covered thereby. Section 2.1(o)
of the Disclosure Schedule sets forth the Company's practices and procedures
with respect to the valuation of inventories which are consistent with those
used in the preparation of the Financial Statements (and will be used in the
preparation of the Closing Balance Sheet). The Company is not under any
liability or obligation with respect to the return of inventory or merchandise
in the possession of wholesalers, distributors, retailers or other customers.
Except as described on Section 2.1(o) of the Disclosure Schedule, no inventory
of the Company is on consignment.
(p) Intangible Assets. The Disclosure Schedule lists all material
-----------------
patents, trademarks and service marks, patent, trademark and service mark
registrations and applications, trade names, copyrights, copyright registrations
and applications, and licenses with respect thereto owned by the Company or used
by the Company in its business operations (collectively, "Intellectual
Property"). Intellectual Property which is owned by a third party and used by
the Company has been duly licensed to the Company and the Company has sufficient
rights to use
12
<PAGE>
such Intellectual Property to conduct its business as presently conducted. There
is no material item of Intellectual Property not owned by or licensed to the
Company which is necessary for the conduct of the Company's business as
presently conducted. There are no claims, demands or proceedings instituted,
pending or, to the best of Seller's knowledge, threatened pertaining to or
challenging the right of the Company to use any of the Intellectual Property or
alleging that any of the Intellectual Property infringes or otherwise violates
the patent, trade name, trademark, copyright or other rights of any other
person. Except as set forth in the Disclosure Schedule, the Company has not
granted any licenses or other rights under, or authorized or permitted anyone
else to use, any of the Intellectual Property.
(q) Customers. To the best of Seller's knowledge, since May 31,
---------
1999, there has not been any termination, cancellation or material limitation,
modification or change in the business relationship of the Company with any
significant customer of the Company.
(r) Employees. With respect to employees of the Company: (i) there
---------
is no pending, or to the best of Seller's knowledge threatened, unfair labor
practice charge or employee grievance charge; (ii) there is no request for union
representation, labor strike, dispute, slowdown or stoppage pending, or to the
best of Seller's knowledge threatened, against or directly affecting the Company
and (iii) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor exist.
Within the last 90 days, no key employee of the Company has advised Seller that
he intends to terminate his employment with the Company and Seller has not
encouraged any employee of the Company to terminate his employment with the
Company.
(s) Real Estate.
-----------
(i) Section 2.1(s) of the Disclosure Schedule contains a true
and correct list of all real property owned by the Company (the "Real
Property"). The Company has good and marketable title to the Real Property, free
and clear of all Liens.
(ii) The Disclosure Schedule lists and describes briefly all real
property leased to the Company. The Company has delivered to the Buyer correct
and complete copies of the leases listed in the Disclosure Schedule. With
respect to each lease listed in the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in accordance with its
terms.
(B) the Company is not, and to the knowledge of the Company,
no party to the lease or sublease is, in breach or default, and
no event has occurred and is continuing which, with notice or
lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(C) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease;
13
<PAGE>
(D) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold; and
(E) all facilities leased thereunder have received all
approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and
have been operated and maintained in all material respects in
accordance with applicable laws, rules, and regulations.
(t) No Other Representations and Warranties by Seller; Specific
-----------------------------------------------------------
Disclosure.
- ----------
(i) Seller shall not be deemed to have made to Buyer any
representation or warranty other than as expressly made by Seller in this
Section 2.1.
(ii) Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by Seller in Section
2.1, Seller is not making any representation and warranty with respect to:
(A) any projections, estimates or budgets of future
revenues, expenses or expenditures, results of operations (or any
component thereof) or financial condition (or any component
thereof) of the Company, or
(B) any other information or documents made available to
Buyer or any of its representatives or investors with respect to
the Company.
(iii) For purposes of this Agreement, references to the
"knowledge of Seller", "Seller's knowledge" or "Seller's awareness" or words of
similar import shall mean and include the actual knowledge of Seller after due
inquiry of the individuals listed on Section 2.1(t) of the Disclosure Schedule
with respect to the indicated matters.
(iv) A disclosure in one section of the Disclosure Schedule
shall not be effective with respect to another representation and warranty
unless such section is specifically cross-referenced.
2.2. Representations and Warranties of Parent and Buyer.
---------------------------------------------------
Parent and Buyer hereby represent and warrant, jointly and severally, to
Seller, as of the Effective Date, as follows:
(a) Organization and Good Standing of Buyer. Buyer is a corporation
---------------------------------------
in formation, and all efforts are being undertaken to have Buyer registered.
(b) Organization and Good Standing of Parent. Parent is a corporation
----------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has all requisite power and authority to execute and
deliver this Agreement and to perform its
14
<PAGE>
obligations hereunder. Parent is qualified to do business as a foreign
corporation in each jurisdiction where it is required to qualify in order to
conduct its business as presently conducted.
(c) Consents, Authorizations and Binding Effect. Each of Parent and
-------------------------------------------
Buyer has full corporate power and authority to execute, deliver and perform its
obligations under this Agreement without the necessity of obtaining any Consent
or giving any Notice, except for such Consents which have been obtained and are
unconditional and in full force and effect and such Notices which have been duly
given. The board of directors of Parent has duly authorized the execution,
delivery and performance of this Agreement by Parent. This Agreement has been
duly executed and delivered by each of Parent and Buyer and constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms, except as may be limited by bankruptcy, reorganization, insolvency
and similar laws of general application relating to or affecting the enforcement
of rights of creditors. The execution, delivery and performance of this
Agreement by each of Parent and Buyer will not:
(i) conflict with, result in the breach of or constitute a
default under or the acceleration of any contract, agreement commitment,
undertaking, restriction or instrument to which Parent or Buyer is a party or by
which Parent or Buyer may be bound or affected, or
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon Parent or Buyer, or
(iii) violate any provision of the Charter or Bylaws of Parent
or Buyer.
(d) Acquisition of Shares for Investment. Buyer acknowledges that in
------------------------------------
acquiring the Shares under this Agreement, Buyer has relied solely on its own
due diligence investigation, the representations and warranties set forth in
Section 2.1, including the information in the Disclosure Schedule related
thereto and the documents and information referred to therein, and the other
covenants and statements of Seller set forth in this Agreement, and not upon any
other representations, warranties, covenants or statements of any kind. Buyer
is an "accredited investor", as defined in Rule 501 of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"), and has sufficient
knowledge, experience and sophistication to enable it properly and fully to
evaluate and understand the merits and risks associated with its acquisition of
the Shares. Buyer is acquiring the Shares for its own account for investment and
with no present intention of distributing or reselling such Shares or any part
thereof in any transaction which would constitute a "distribution" within the
meaning of the Securities Act. Buyer understands that the Shares have not been
registered under the Securities Act or any state securities laws and may not be
sold or transferred except in compliance therewith or pursuant to an exemption
thereunder and are being transferred to Buyer, in part, in reliance on the
foregoing representation and warranty.
15
<PAGE>
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND TERMINATION
3.1. Closing.
--------
The Closing and the sale, purchase and transfer of the Shares will take
place at the offices of Powell, Goldstein, Frazer & Murphy LLP, 16/th/ Floor,
191 Peachtree Street, N.E., Atlanta, Georgia 30303, on June 21, 1999 (the
"Closing Date"), effective as of the close of business on June 18, 1999 (the
"Effective Date").
3.2. Conditions to Obligations of Buyer.
-----------------------------------
The obligations of Buyer to consummate the sale and purchase under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Buyer.
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects. Seller shall have performed in all
material respects the covenants and obligations necessary to be performed by it
under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize
--------------------------
the execution, delivery and performance of this Agreement by Seller shall have
been duly and validly taken, and Seller shall have full right, power and
authority to consummate the transactions contemplated hereby on the terms
provided herein.
(c) Security Interests, Encumbrances, Liens, etc. Buyer shall have
---------------------------------------------
received written advice to the effect that a search of the public records has
disclosed that no Liens, other than those reflected in Section 2.1(f) of the
Disclosure Schedule, have been filed or recorded with respect to the Company,
and all Liens requested by Buyer to have been released or satisfied shall have
been released or satisfied.
(d) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(e) Corporate Matters. Buyer shall have received (i) such
-----------------
resignations of the directors and officers of the Company as it may have
requested, such resignations to be effective as of immediately following the
Closing and (ii) the minute books and corporate seal of the Company.
(f) Other Agreements. The sellers under the U.S. Sales Agreement and
----------------
under the French Sales Agreement are closing the transactions contemplated under
such agreements simultaneously with the Closing.
(g) Shares. Buyer shall have received an undertaking from Seller to
------
execute, promptly after the date hereof, such additional documents as shall be
necessary to effect the transfer to Buyer of the Shares in accordance with the
terms of this Agreement.
16
<PAGE>
(h) Opinion. Buyer shall have received a legal opinion from Seller's
-------
General Counsel containing customary opinions with respect to the Company and
the transactions contemplated hereby.
3.3. Conditions to Obligations of Seller.
------------------------------------
The obligations of Seller to consummate the sale and purchase under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Seller:
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects. Buyer shall have performed in all
material respects the covenants and obligations necessary to be performed by it
under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize
--------------------------
the execution, delivery and performance of this Agreement by Buyer shall have
been duly and validly taken and Buyer shall have full right, power and authority
to consummate the transactions contemplated hereby on the terms provided herein.
(c) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(d) Other Agreements. The buyers under the U.S. Sales Agreement and
----------------
under the French Sales Agreement are closing the transactions contemplated under
such agreements simultaneously with the Closing.
(e) Purchase Price. Seller shall have received the Purchase Price.
--------------
(f) Opinion. Seller shall have received a legal opinion from Buyer's
-------
counsel with respect to Parent and the transactions contemplated by this
Agreement.
(g) Intercompany Repayment. The intercompany Note from the Company
----------------------
to Seller in the aggregate amount (principal and interest) of DM 10,762,000
shall be paid in full by payment of US $5,720,487 within one day following the
Closing Date in full satisfaction of intercompany indebtedness of the Company.
ARTICLE IV
INDEMNIFICATION
4.1. Indemnification of Parent and Buyer.
------------------------------------
Subject to the terms and conditions of this Article IV, Seller shall
defend, at its own expense, and shall indemnify Parent, Buyer and Company
against, and hold Parent, Buyer and Company harmless from, any and all loss,
damage or liability, and all expenses, including without limitation reasonable
legal fees and costs of investigation, remediation or other response action and
other costs (collectively "Damages"), asserted against or incurred by Parent,
Buyer and Company arising out of:
17
<PAGE>
(a) a breach of the representations and warranties made by Seller in
this Agreement or in any certificate or other instrument furnished or to be
furnished to Parent or Buyer hereunder;
(b) the non-fulfillment of any agreement or covenant made by Seller
in or pursuant to this Agreement or in any certificate or other instrument
furnished or to be furnished to Parent or Buyer hereunder;
(c) any liability or obligation of the Company arising out of or in
connection with the conduct of the Business prior to the Effective Date, except
to the extent such liability or obligation (i) is described in Paragraphs (A),
(B), (C) or (D) of Section 2.1(f) (without regard to any materiality qualifier
contained therein) or (ii) results in an indemnifiable claim for a breach of
representation and warranty for which Buyer otherwise recovers under Section
4.1(a) above.
4.2. Indemnification of Seller.
--------------------------
Subject to the terms and conditions of this Article IV, Parent and Buyer
shall defend, at their own expense, and shall indemnify Seller against, and hold
Seller harmless from, any and all Damages asserted against or incurred by Seller
arising out of:
(a) any breach of the representations and warranties made by Parent
or Buyer in this Agreement or in any certificate or other instrument furnished
or to be furnished to Seller hereunder,
(b) the non-fulfillment of any agreement or covenant made by Parent
or Buyer in or pursuant to this Agreement, or
(c) the operations of the Company following the Effective Date.
4.3. Survival.
---------
All representations and warranties contained herein or made pursuant
hereto, whether by Seller or Parent, shall survive the closing hereunder until
the second anniversary of the Closing Date, except that:
(a) the representations and warranties of Seller contained in or made
pursuant to Sections 2.1(a) (other than the last sentence thereof), 2.1(b),
2.1(c) and 2.1(d), and of Buyer contained in Sections 2.2(a), 2.2(b), 2.2(c) and
2.2(d) shall survive the Closing hereunder without any limitation as to time;
and
(b) the representations and warranties of Seller contained in or made
pursuant to Section 2.1(l) hereof or otherwise with respect to Tax matters shall
survive the Closing until six months after the date on which the right to file
any claim in respect of such matters by the appropriate governmental or
administrative authority or any other Person has expired.
The expiration of any representation and warranty or any indemnification
obligation hereunder shall not affect any claim made by the giving of written
notice by a Party to the other in the
18
<PAGE>
manner provided by this Agreement, prior to the date of such expiration. All
covenants, indemnities and agreements shall survive the Closing forever.
4.4. Claims.
-------
(a) Promptly after receipt by an indemnified party of written notice
of the commencement of any investigation, claim, proceeding or other action in
respect of which indemnity may be sought from the indemnitor (an "Action"), such
indemnified party shall notify the indemnitor in writing of the commencement of
such Action; but the omission to so notify the indemnitor shall not relieve it
from any liability that it may otherwise have to such indemnified party, except
to the extent that the indemnitor is materially prejudiced or forfeits
substantive rights or defenses as a result of such failure. In connection with
any Action in which the indemnitor and any indemnified party are parties, the
indemnitor shall be entitled to participate therein, and may assume the defense
thereof. So long as the indemnifying party is diligently defending in good
faith any such Action, the indemnifying party may control the defense thereof;
in such event, the indemnified party may participate in the defense of the
Action at its own expense. Neither the indemnifying party nor the indemnified
party will settle or compromise the Action without the consent of the other,
which consent will not be unreasonably withheld.
(b) In the event a Party should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the Party
seeking indemnification shall promptly send notice of such claim to the Party
from whom indemnification is sought. If the latter does not dispute such claim,
the latter shall pay such claim in full within 10 business days. If the latter
disputes such claim, such dispute shall be resolved by agreement of the Parties
or in any other manner available under law.
(c) The indemnified party shall make available to the indemnifying
party or its representatives all records and other materials reasonably required
by them for use in connection with any such claim and shall cooperate with the
indemnifying party in the defense of all third party claims.
4.5. Limitations.
------------
Any claims for breach of any representation or warranty made hereunder
shall be subject to the following limitations and adjustments:
(a) indemnification under Section 4.1(a) and 4.1(c) shall only be
required to be provided by Seller when the aggregate amount of all claims for
which indemnification is sought from Seller under Sections 4.1(a) and 4.1(c) of
this Agreement, the U.S. Sales Agreement and the French Sales Agreement exceeds
US $250,000, in which case Seller shall be liable for all such amounts in excess
thereof;
(b) no individual claim for indemnity under Section 4.1(c) may be
brought unless the aggregate Damages in respect of such claim exceeds US
$20,000, but in such event Damages shall be recoverable without regard to such
US $20,000 threshold, subject to any other limitations imposed under this
Section 4.5;
19
<PAGE>
(c) no claim for indemnity under Sections 4.1 or 4.2 shall be
effective unless noticed, pursuant to Section 4.4, within the survival period
specified under Section 4.3;
(d) in no event shall Seller's indemnification obligation with
respect to a breach of representations and warranties under Section 4.1(a) (but
excluding Sections 2.1(a), except the last sentence thereof, 2.1(b), 2.1(c) and
2.1(d)) of this Agreement, the U.S. Sales Agreement and the French Sales
Agreement exceed the amount of US $4,200,000. The indemnification obligations of
either Seller or Buyer respectively, for representations and warranties set
forth in Sections 2.1(a), 2.1(b), 2.1(c) and 2.1(d) and Sections 2.2(a), 2.2(b),
2.2(c) and 2.2(d) of this Agreement, the U.S. Sales Agreement and the French
Sales Agreement shall not exceed the aggregate purchase price under this
Agreement, the U.S. Sales Agreement and the French Sales Agreement;
(e) in no event shall either Seller's or Buyer's and Parent's
respective indemnification obligations under Section 4.1(c) or 4.2(c) exceed the
amount of US $5,000,000.
(f) under no circumstances shall any Party be liable to another Party
for punitive, consequential or non-compensatory damages;
(g) any indemnifiable claim shall be reduced by the amounts actually
recovered by the indemnified party from insurance carriers and any amount
recovered by the indemnified party subsequent to the payment by the indemnitor
with respect to the same claim shall be remitted to the indemnitor, provided
that such remittance shall not exceed the amount of such indemnification payment
by the indemnitor; and
(h) Notwithstanding the foregoing, the provisions of this Section 4.5
shall not apply to any indemnification obligations arising out of the
indemnities contained in Sections 4.1(b) or 4.2(b) of this Agreement, but all
such indemnification obligations of either party shall be limited to and shall
not exceed the aggregate purchase price under this Agreement, the U.S. Sales
Agreement and the French Sales Agreement.
(i) the Parties agree that the sole liability and the sole remedy of
Seller, Buyer and the Company for any claim with respect to the transactions
contemplated under this Agreement (including without limitation under
Environmental Laws) shall be limited to indemnification under Article IV of this
Agreement, and in connection therewith each Party waives any and all statutory
and common law rights and remedies (including without limitation rights of
indemnification and contribution) which any such Party may have against another
Party (except equitable remedies such as injunction and specific performance).
(j) For purposes of this Section 4.5, any amount paid as Damages
under this Agreement or the French Sales Agreement in foreign currency shall be
valued at the US exchange rate on the Effective Date.
20
<PAGE>
ARTICLE V
CERTAIN POST CLOSING MATTERS
5.1. Certain Tax Matters.
-------------------
Following the Closing, Buyer and the Company agree that the Company will
not:
(a) pay any dividends (including without limitation deemed dividends
under Sections 304 and 956 of the US Internal Revenue Code) or make any
distributions to its shareholder during calendar year 1999;
(b) enter into any transaction outside the ordinary course of
business that could generate "Subpart F income" for the Company or Seller within
the meaning of the US Internal Revenue Code; or
(c) elect to treat the transactions contemplated under this Agreement
as an asset acquisition under Section 338 of the US Internal Revenue Code.
5.2. Tax Sharing Arrangements.
-------------------------
All tax sharing arrangements and any other contracts with respect to Taxes
between Seller (and its affiliates) and the Company, if any, are terminated as
of the Effective Date.
5.3. Access to Records After Closing.
--------------------------------
(a) Following the Closing, Buyer shall give to Seller, without
charge, reasonable access to (and the right to make copies at the expense of
Seller of) the books, files, records and tax returns of the Company to the
extent that such relate to the business and operations of the Company on or
prior to the Effective Date and are in the Company's possession on the Closing
Date or subsequently come into Buyer's possession, but any access pursuant to
this Section 5.3 shall be conducted by Seller in good faith, with a reasonable
purpose and in such manner as not to interfere unreasonably with the operations
of Buyer following the Closing. Buyer shall also use reasonable diligence to
provide all information requested by Seller with respect to the period ending
December 31, 1999, for tax purposes. For a period of five years after the
Closing, Buyer shall maintain such books, files, records and tax returns and
thereafter, prior to destroying or disposing of any of them, Buyer shall give,
or shall cause the Company to give, 30 days' advance notice to Seller of their
intended destruction or disposition, and during such 30-day period Seller shall
have the right to take possession of the same or to make copies of the same, all
at Seller's expense.
(b) Following the Closing, Seller shall give to Buyer, without
charge, reasonable access to (and the right to make copies at the expense of
Buyer of) the books, files, records and tax returns of Seller to the extent that
such relate to the business and operations of the Company on or prior to the
Effective Date and are in Seller's possession on the Closing Date or
subsequently come into Seller's possession, but any access pursuant to this
Section 5.3 shall be conducted by Buyer in good faith, with a reasonable purpose
and in such manner as not to interfere unreasonably with the operations of
Seller following the Closing. For a period of five years after the Closing,
Seller shall maintain such books, files, records and tax returns and
21
<PAGE>
thereafter, prior to destroying or disposing of any of them, Seller shall give,
30 days' advance notice to Buyer of their intended destruction or disposition,
and during such 30-day period Buyer shall have the right to take possession of
the same or to make copies of the same, all at Buyer's expense.
(c) For a period of one hundred twenty (120) days following the
Closing, Buyer shall cause to be prepared and delivered to Seller (to the extent
not already prepared and delivered) in the normal time frame followed by Seller
and the Company consistent with past practice and in all events within fifteen
(15) days after it shall have been requested by Seller, the financial reporting
package for the Company (but only in respect of periods ending on or prior to
the Closing Date) for (i) the quarterly Closing for Seller's fiscal quarter
ending July 31, 1999, and (ii) Seller's fiscal year ending January 31, 2000.
After such one hundred twenty (120) day period, Buyer shall cooperate and use
reasonable diligence to provide Seller with all information requested by Seller
to assist Seller in preparing a financial reporting package for the Company (but
only in respect of periods ending on or prior to the Closing Date) for (i) the
quarterly closing for Seller's fiscal quarter ending July 31, 1999, and (ii)
Seller's fiscal year ending January 31, 2000.
5.4. Covenant Not to Compete.
------------------------
As an inducement for Buyer to enter into this Agreement, Seller agrees
that:
(a) Non-Compete. For a period of three (3) years after the Closing,
-----------
Seller shall not do, and shall cause any Affiliate of Seller controlled by it
not to do, any one or more of the following, directly or indirectly:
(i) engage, manage, operate, finance, control or participate,
as an owner, partner, shareholder, member, consultant, or (without limitation by
the specific enumeration of the foregoing) otherwise, in any business whose
products or activities compete, in whole or in part, with the products or
activities which the Company manufactures or distributes (which products or
activities include those currently sold and under active development on the
Effective Date (any such business is referred to herein as a "Competitive
Business"). For purposes of this Section, "active development" shall mean
efforts for which resources have been committed by the Company having a value in
excess of $50,000.
(ii) solicit or attempt to solicit, with respect to a
Competitive Business, any customer of Buyer which has been a customer of the
Company within the past three (3) years; or
(iii) except as set forth in the Disclosure Schedule, induce or
attempt to induce any person or entity that is an employee or agent of the
Company on the Effective Date to terminate his, her or its relationship with, or
employment by, the Company.
(b) Limitation. Notwithstanding the foregoing, the provisions of
----------
Section 5.4(a) hereof shall not be deemed to prohibit or restrict in any manner
(i) the acquisition by Seller or any Affiliate of Seller of any company
partially engaged in a Competitive Business, provided that if such Competitive
Business accounts for more than the lesser of $10,000,000 or five percent (5%)
of the net revenues of the acquired company, Seller or such Affiliate shall use
22
<PAGE>
commercially reasonable efforts promptly after the consummation of the
acquisition to divest itself of the Competitive Business within eighteen (18)
months after such consummation, or (ii) acquisition or ownership by Seller or
any Affiliate of Seller of up to five percent (5%) of the debt or equity
interest in any company partially engaged in a Competitive Business whose
securities are traded on a national securities exchange or NASDAQ, so long as
such Competitive Business does not account for more than the lesser of
$10,000,000 or five percent (5%) of the net revenues of such company and neither
Seller nor an Affiliate of Seller is an Affiliate of such company.
(c) Modifications. Seller recognizes that the time and scope
-------------
limitations set forth in this Section 5.4 are reasonable and are required for
the protection of Buyer and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, Buyer and Seller agree to the reduction of either of such time or
scope limitations to such a period or scope as such court shall deem reasonable
under the circumstances.
(d) Injunctive Relief. The Parties specifically recognize that any
-----------------
breach of Section 5.4(a) may cause irreparable injury and that actual damages
may be difficult to ascertain, and in any event, may be inadequate. Accordingly
(and without limiting the availability of legal or equitable, including
injunctive, remedies under any other provisions of this Agreement), each Party
agrees that in the event of any such breach, the other Party shall be entitled
to injunctive relief in addition to such other legal and equitable remedies that
may be available.
5.5. Cooperation on Claims.
-----------------------
Without limiting the generality of any other provision of this Agreement,
with respect to any claim of any kind for which Seller has retained liability
under this Agreement, (i) Buyer will not settle or compromise any such claim
without the consent of Seller, (ii) Buyer will make available to Seller, its
insurer and their respective representatives all records and other materials as
may be reasonably requested by them for use in handling any such claim and (iii)
Buyer will reasonably cooperate, and will use its best efforts to cause its
employees to cooperate, with Seller, its insurer and their respective
representatives in the handling of all such claims.
ARTICLE VI
MISCELLANEOUS
6.1. Further Actions.
----------------
From time to time, as and when requested by Buyer and at Buyer's expense,
Seller shall execute and deliver, or cause to be executed and delivered, all
such documents and instruments and shall take, or cause to be taken, all such
further or other actions as Buyer may reasonably deem necessary or desirable to
carry out the intent and purposes of this Agreement, to convey, transfer, assign
and deliver on the Closing Date to Buyer, and its successors and assigns, the
Shares (or to evidence the foregoing) and to consummate the other transactions
contemplated hereby.
23
<PAGE>
6.2. Brokerage.
----------
Seller represents and warrants to Buyer that Seller has no obligation or
liability to any broker or finder by reason of the transactions which are the
subject of this Agreement; Seller shall indemnify Buyer and the Company against,
and shall hold Buyer and the Company harmless from, at all times after the date
hereof, any and all liabilities (including without limitation legal fees), and
shall pay any final judgment obtained by any person claiming brokerage
commissions or finder's fees, or rights to similar compensation, on account of
services purportedly rendered on behalf of Seller, or prior to Closing the
Company, in connection with this Agreement or the transactions contemplated
hereby. Buyer represents and warrants to Seller that Buyer has no obligation or
liability to any broker or finder by reason of the transactions which are the
subject of this Agreement; Buyer shall indemnify Seller against, and shall hold
Seller harmless from, at all times after the date hereof, any and all
liabilities (including without limitation legal fees), and shall pay any final
judgment obtained by any person claiming brokerage commissions or finder's fees,
or rights to similar compensation, on account of services purportedly rendered
on behalf of Buyer, or after Closing the Company, in connection with this
Agreement or the transactions contemplated hereby.
6.3. Expenses.
---------
Each of Buyer and Seller shall pay their respective expenses in connection
with the negotiation, execution, delivery and performance of this Agreement.
6.4. Entire Agreement.
-----------------
This Agreement, which includes the Schedules and Exhibits hereto and the
other documents, agreements and instruments executed and delivered pursuant to
or in connection with this Agreement, contains the entire agreement between
Buyer, the Company and Seller with respect to the transactions contemplated by
this Agreement and supersedes all prior arrangements or understandings with
respect thereto.
6.5. Descriptive Headings.
---------------------
The descriptive headings of this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
6.6. Notices.
--------
All notices and other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
overnight delivery service or by registered or certified mail, postage prepaid,
addressed as follows:
24
<PAGE>
If to Seller, or pre-Closing to the Company:
Varlen Corporation
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
Attn: Vicki Casmere
General Counsel
If to Buyer, or post-Closing to the Company:
Roper Industries, Inc.
160 Ben Burton Road
Bogart, Georgia 30622
Attn: President
Any party may by notice change the address to which notices or other
communications to it are to be delivered or mailed.
6.7. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. The transfer of the Shares pursuant to the Share
Transfer Agreement shall be governed by German law. Each of the parties hereto
irrevocably submits to the jurisdiction of the Courts of the State of Delaware,
and of any Federal Court located in the State of Delaware, in connection with
any action or proceeding arising out of or relating to, or breach of, this
Agreement or of any document or instrument delivered pursuant to or in
connection with this Agreement.
6.8. Assignability.
--------------
This Agreement shall not be assignable otherwise than by operation of law
by any Party without the prior written consent of the other Parties, and any
purported assignment by any Party without the prior written consent of the other
Parties shall be void. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and permitted
assigns.
6.9. Waivers and Amendments.
-----------------------
Any waiver of any term or condition, or any amendment or supplementation,
of this Agreement shall be effective only if in writing. A waiver of any breach
of any of the terms or conditions of this Agreement shall not in any way be
construed as a waiver of any subsequent breach.
6.10. Third Party Rights.
-------------------
This Agreement shall be effective only as between the Parties hereto, their
successors and permitted assigns.
25
<PAGE>
6.11. Illegality.
-----------
In the event that any one or more of the provisions contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in any other respect and the remaining provisions of this Agreement
shall not, at the election of the Party for whom the benefit of the provision
exists, be in any way impaired.
6.12. Release.
--------
As of the Effective Date, the Company hereby releases, acquits and forever
discharges each officer, director and stockholder of the Company from any and
all liabilities, obligations, claims, demands, actions and causes of action
which the Company ever had, now has or hereafter may have based upon, relating
to or arising out of any event, occurrence, act, omission or condition occurring
or existing as of or prior to the Effective Date in any way connected with such
officer's, director's or stockholder's status as such or actions taken in such
capacity. Buyer consents to the foregoing release. Seller and Buyer agree that
this release shall not in any manner limit or otherwise affect the rights and
obligations of Seller and Buyer under this Agreement.
[REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
Seller:
VARLEN CORPORATION
By:___________________________
Name:_________________________
Title:________________________
The Company:
WALTER HERZOG GmbH
By:___________________________
Name:_________________________
Title:________________________
Buyer:
ROPER INDUSTRIES DEUTSCHLAND
GmbH i. Gr.
By:___________________________
Name:_________________________
Title:________________________
Parent:
ROPER INDUSTRIES, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT 2.3
AGREEMENT TO PURCHASE PARTNERSHIP INTEREST
BY AND AMONG
VARLEN CORPORATION,
ACIERIES de PLOERMEL,
HERZOG-VARLEN INSTRUMENTS,
INSTRUMENTATION SCIENTIFIQUE DE LABORATOIRE
AND
ROPER INDUSTRIES, INC.
DATED AS OF JUNE 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I PURCHASE AND SALE OF INTEREST...................... 1
1.1. Purchase of Interest.................................. 1
1.2. Preparation of Closing Date Schedule.................. 1
1.3. Adjustment of Purchase Price.......................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES.................... 3
2.1. Representations and Warranties of Seller and Varlen... 3
2.2. Representations and Warranties of Buyer and Roper..... 15
ARTICLE III CLOSING; CONDITIONS OF CLOSING AND TERMINATION... 16
3.1. Closing............................................... 16
3.2. Conditions to Obligations of Buyer and Roper.......... 17
3.3. Conditions to Obligations of Seller and Varlen........ 18
ARTICLE IV INDEMNIFICATION................................... 18
4.1. Indemnification of Buyer and Roper.................... 18
4.2. Indemnification of Seller and Varlen.................. 19
4.3. Survival.............................................. 19
4.4. Claims................................................ 20
4.5. Limitations........................................... 20
ARTICLE V CERTAIN POST CLOSING MATTERS....................... 22
5.1. Certain Tax Matters................................... 22
5.2. Tax Sharing Arrangements.............................. 22
5.3. Access to Records After Closing....................... 22
5.4. Covenant Not to Compete............................... 23
5.5. Cooperation on Claims................................. 24
ARTICLE VI MISCELLANEOUS..................................... 24
6.1. Further Actions....................................... 24
6.2. Brokerage............................................. 25
6.3. Expenses.............................................. 25
6.4. Entire Agreement...................................... 25
6.5. Descriptive Headings.................................. 26
6.6. Notices............................................... 26
6.7. Governing Law......................................... 26
6.8. Assignability......................................... 26
6.9. Waivers and Amendments................................ 27
6.10. Third Party Rights.................................... 27
6.11. Illegality............................................ 27
6.12. Release............................................... 27
</TABLE>
<PAGE>
AGREEMENT TO PURCHASE PARTNERSHIP INTEREST
AGREEMENT TO PURCHASE PARTNERSHIP INTEREST dated as of June 18, 1999 (this
"Agreement"), by and among (i) VARLEN CORPORATION, a Delaware corporation
("Varlen"), (ii) ACIERIES de PLOERMEL, a French Societe Anonyme (the "Seller"),
(iii) HERZOG-VARLEN INSTRUMENTS, a French Societe en Nom Collectif (the
Company"), (iv) INSTRUMENTATION SCIENTIFIQUE DE LABORATOIRE, a French Societe
Anonyme (the "Buyer"), and ROPER INDUSTRIES, INC., a Delaware corporation
("Roper"). Varlen, Seller, the Company, Buyer and Roper will be sometimes
referred to herein as a "Party" and collectively as the "Parties".
The Company is engaged in the assembly and sale of petroleum analytical
instrumentation products and related services (the "Business"). Seller owns and
has the legal right and authority to sell, transfer, assign and deliver a
ninety-nine percent (99%) equity interest corresponding to 99 equity interests
(the "Interest") in the Company, and Seller desires to sell, and Buyer desires
to purchase, all the Interest upon the terms and conditions set forth in this
Agreement. In addition, simultaneously with the execution and delivery of this
Agreement, (i) Varlen is entering into an agreement with Roper with respect to
the sale by Varlen to Roper Industries Deutschland GmbH i. Gr. of all the
outstanding capital stock of Walter Herzog GmbH ("Herzog"), a German corporation
(the "German Sales Agreement"), and (ii) Varlen and Roper are entering into an
agreement with respect to the sale of all of the outstanding capital stock of
Varlen Instruments Inc., a Delaware corporation (the "U.S. Sales Agreement").
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
of the mutual promises, covenants, representations, warranties and agreements
herein contained, and intending to be legally bound hereby, Varlen, Seller, the
Company, Buyer and Roper hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF INTEREST
1.1. Purchase of Interest.
--------------------
Upon the terms and subject to the conditions set forth in this Agreement
and the representations and warranties herein made by each of the Parties to the
other, Seller agrees to sell to Buyer, free and clear of Liens (as defined in
Section 2.1(i)), and Buyer agrees to purchase from Seller, on the Closing Date
(as hereinafter defined), the Interest for a purchase price of $2,796,994,
subject to adjustment as hereinafter provided (the "Purchase Price"), payable in
cash at Closing by wire transfer to an account designated by Seller to Buyer two
days prior to the Closing Date.
1.2. Preparation of Closing Date Schedule.
------------------------------------
(a) Within two (2) days following the Closing Date, Buyer shall be
responsible for the taking of a physical inventory of all inventories of the
Company as of the close of business on the Closing Date; no goods or items in
inventory shall be moved while the
<PAGE>
physical inventory is being conducted. Promptly after the Closing, Buyer shall
prepare a schedule showing the working capital of the Company as of the close of
business on the Closing Date (the "Closing Date Schedule"). Amounts on the
Closing Date Schedule with respect to inventories shall be derived from the
physical inventory taken by Buyer. The Closing Date Schedule shall be prepared
with the accounting principles and procedures used in the preparation of the
Financial Statements described in Section 2.1(g) hereof, except as noted in
Section 2.1(g) of the Disclosure Schedule. Buyer agrees to use all reasonable
efforts to cause the Closing Date Schedule to be prepared and delivered to
Seller within 90 days after the Closing.
(b) Seller and its authorized representatives and designees, at
Seller's expense, shall have the right to observe the physical inventory.
Seller and its authorized representatives and designees, at Seller's expense,
shall have the right to review the Closing Date Schedule and perform other
review procedures, including a review of any working papers with respect to its
preparation.
(c) Seller shall be deemed to have accepted the Closing Date Schedule
unless within thirty (30) days after delivery thereof to Seller, Seller gives
written notice to Buyer of Seller's objection to any item therein. In the event
Seller gives such written notice of objection, and Buyer and Seller have been
unable to resolve such dispute by a date twenty (20) days after delivery of such
notice of objection, either party may require that such dispute be resolved by
arbitration under the rules, but not the jurisdiction, of the American
Arbitration Association by one arbitrator (the "Arbitrator") who shall be a
certified public accountant and a partner in the Dallas, Texas, office of Price
Waterhouse Coopers.
(d) The Arbitrator shall have access to all documents and facilities
necessary to perform its function as Arbitrator. The Arbitrator's determination
with respect to any dispute shall be final and binding upon the parties hereto.
Seller and Buyer shall each pay one-half of the fees and expenses of the
Arbitrator for such services.
1.3. Adjustment of Purchase Price.
----------------------------
(a) Within thirty (30) days after delivery of the Closing Date
Schedule to Seller pursuant to Section 1.2 hereof, or, if disputed, within ten
(10) days after the final resolution of such dispute pursuant to Section 1.2(c),
the Purchase Price shall be adjusted as follows. For the purposes of this
adjustment, Pro Forma Working Capital shall mean the working capital of the
Company calculated in the same manner as the working capital on the Financial
Statement described in Section 2.1(g) hereof, except as noted in Section 2.1(g)
of the Disclosure Schedule, but shall include all indebtedness of the Company
without regard to whether such indebtedness is classified as working capital
under United States and French generally accepted accounting principles
("GAAP"). To the extent there is a liability which Seller has assumed or agreed
to indemnify Buyer for, the accrual for such item shall not be counted in the
determination of the Pro Forma Working Capital on the Closing Date Schedule.
(b) If Pro Forma Working Capital as set forth on the Closing Date
Schedule exceeds $732,000, the Purchase Price will be increased by, and Buyer
will pay to Seller, the amount of such excess.
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(c) If Pro Forma Working Capital as set forth on the Closing Date
Schedule is less than $732,000, the Purchase Price will be decreased by, and
Seller will pay to Buyer, the amount of such deficiency.
(d) All payments to be made pursuant to this Section shall (i) be made
by wire transfer of immediately available funds to an account designated by the
recipient at least two business days prior to the transfer, except that payments
of less than $10,000 may be made by check subject to collection and (ii) be
accompanied by a payment of interest thereon at the "Prime Rate" from time to
time in effect on such amount from the Closing Date until paid. As used in this
Agreement, "Prime Rate" means the rate of interest equal to the "Prime Rate"
reported from time to time in the "Money" column of The Wall Street Journal, and
-----------------------
shall change from time to time effective with any changes in the reporting of
such rate.
(e) Upon any adjustment to the Purchase Price, the Parties agree to
execute any necessary documents required by the French competent tax authorities
in order to allow, as the case may be, (i) Buyer to obtain the refund of any
registration duty unduly paid as a result of any decrease in the Purchase Price
or (ii) Buyer to pay any additional registration duty payable in the event of
any increase in the Purchase Price. In the event of a decrease in the Purchase
Price and should the French tax authorities refuse to refund Buyer for any
reason whatsoever, Seller shall pay to Buyer half of the amount of the
registration duty unduly paid.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Simultaneously with the execution and delivery of this Agreement, Varlen
and Seller are delivering to Buyer and Roper the Disclosure Schedule referred to
herein.
2.1. Representations and Warranties of Seller and Varlen.
---------------------------------------------------
Except as and to the extent set forth in the specific section of the
Disclosure Schedule to which such representation and warranty relates, Seller
and Varlen jointly and severally represent and warrant to Buyer and Roper, as of
the Effective Date, as follows:
(a) Organization and Standing.
-------------------------
(i) Varlen is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Seller is a Societe Anonyme duly organized,
validly existing and in good standing under the laws of France, registered with
the Commercial and Companies Registry of VANNES under number 542 064 639, and
has all requisite power and authority to execute and deliver this Agreement and
to perform its obligations hereunder. Seller and Varlen are qualified to
transact business as a foreign corporation in each jurisdiction where they are
required to qualify in order to conduct their business as presently conducted.
(ii) The Company is a Societe en Nom Collectif duly organized,
validly existing and in good standing under the laws of France, registered with
the Commercial and Companies Registry of CAEN under number 399 556 778, and has
all requisite power and
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authority to execute and deliver this Agreement, to perform its obligations
hereunder and to carry on its business as it is now being conducted.
(iii) Neither Varlen, Seller nor the Company are in a state of
insolvency, bankruptcy or in suspension of payments and are and have ever been
subject to a judicial reorganization or liquidation proceedings or any other
conciliation or collective bankruptcy proceedings provided for under applicable
laws, nor have they requested a payment extension period under applicable laws
to the extent any of same would have a material adverse effect on the
transactions contemplated by this Agreement.
(b) Consents, Authorizations and Binding Effect. Each of Varlen and
-------------------------------------------
Seller and the Company has full corporate power and authority to execute,
deliver and perform its respective obligations under this Agreement without the
necessity of obtaining any consent, approval, authorization, advice or waiver or
giving any notice, except for such consents, approvals, authorizations, advice
or waivers (individually a "Consent" and collectively "Consents") which have
been obtained and are unconditional and in full force and effect and such
notices (individually a "Notice" and collectively "Notices") which have been
duly given, all of which are listed on Section 2.1(b) of the Disclosure
Schedule, and except for Consents and Notices which are required under
immaterial contracts the absence of which would not have a material adverse
effect on the assets, business, financial condition or results of operations of
the Company or Seller. The board of directors of Seller, Varlen and Herzog have
duly authorized the execution or counter-signature, delivery and performance of
this Agreement by Varlen, Seller, Herzog and the Company. After having been
informed of the intended transfer of the Interest by the Seller to Buyer,
Herzog, sole other equity holder of the Company, intervenes to this Interest
Purchase Agreement and hereby approves said transfer and Buyer is a new equity
holder of the Company. This Agreement has been duly executed and delivered by
each of Varlen, Seller, Herzog and the Company and constitutes their respective
legal, valid and binding obligations, enforceable against them in accordance
with its terms, except as may be limited by bankruptcy, reorganization,
insolvency and similar laws of general application relating to or affecting the
enforcement of rights of creditors. The execution, delivery and performance of
this Agreement by Varlen, Seller and the Company, and the consummation of the
transactions contemplated thereby will not:
(i) conflict with, result in the breach of, or constitute a
default under, or the acceleration of any contract, agreement, commitment,
undertaking, restriction or instrument to which either Varlen, Seller or the
Company is a party or by which either of them may be bound or affected;
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon either Varlen, Seller or the Company;
or
(iii) violate any provision of the Articles of Incorporation or
Bylaws of either Varlen or Seller or the Company.
(c) Interest. Seller has good and valid title to the Interest, and
--------
has the right, title, power and authority to sell and transfer to Buyer the
Interest. The Interest is owned by
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Seller, and is being transferred by Seller to Buyer, free and clear of all Liens
(as defined in Section 2.1(i)), other than customary restrictions, if any, under
applicable securities laws. There are no options, proxies, voting trusts or
other agreements or understandings with respect to the issuance, transfer or
voting of the Interest. All issuances, sales and repurchases of equity interests
by the Company have been effected in compliance with the Bylaws of the Company
and all applicable laws, including, without limitation, applicable securities
laws.
(d) Capitalization of the Company.
-----------------------------
(i) The Company's capital amounts to FRF 1,000 and consists of
equity interests, of which ninety-nine percent (99%) (99 interests out of 100 of
a par value of FRF to each) are owned by Seller and one percent (1%) is owned by
Herzog.
(ii) There are no authorized, outstanding or existing:
(A) proxies or other agreements or understandings with
respect to the voting of any equity interest of the Company;
(B) depositary receipts of equity interests issued by the
Company;
(C) securities convertible into or exchangeable for any
equity interests of the Company (including notes, bonds or
debentures);
(D) options, warrants or other rights to purchase or
subscribe for any equity interests of the Company (other than
this Agreement), or securities convertible into or exchangeable
for any equity interests of the Company;
(E) agreements of any kind relating to the sale or issuance
of any equity interests of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights;
or
(F) agreements of any kind which may obligate the Company
to sell, issue or purchase any of its equity interests.
Subsequent to December 31, 1998, the Company has not declared or paid, and has
no obligation to declare or pay, any dividends that are payable after the
Effective Date, and as of the Effective Date, the Company has no obligation to
make, any distribution or payment to the equity holders of the Company or its
affiliates.
(e) The Company. The Company is engaged only in the Business and has
-----------
no subsidiaries, except as set forth in Section 2.1(e) of the Disclosure
Schedule. Copies of the Bylaws of the Company has heretofore been delivered to
Buyer or Buyer's counsel and are correct and complete and reflect all amendments
or changes in effect.
(f) Minute Book, Corporate Documents and Management. The Bylaws,
-----------------------------------------------
minute book of the equity holders' meetings and other corporate documents of the
Company
5
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have been duly and timely updated and adapted in order to fully comply with any
changes in applicable law, except to the extent the same would not have a
material adverse effect on the Company. The minute book of the equity holders'
meetings and other corporate records of the Company contain an accurate and up-
to-date record of all meetings and other corporate action of its equity holders
and other governing bodies or persons and give a true and accurate account of
the activities of the Company, except to the extent the same would not have a
material adverse effect on the Company. The Company's filings with the competent
Commercial and Companies Registry or other competent bodies and authorities are
complete and up-to-date in all respects and have been timely made as required by
applicable laws, except to the extent the same would not have a material adverse
effect on the Company.
The sole legal representative of the Company is its gerant (manager),
i.e., Mr. Andre-Yves Cottereau, who has not granted any delegation of his powers
as gerant to any third party and which would still be effective on the Effective
Date.
(g) Financial Statements and Financial Condition. Attached as
--------------------------------------------
Section 2.1(g) of the Disclosure Schedule are the following financial
statements:
(i) the unaudited balance sheets of the Company as of December
31, 1997 and 1998 and statements of income of the Company for the fiscal years
ended December 31, 1997 and 1998 (collectively, the "Annual Financial
Statements"), and
(ii) the unaudited balance sheet of the Company as of April 30,
1999, and statement of income of the Company for the period then ended (the
"Interim Financial Statements" and together with the Annual Financial
Statements, sometimes collectively referred to herein as the "Financial
Statements").
The Financial Statements have been prepared in accordance with United States
GAAP consistently applied (except such deviations described in Section 2.1(g) of
the Disclosure Schedule) and the amounts set forth therein were used by Seller
in connection with the preparation of its financial statements. The Financial
Statements are consistent with the books and records of the Company. The
Financial Statements present fairly the financial condition and results of
operations of the Company at the dates and for the periods specified, except as
otherwise noted therein and subject, in the case of Interim Financial
Statements, to recurring year-end adjustments that are not expected to be
material in amount.
As of the date hereof, the Company has no obligations or liabilities other than:
(A) those set forth or reserved against in the Financial
Statements;
(B) those incurred since April 30, 1999 in the ordinary
course of business in arms-length transactions and consistent in
nature and scope with past practice, which liabilities will not
have, in the aggregate, a material adverse effect upon the
business, operations or financial condition of the Company as it
exists on the Closing Date;
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(C) those under the executory portion of contracts and
agreements to which the Company is a party or by which it is
bound that are listed in the Disclosure Schedule or are not
required by the terms of this Agreement to be listed in the
Disclosure Schedule; and
(D) those incurred in the ordinary course of business and
consistent in nature and scope with past practice, which
liabilities are not required by GAAP to be shown on a balance
sheet (other than in notes thereto) and which liabilities,
individually and in the aggregate, are not material.
The Company has maintained its books of account and other records in accordance
with applicable laws, rules and regulations, and such books and records are and,
during the periods covered by the Financial Statements and from April 30, 1999,
through the Effective Date were, correct and complete in all material respects,
and provide or provided a fair and accurate basis for the preparation of the
Financial Statements and the Closing Date Schedule and reflect all material
transactions to which the Company has been a party. The Company has, each year,
regularly and timely filed its annual accounts and other accounting documents
with the competent Commercial Court, except to the extent it would not have a
material adverse effect on the Company. The Company does not have any statutory
auditor.
(h) Absence of Certain Changes. Etc. Since December 31, 1998, there
-------------------------------
has been no material adverse change in the business, operations, financial
condition or assets, of the Company. Without limiting the generality of the
foregoing, since December 31, 1998, except as set forth on the Disclosure
Schedule, the Company has not:
(i) issued, sold or delivered any of its equity interests or
notes, bonds or other debt instruments of the Company, or granted any rights
calling for the issuance, sale or delivery of any thereof (including without
limitation options, warrants, convertible securities, stock appreciation rights
or similar rights);
(ii) made any payments or distribution of assets (other than in
cash or as otherwise described in this Agreement) in the form of management fees
or otherwise to Seller or any Affiliate of Seller or of the Company. (As used
herein, the term "Affiliate" means a person or entity which controls, is
controlled by or is under common control with the person with respect to which
the determination is being made. "Control" means the power to direct or cause
the direction of the management and policies of a person or entity through
voting securities, by contract or otherwise.)
(iii) purchased or redeemed any of the equity interests of the
Company;
(iv) subdivided, combined, reclassified or recapitalized any of
the equity interests of the Company;
(v) amended the Bylaws of the Company or changed the Company's
name or permitted the use thereof by any other person;
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(vi) agreed to merge or consolidate the Company with any other
entity or to acquire any corporation, association, partnership, joint venture or
other entity;
(vii) changed the methods of accounting or accounting
principles or practices of the Company from those set forth in or reflected by
the Financial Statements or increased or experienced any adverse change in any
assumption underlying any method of calculating contingencies or other reserves
from that reflected in the Financial Statements;
(viii) cancelled or waived a claim of substantial value or sold,
transferred or otherwise disposed of (or agreed to sell, transfer or otherwise
dispose of) any assets of the Company, except for sales of inventory in the
ordinary course of business consistent with past practices or as otherwise set
forth on the Disclosure Schedule;
(ix) failed to maintain in full force and effect with respect
to the assets, employees and business of the Company all insurance coverage of
the types and in the amounts as were in effect on and as of December 31, 1998;
(x) made any legally binding commitment for additions to
property, plant or equipment having an individual cost in excess of $25,000 or
an aggregate cost in excess of $75,000 for all such items taken together;
(xi) disposed of or permitted to lapse any right listed or
described on the Disclosure Schedule pursuant to Section 2.1(q);
(xii) made or agreed to make any increase in the compensation
payable to any of the gerant (manager) or employees of the Company, other than
in accordance with continuing obligations disclosed in the Disclosure Schedule;
(xiii) entered into or amended any collective agreements and
supplementary benefit plans;
(xiv) suffered any significant casualty, damage, destruction or
loss, or interruption in use, of any significant asset or property (whether or
not covered by insurance), on account of fire, flood, riot, strike or other
hazard or act of God;
(xv) hired or terminated any employee who has an annual salary
in excess of US $30,000;
(xvi) imposed or permitted any Liens upon any of its assets,
tangible or intangible;
(xvii) without limitation by the enumeration of any of the
foregoing, entered into any agreement or transaction other than in the usual and
ordinary course of business in accordance with past practices, except for
actions taken in connection with the transactions contemplated by this
Agreement; or
(xviii) agreed, whether in writing or not, to do any of the
foregoing.
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(i) Title and Condition of Assets. The Company has good and
-----------------------------
marketable title to all of its assets (other than leased assets), free and clear
of all Liens. The Company's tangible assets, taken as a whole, are in good
operating condition, ordinary wear and tear excepted and constitute all of the
assets necessary to conduct the Business of the Company as the same is presently
conducted. As used herein, "Liens" shall mean any mortgage, pledge, lien,
encumbrance, charge or other security interest, other than (a) mechanic's,
materialmen's and similar liens, (b) liens for Taxes (as defined in Section
2.1(m)) not yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other liens
arising in the ordinary course of business and not incurred in connection with
the borrowing of money.
(j) Litigation; Compliance With Laws.
--------------------------------
(i) Except as set forth in the Disclosure Schedule, there are no
suits, actions, claims, arbitrations, administrative or legal or other
proceedings, whether in equity or at law, or governmental or administrative
investigations pending (i.e., where Seller or the Company has received service
of process or other formal action to commence such a proceeding) or, to the best
of Seller's knowledge, threatened (A) against or related to (x) Seller with
respect to the transactions contemplated by this Agreement, (y) the Company or
(z) any material asset or property owned, leased or used by the Company, or (B)
which question or challenge the validity of this Agreement or any action taken
or to be taken pursuant to this Agreement. Except as set forth on the
Disclosure Schedule and except for routine claims for benefits, no actions,
suits or claims are pending or, to the best of Seller's knowledge, threatened
with respect to any collective agreement applied by the Company and no material
product liability claim is pending or, to the best of Seller's knowledge,
threatened against the Company with respect to the products of the Company. The
Disclosure Schedule lists all product liability claims with respect to the
products or services of the Company arising out of occurrences from January 1,
1995 through the date of this Agreement.
(ii) The Company is in compliance with French federal, national
or local governmental or judicial laws, ordinances, permits, requirements,
decrees, rules, regulations, arbitration awards and orders applicable to the
Company or the business, operations or properties of the Company, except where
noncompliance would not have a material adverse effect on the Company. There is
no order, writ, injunction, judgment or decree of any court or federal, national
or local department, official, commission, authority, board/bureau, agency, or
other instrumentality issued or pending against the Company. The Company has
duly filed all reports and returns required to be filed by it with governmental
authorities and obtained all governmental permits and licenses and other
governmental consents which are required in connection with the businesses and
operations of, and the products sold by the Company; all of such permits,
licenses and consents are in full force and effect, and no proceedings for the
suspension or cancellation of any of them are pending or threatened as a result
of the transfer of the Interest, except where any of the above would not have a
material adverse effect on the Company.
(k) Company Contracts. Except as set forth on the Disclosure Schedule,
-----------------
all Company Contracts (as defined herein) are valid, subsisting, in full force
and effect and binding
9
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upon the parties thereto in accordance with their terms, subject to the
qualifications that enforcement of the rights and remedies created thereby is
subject to (A) bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of creditors and (B)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law), and the Company is not in
default under any of them, nor does any condition exist that with notice or
lapse of time or both would constitute such a default. To the knowledge of the
Seller, no other party to any such Company Contract is in default thereunder,
nor does any condition exist that with notice or lapse of time or both would
constitute such a default. Subject to obtaining any consents required under the
terms of the Company Contracts, all of the Company's rights under such Company
Contracts will remain in full effect upon consummation of the transactions
contemplated by this Agreement. For purposes of this Agreement, the term
"Company Contracts" means and includes, and the Disclosure Schedule lists, all
contracts, mortgages, debt instruments, security agreements, licenses,
commitments, guaranties, leases, charters, franchises, powers of attorney and
agency contracts and other agreements to which the Company is a party or by
which it is bound (excluding purchase and sale orders, inventory acquisition
agreements, in each case made in the ordinary course of business in arms-length
transactions and consistent in nature and scope with prior practices of the
Company) as of the date of this Agreement and that:
(i) involve or would involve the payment by the Company of in
excess of $25,000 during any fiscal year, unless cancelable by the Company with
notice of less than six (6) months and premium or penalty of less than $10,000;
(ii) relate to the payment of royalties with respect to any
products sold by the Company;
(iii) guarantee, indemnify or otherwise cause the Company to be
liable for the obligations or liabilities of another;
(iv) involve the borrowing or lending of money, or the granting
of any Lien;
(v) involve an agreement with any bank, finance company or
similar organization for the sale of any products of the Company on credit;
(vi) involve the sale by or to the Company of products on
consignment;
(vii) are or contain a power of attorney;
(viii) contain any renegotiation or redetermination provision;
(ix) require or are otherwise contingent upon the payment of
commissions or compensation to any person not a party to such Company Contract;
(x) concern the formation of a partnership or joint venture;
(xi) impose material noncompetition or confidentiality
obligations on the Company with respect to a third party;
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(xii) involve any significant license agreement or arrangement;
or
(xiii) require the Company to supply any other party with such
party's requirements for products or services.
The Disclosure Schedule specifically describes the arrangements (formal and
informal, written or oral) between the Company and any Related Party (as defined
below) (including Seller) and the services or functions (administrative or
otherwise) provided to the Company by any Related Party. No Related Party owns
any assets which are used in the Company's business, and no Related Party which
is under the control of the Seller is engaged in any business which competes
with the Business. As used herein, the term "Related Party" means (A) Seller or
any Affiliate (as defined below) of Seller or the Company, or (B) any
corporation, partnership, association, limited liability company or other entity
(other than the Company), in which any of the foregoing persons has any relation
by blood or marriage, has any material interest, direct or indirect. As used
herein, "Affiliate" shall mean any person, firm, corporation, partnership,
association or entity that directly or indirectly or through one or more
intermediaries controls, is controlled by or is under common control with
another person, firm, corporation, partnership, association or entity.
(l) Personnel.
---------
The Company has satisfied, and continues to satisfy, all its obligations
pursuant to French labor law. All of the employees of the Company are subject
to the appropriate collective bargaining and other collective agreements
applicable to them under French labor law as regards the main activities carried
out by the Company presently and in the past.
There are no individual compensation arrangements which may be due for
whatsoever reason or cause (including termination of employment agreement)
deviating in any material respect from the standard employment agreement
applicable to employees of the Company.
None of the employees and manager of the Company is entitled to any
benefits that are unusual in the light of prevailing industry standards in the
place of employment of such employee and/or manager. None of the employees of
the Company has made it known that he/she intends to terminate his/her
employment agreement and Varlen, Seller and/or the Company have not encouraged
any employee of the Company to terminate his/her employment with the Company.
There is no Workers' Committee, or other employees representative bodies or
persons in the Company and the Company is not required by law or otherwise to
organize for the election of such a Workers' Committee or other employees
representative body or person.
There have been no requests for union representation, strikes, lock-outs,
sit-ins or other action at any of the premises of the Company during the twelve
months prior to the date hereof and no such industrial action is threatened or
pending.
There is no pending or threatened litigation with a current or former
employee of the Company, in particular, without limitation, with respect to
unfair labor practice charge or employee grievance charge.
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(m) Tax Matters.
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(i) As used in this Agreement, the following terms shall have
the following meanings: (A) the term "Taxes" means all federal, national, state,
local, foreign and other net income, gross income, gross receipts, direct or
indirect sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, withholding, excise, severance, stamp, occupation, property, customs,
duties or other taxes, as well as any social contributions, including without
limitation, social security contributions, contributions to be paid to
unemployment insurance agencies, contributions to any complementary or
supplementary retirement plans, contributions to any medical, life and
disability plans supplementary to the social security plans, and in general any
taxes, withholding or contributions assessed in whole or in part on wages,
salaries, and compulsory levies of all kinds, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto, and (B)
the term "Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes. All citations to the
Code, or to the Treasury Regulations promulgated thereunder, shall include any
amendments or any substitute or successor provisions thereto. Any reference in
this Section to the Company includes a reference to a person or entity acting on
behalf of or with respect to the Company (including, without limitation,
Seller). The Company has duly and timely filed all Returns required to have been
filed by it prior to the Effective Date. All Taxes required to have been paid
prior to the Effective Date, or accruing with respect to the period ending on
the Effective Date, have been fully paid by the Company or, as the case may be,
by Seller and Herzog, on or prior to the due date thereof, or will be fully
accrued on the Closing Date Schedule. Except for this Agreement, there are no
tax sharing agreements to which the Company is a party or by which the Company
is affected.
(ii) The Company shall not incur any tax burden as a result of
the cessation, due to the sale of all or part of the Interest, of any tax
consolidation regime applicable to it.
(n) Environmental.
-------------
(i) The Company has complied with all Environmental Laws (as
defined herein), the failure to comply with which could result in Damages (as
defined herein) in excess of $25,000, and no action, suit, proceeding, hearing,
charge, complaint, claim, demand, or notice, and no investigation has been filed
or commenced against the Company alleging such failure.
(ii) Except (i) to the extent accrued in the Closing Balance
Sheet and (ii) liabilities for storage, handling, transportation, use and
disposal of Hazardous Substances (as defined herein) which are incurred by the
Company in the ordinary course of business, the Company has no liability for
Hazardous Substances (and has not handled, used, stored, recycled or disposed of
any Hazardous Substance (as defined herein)), arranged for the disposal of any
Hazardous Substance, exposed any employee or other individual to any Hazardous
Substance or condition, or owned or operated any property or facility, in any
manner that could reasonably be expected to form the basis for any present or
future action, suit, proceeding, hearing, investigations, charge, complaint,
claim or demand giving rise to any liability for Hazardous
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Substances which in each case could result in Damages in excess of $25,000 for
any reason under any Environmental Laws.
(iii) Except (i) to the extent accrued in the Closing Balance
Sheet and (ii) liabilities for storage, handling, transportation, use and
disposal of Hazardous Substances which are incurred by the Company in the
ordinary course of business, all properties and equipment used in the Business
are free of any amounts of Hazardous Substances, the use and disposal of which
could result in Damages (as defined herein) in excess of $25,000.
(iv) There are no in service or out of service underground
storage tanks located in or on real property owned by the Company or, to the
extent the Company is responsible for such tanks or any environmental damage
resulting therefrom, real property leased by the Company.
(v) The Company has not received notice and has no knowledge of
any reasonably likely claim under any Environmental Laws regarding the Business,
or any real property owned or leased by the Company.
(vi) As used herein, the term Environmental Laws shall mean all
federal, national, state, European Union and local laws, statutes, ordinances,
rules, regulations, decrees, orders and settlements regarding the protection of
human health, safety and the environment and pollution, in effect as of the date
of this Agreement and applicable to the Facilities and the operations conducted
thereon, as amended, and any regulations promulgated thereunder, as they existed
on the date hereof.
"Hazardous Substances" shall mean materials, substances or wastes defined
by or regulated by applicable Environmental Laws.
(o) Receivables. To the knowledge of Seller, all of the accounts
-----------
receivable of the Company arose in the ordinary course of business, and are good
and collectable in the ordinary course of business, net of reserves therefor in
the Financial Statements.
(p) Inventories. The inventory of the Company consists of raw
-----------
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured. The inventories of the Company have been
valued in the Financial Statements at the lower of cost or market and in a
consistent manner with respect to all periods covered thereby. Section 2.1(p)
of the Disclosure Schedule sets forth the Company's practices and procedures
with respect to the valuation of inventories which are consistent with those
used in the preparation of the Financial Statements (and will be used in the
preparation of the Closing Balance Sheet). The Company is not under any
liability or obligation with respect to the return of inventory or merchandise
in the possession of wholesalers, distributors, retailers or other customers.
Except as described on Section 2.1(p) of the Disclosure Schedule, no inventory
of the Company is on consignment.
(q) Intangible Assets. The Disclosure Schedule lists all material
-----------------
patents, trademarks and service marks, patent, trademark and service mark
registrations and applications, trade names, copyrights, copyright registrations
and applications, and licenses with respect thereto owned by the Company or used
by the Company in its business operations (collectively,
13
<PAGE>
"Intellectual Property"). Intellectual Property which is owned by a third party
and used by the Company has been duly licensed to the Company and the Company
has sufficient rights to use such Intellectual Property to conduct its business
as presently conducted. There is no material item of Intellectual Property not
owned by or licensed to the Company which is necessary for the conduct of the
Company's business as presently conducted. There are no claims, demands or
proceedings instituted, pending or, to the best of Seller's knowledge,
threatened pertaining to or challenging the right of the Company to use any of
the Intellectual Property or alleging that any of the Intellectual Property
infringes or otherwise violates the patent, trade name, trademark, copyright or
other rights of any other person. Except as set forth in the Disclosure
Schedule, the Company has not granted any licenses or other rights under, or
authorized or permitted anyone else to use, any of the Intellectual Property.
(r) Customers. To the best of Seller's knowledge, since May 31,
---------
1999, there has not been any termination, cancellation or material limitation,
modification or change in the business relationship of the Company with any
significant customer of the Company.
(s) Real Estate.
-----------
(i) The Company does not own any real estate.
(ii) The Disclosure Schedule lists and describes briefly all real
property leased to the Company. With respect to each lease listed in the
Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in accordance with its
terms and shall not be affected by the transfer of Interest and
this Agreement;
(B) the Company is not, and to the knowledge of the Company,
no party to the lease or sublease is, in breach or default, and
no event has occurred and is continuing which, with notice or
lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(C) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease;
(D) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold; and
(E) all facilities leased thereunder have received all
approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and
have been operated and maintained in all material respects in
accordance with applicable laws, rules, and regulations.
(t) No Other Representations and Warranties by Varlen and Seller;
-------------------------------------------------------------
Specific Disclosure.
- -------------------
14
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(i) Varlen and Seller shall not be deemed to have made to Roper
and Buyer any representation or warranty other than as expressly made by Varlen
and Seller in this Section 2.1.
(ii) Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by Varlen and Seller
in Section 2.1, Seller and Varlen are not making any representation and warranty
with respect to:
(A) any projections, estimates or budgets of future
revenues, expenses or expenditures, results of operations (or any
component thereof) or financial condition (or any component
thereof) of the Company, or
(B) any other information or documents made available to
Buyer and Roper or any of their representatives or investors with
respect to the Company.
(iii) For purposes of this Agreement, references to the
"knowledge of Seller", "Seller's knowledge" or "Seller's awareness" or words of
similar import shall mean and include the actual knowledge of Seller after due
inquiry of the individuals listed on Section 2.1(t) of the Disclosure Schedule,
including without limitation Andre-Yves Cottereau, with respect to the indicated
matters.
(iv) A disclosure in one section of the Disclosure Schedule
shall not be effective with respect to another representation and warranty
unless such section is specifically cross-referenced.
2.2. Representations and Warranties of Buyer and Roper.
--------------------------------------------------
Roper and Buyer hereby represent and warrant, jointly and severally, to
Seller and Varlen, as of the Effective Date, as follows:
(a) Organization and Good Standing of Buyer. Buyer is a Societe
---------------------------------------
Anonyme duly organized, validly existing, and in good standing under the laws of
France and has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. Buyer is qualified to do
business as a foreign corporation in each jurisdiction where it is required to
qualify in order to conduct its business as presently conducted.
(b) Organization and Good Standing of Roper. Roper is a corporation
---------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. Roper is
qualified to do business as a foreign corporation in each jurisdiction where it
is required to qualify in order to conduct its business as presently conducted.
(c) Consents, Authorizations and Binding Effect. Each of Roper and
-------------------------------------------
Buyer has full corporate power and authority to execute, deliver and perform its
obligations under this Agreement without the necessity of obtaining any Consent
or giving any Notice, except for such Consents which have been obtained and are
unconditional and in full force and effect and such Notices which have been duly
given. The board of directors of Roper has duly authorized the
15
<PAGE>
execution, delivery and performance of this Agreement by Roper. This Agreement
has been duly executed and delivered by each of Roper and Buyer and constitutes
its legal, valid and binding obligation, enforceable against it in accordance
with its terms, except as may be limited by bankruptcy, reorganization,
insolvency and similar laws of general application relating to or affecting the
enforcement of rights of creditors. The execution, delivery and performance of
this Agreement by Roper and Buyer will not:
(i) conflict with, result in the breach of or constitute a
default under or the acceleration of any contract, agreement commitment,
undertaking, restriction or instrument to which Roper and Buyer are a party or
by which Roper and Buyer may be bound or affected, or
(ii) constitute a violation of any statute, judgment, order,
decree, regulation or rule of any court, governmental authority or arbitrator
applicable or relating to or binding upon Roper and Buyer, or
(iii) violate any provision of the Articles of Incorporation or
Bylaws of Buyer and Roper.
(d) Acquisition of Interest for Investment. Buyer acknowledges that
--------------------------------------
in acquiring the Interest under this Agreement, Buyer has relied solely on the
representations and warranties set forth in Section 2.1, including the
information in the Disclosure Schedule related thereto and the documents and
information referred to therein, and the other covenants and statements of
Seller set forth in this Agreement, and not upon any other representations,
warranties, covenants or statements of any kind. Buyer has sufficient
knowledge, experience and sophistication to enable it properly and fully to
evaluate and understand the merits and risks associated with its acquisition of
the Interest. Buyer is acquiring the Interest for its own account for investment
and with no present intention of distributing or reselling such Interest or any
part thereof in any transaction which would constitute a "distribution" within
the meaning of the Securities Act. Buyer understands that the Interest has not
been registered under the Securities Act or any state securities laws and may
not be sold or transferred except in compliance therewith or pursuant to an
exemption thereunder and are being transferred to Buyer, in part, in reliance on
the foregoing representation and warranty.
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND TERMINATION
3.1. Closing.
--------
The Closing and the sale, purchase and transfer of the Shares will take
place at the offices of Powell, Goldstein, Frazer & Murphy LLP, 16/th/ Floor,
191 Peachtree Street, N.E., Atlanta, Georgia 30303, on June 21, 1999 (the
"Closing Date"), effective as of the close of business on June 18, 1999 (the
"Effective Date").
16
<PAGE>
3.2. Conditions to Obligations of Buyer and Roper.
---------------------------------------------
The obligations of Buyer and Roper to consummate the sale and purchase
under this Agreement are subject to the satisfaction of the following
conditions, each of which may be waived by Buyer and Roper.
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Varlen and Seller set forth in this Agreement
shall be true and correct in all material respects. Seller and Varlen shall
have performed in all material respects the covenants and obligations necessary
to be performed by it under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize
--------------------------
the execution, delivery and performance of this Agreement by Seller and Varlen
shall have been duly and validly taken, and Seller and Varlen shall have full
right, power and authority to consummate the transactions contemplated hereby on
the terms provided herein.
(c) Security Interests, Encumbrances, Liens, etc. Roper and Buyer
---------------------------------------------
shall receive written advice to the effect that a search of the public records
has disclosed that no Liens, other than those reflected in Section 2.1(i) of the
Disclosure Schedule, have been filed or recorded with respect to the Company's
assets, Interest and the remaining equity interest, and all Liens requested by
Roper and Buyer to have been released or satisfied shall have been released or
satisfied.
(d) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(e) Corporate Matters. If requested, Buyer and Roper shall have
-----------------
received (i) the resignation letter of the gerant (manager) of the Company, and
of any other legal representative, if any, such resignation to be effective as
of immediately following the Closing and (ii) the minute book of the meetings of
the equity holders of the Company.
(f) Other Agreements. The sellers under the German Sales Agreement
----------------
and under the U.S. Sales Agreement are closing the transactions contemplated
under such agreements simultaneously with the Closing.
(g) Interest. Buyer and Roper shall have received from Seller all
--------
the duly executed originals of the "Acte de Cession de Parts" relative to the
transfer of the Interest to Buyer (as provided in Section 6.4 below), together
with an undertaking from Varlen and Seller to execute, promptly after the date
hereof, such additional documents as shall be necessary to more fully effect the
transfer to Buyer of the Interest under French law in accordance with the terms
of this Agreement.
(h) Opinion. Buyer shall have received a legal opinion from Seller's
-------
General Counsel containing customary opinions with respect to the Company and
the transactions contemplated hereby.
17
<PAGE>
3.3. Conditions to Obligations of Seller and Varlen.
-----------------------------------------------
The obligations of Seller and Varlen to consummate the sale and purchase
under this Agreement are subject to the satisfaction of the following
conditions, each of which may be waived by Seller and Varlen:
(a) Representations and Warranties; Performance of Obligations. The
----------------------------------------------------------
representations and warranties of Roper and Buyer set forth in this Agreement
shall be true and correct in all material respects. Roper and Buyer shall have
performed in all material respects the covenants and obligations necessary to be
performed by them under this Agreement prior to the Closing Date.
(b) Authorization of Agreement. All action necessary to authorize
--------------------------
the execution, delivery and performance of this Agreement by Roper and Buyer
shall have been duly and validly taken and Roper and Buyer shall have full
right, power and authority to consummate the transactions contemplated hereby on
the terms provided herein.
(c) Suits or Proceedings. No suit, proceeding or investigation shall
--------------------
have been commenced or threatened by any governmental authority to restrain,
enjoin or hinder, or to seek material damages on account of, the consummation of
the transactions herein contemplated.
(d) Other Agreements. The buyers under the German Sales Agreement
----------------
and under the U.S. Sales Agreement are closing the transactions contemplated
under such agreements simultaneously with the Closing.
(e) Purchase Price. Seller shall have received the Purchase Price.
--------------
(f) Opinion. Varlen and Seller shall have received a legal opinion
-------
from Roper's counsel with respect to Roper and the transactions contemplated by
this Agreement.
ARTICLE IV
INDEMNIFICATION
4.1. Indemnification of Buyer and Roper.
-----------------------------------
Subject to the terms and conditions of this Article IV, Seller and Varlen
shall defend, at their own expense, and shall jointly and severally indemnify
Roper, Buyer and/or Company at Roper or Buyer's option, against, and hold Roper,
Buyer and Company harmless from, any and all loss, damage or liability, and all
expenses, including without limitation reasonable legal fees and costs of
investigation, remediation or other response action and other costs
(collectively "Damages"), asserted against or incurred by Roper, Buyer and/or
the Company arising out of:
(a) a breach of the representations and warranties made by Seller or
Varlen in this Agreement or in any certificate or other instrument furnished or
to be furnished to Buyer hereunder;
18
<PAGE>
(b) the non-fulfillment of any agreement or covenant made by Seller
or Varlen in or pursuant to this Agreement or in any certificate or other
instrument furnished or to be furnished to Buyer hereunder;
(c) any liability or obligation of the Company arising out of or in
connection with the conduct of the Business prior to the Effective Date, except
to the extent such liability or obligation (i) is described in Paragraphs (A),
(B), (C) or (D) of Section 2.1(g) (without regard to any materiality qualifier
contained therein); or (ii) results in an indemnifiable claim for a breach of
representation and warranty for which Roper, Buyer or the Company otherwise
recovers under Section 4.1(a) above.
4.2. Indemnification of Seller and Varlen.
-------------------------------------
Subject to the terms and conditions of this Article IV, Roper and Buyer
shall defend, at their own expense, and shall indemnify Varlen and/or Seller
against, and hold Varlen and/or Seller harmless from, any and all Damages
asserted against or incurred by Varlen and/or Seller arising out of:
(a) any breach of the representations and warranties made by Buyer
and Roper in this Agreement or in any certificate or other instrument furnished
or to be furnished to Varlen and Seller hereunder,
(b) the non-fulfillment of any agreement or covenant made by Roper
and Buyer in or pursuant to this Agreement, or
(c) the operations of the Company following the Effective Date.
4.3. Survival.
---------
All representations and warranties contained herein or made pursuant
hereto, whether by Varlen, Seller or Buyer, and the indemnification provided
under Sections 4.1(a) and 4.1(c) shall survive the closing hereunder until the
second anniversary of the Closing Date, except that:
(a) the representations and warranties of Varlen and Seller contained
in or made pursuant to Sections 2.1(a) (other than the last sentence thereof),
2.1(b), 2.1(c) and 2.1(d), and of Roper and Buyer contained in Sections 2.2(a),
2.2(b), 2.2(c) and 2.2(d) shall survive the Closing hereunder without any
limitation as to time; and
(b) the representations and warranties of Varlen or Seller contained
in or made pursuant to Section 2.1(m) hereof, or otherwise with respect to Tax
matters, shall survive the Closing until six months after the date of expiration
of any applicable statute of limitations and on which the right to file any
claim in respect of such matters by the appropriate governmental or
administrative authority or any other Person has expired.
The expiration of any representation and warranty or any indemnification
obligation hereunder shall not affect any claim made by the giving of written
notice by a Party to the other in the manner provided by this Agreement, prior
to the date of such expiration. All covenants,
19
<PAGE>
indemnities and agreements shall survive the Closing forever, subject to
applicable time periods and limitations specified in this Agreement.
4.4. Claims.
-------
(a) Promptly after receipt by an indemnified party of written notice
of the commencement of any investigation, claim, proceeding or other action in
respect of which indemnity may be sought from the indemnitor (an "Action"), such
indemnified party shall notify the indemnitor in writing of the commencement of
such Action; but the omission to so notify the indemnitor shall not relieve it
from any liability that it may otherwise have to such indemnified party, except
to the extent that the indemnitor is materially prejudiced or forfeits
substantive rights or defenses as a result of such failure. In connection with
any Action in which the indemnitor and any indemnified party are parties, the
indemnitor shall be entitled to participate therein, and may assume the defense
thereof. So long as the indemnifying party is diligently defending in good
faith any such Action, the indemnifying party may control the defense thereof;
in such event, the indemnified party may participate in the defense of the
Action at its own expense. Neither the indemnifying party nor the indemnified
party will settle or compromise the Action without the consent of the other,
which consent will not be unreasonably withheld.
(b) In the event a Party should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the Party
seeking indemnification shall promptly send notice of such claim to the Party
from whom indemnification is sought. If the latter does not dispute such claim,
the latter shall pay such claim in full within 10 business days. If the latter
disputes such claim, such dispute shall be resolved by agreement of the Parties
or in any other manner available under law.
(c) The indemnified party shall make available to the indemnifying
party or its representatives all records and other materials reasonably required
by them for use in connection with any such claim and shall cooperate with the
indemnifying party in the defense of all third party claims.
4.5. Limitations.
------------
Any claims for breach of any representation or warranty made hereunder
shall be subject to the following limitations and adjustments:
(a) indemnification under Section 4.1(a) and 4.1(c) shall only be
required to be provided by Varlen or Seller when the aggregate amount of all
claims for which indemnification is sought from Roper or Seller under Sections
4.1(a) and 4.1(c) of this Agreement, the German Sales Agreement and the U.S.
Sales Agreement exceeds $250,000, in which case Varlen or Seller shall be liable
for all such amounts in excess thereof; provided, however, that this requirement
shall not apply to any medical or casualty claims which arise prior to Closing
that are reported after the Closing.
(b) no individual claim for indemnity under Section 4.1(c) may be
brought unless the aggregate Damages in respect of such claim exceeds $20,000,
but in such event Damages shall be recoverable without regard to such $20,000
threshold, subject to any other limitations imposed under this Section 4.5;
20
<PAGE>
(c) no claim for indemnity under Sections 4.1 or 4.2 shall be
effective unless noticed, pursuant to Section 4.4, within the survival period
specified under Section 4.3;
(d) in no event shall Seller's indemnification obligation with
respect to a breach of representations and warranties under Section 4.1(a) (but
excluding Sections 2.1(a), except the last sentence thereof, 2.1(b), 2.1(c) and
2.1(d)) of this Agreement, the German Sales Agreement and the U.S. Sales
Agreement exceed the amount of $4,200,000. The indemnification obligations of
either Seller and Varlen or Buyer respectively, for representations and
warranties set forth in Sections 2.1(a), except the last sentence thereof,
2.1(b), 2.1(c) and 2.1(d) and Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d) of this
Agreement, the German Sales Agreement and the U.S. Sales Agreement shall not
exceed the aggregate purchase price under this Agreement, the German Sales
Agreement and the U.S. Sales Agreement;
(e) in no event shall either Seller's, Varlen's or Buyer's respective
indemnification obligations under Section 4.1(c) or 4.2(c) exceed the amount of
$5,000,000.
(f) under no circumstances shall any Party be liable to another Party
for punitive, consequential or non-compensatory damages;
(g) any indemnifiable claim shall be reduced by the amounts actually
recovered by the indemnified party from insurance carriers and any amount
recovered by the indemnified party subsequent to the payment by the indemnitor
with respect to the same claim shall be remitted to the indemnitor, provided
that such remittance shall not exceed the amount of such indemnification payment
by the indemnitor;
(h) notwithstanding the foregoing, the provisions of this Section 4.5
shall not apply to any indemnification obligations arising out of the
indemnities contained in Sections 4.1(b) or 4.2(b) of this Agreement, but all
such indemnification obligations of either party shall be limited to and shall
not exceed the aggregate purchase price under this Agreement, the German Sales
Agreement and the U.S. Sales Agreement; and
(i) the Parties agree that the sole liability and the sole remedy of
Varlen, Seller, Buyer and the Company for any claim with respect to the
transactions contemplated under this Agreement (including without limitation
under Environmental Laws) shall be limited to indemnification under Article IV
of this Agreement, and in connection therewith each Party waives any and all
statutory and common law rights and remedies (including without limitation
rights of indemnification and contribution) which any such Party may have
against another Party (except equitable remedies such as injunction and specific
performance).
(j) for purposes of this Section 4.5, any amounts paid as Damages
under this Agreement, U.S. Sales Agreement or the German Sales Agreement in
foreign currency shall be valued at the US exchange rate on the Effective Date.
21
<PAGE>
ARTICLE V
CERTAIN POST CLOSING MATTERS
5.1. Certain Tax Matters.
-------------------
Following the Closing, Buyer and the Company agree that the Company will
not:
(a) pay any dividends (including without limitation deemed dividends
under Sections 304 and 956 of the U.S. Internal Revenue Code) or make any
distributions to its equity holder during calendar year 1999;
(b) enter into any transaction during 1999 outside the ordinary
course of business that could generate "Subpart F income" for the Company or
Seller within the meaning of the U.S. Internal Revenue Code; or
(c) elect to treat the transactions contemplated under this Agreement
as an asset acquisition under Section 338 of the U.S. Internal Revenue Code.
5.2. Tax Sharing Arrangements.
-------------------------
All tax sharing arrangements and any other contracts with respect to Taxes
between Seller (and its affiliates) and the Company, if any, are terminated as
of the Effective Date.
5.3. Access to Records After Closing.
--------------------------------
(a) Following the Closing, Buyer shall give to Seller, without
charge, reasonable access to (and the right to make copies at the expense of
Seller of) the books, files, records and tax returns of the Company to the
extent that such relate to the business and operations of the Company on or
prior to December 31, 1999, and are in the Company's possession on the Closing
Date or subsequently come into Buyer's possession, but any access pursuant to
this Section 5.3 shall be conducted by Seller in good faith, with a reasonable
purpose and in such manner as not to interfere unreasonably with the operations
of Buyer following the Closing. Buyer shall also use reasonable diligence to
provide all information requested by Seller with respect to the period ending
December 31, 1999, for tax purposes. For a period of five years after the
Closing, Buyer shall maintain such books, files, records and tax returns and
thereafter, prior to destroying or disposing of any of them, Buyer shall give,
or shall cause the Company to give, 30 days' advance notice to Seller of their
intended destruction or disposition, and during such 30-day period Seller shall
have the right to take possession of the same or to make copies of the same, all
at Seller's expense.
(b) Following the Closing, Seller shall give to Buyer, without
charge, reasonable access to (and the right to make copies at the expense of
Buyer of) the books, files, records and tax returns of Seller to the extent that
such relate to the business and operations of the Company on or prior to the
Closing Date and are in Seller's possession on the Closing Date or subsequently
come into Seller's possession, but any access pursuant to this Section 5.3 shall
be conducted by Buyer in good faith, with a reasonable purpose and in such
manner as not to interfere unreasonably with the operations of Seller following
the Closing. For a period of five years after the Closing, Seller shall maintain
such books, files, records and tax returns and
22
<PAGE>
thereafter, prior to destroying or disposing of any of them, Seller shall give,
30 days' advance notice to Buyer of their intended destruction or disposition,
and during such 30-day period Buyer shall have the right to take possession of
the same or to make copies of the same, all at Buyer's expense.
(c) For a period of one hundred twenty (120) days following the
Closing, Buyer shall cause to be prepared and delivered to Seller (to the extent
not already prepared and delivered) in the normal time frame followed by Seller
and the Company consistent with past practice and in all events within fifteen
(15) days after it shall have been requested by Seller, the financial reporting
package for the Company (but only in respect of periods ending on or prior to
the Closing Date) for (i) the quarterly Closing for Seller's fiscal quarter
ending July 31, 1999, and (ii) Seller's fiscal year ending January 31, 2000.
After such one hundred twenty (120) day period, Buyer shall cooperate and use
reasonable diligence to provide Seller with all information requested by Seller
to assist Seller in preparing a financial reporting package for the Company (but
only in respect of periods ending on or prior to the Closing Date) for (i) the
quarterly closing for Seller's fiscal quarter ending July 31, 1999, and (ii)
Seller's fiscal year ending January 31, 2000.
5.4. Covenant Not to Compete.
------------------------
As an inducement for Buyer to enter into this Agreement, Seller agrees
that:
(a) Non-Compete. For a period of three (3) years after the Closing,
-----------
Seller shall not do, and shall cause any Affiliate of Seller controlled by it
not to do, any one or more of the following, directly or indirectly:
(i) engage, manage, operate, finance, control or participate,
as an owner, partner, shareholder, member, consultant, or (without limitation by
the specific enumeration of the foregoing) otherwise, in any business whose
products or activities compete, in whole or in part, with the products or
activities which the Company manufactures or distributes (which products or
activities include those currently sold and under active development) on the
Effective Date (any such business is referred to herein as a "Competitive
Business"). For purposes of this Section, "active development" shall mean
efforts for which resources have been committed by the Company having a value in
excess of $50,000.
(ii) solicit or attempt to solicit, with respect to a
Competitive Business, any customer of Buyer which has been a customer of the
Company within the past three (3) years; or
(iii) except as set forth in the Disclosure Schedule, induce or
attempt to induce any person or entity that is an employee or agent of the
Company on the Effective Date to terminate his, her or its relationship with, or
employment by, the Company.
(b) Limitation. Notwithstanding the foregoing, the provisions of
----------
Section 5.4(a) hereof shall not be deemed to prohibit or restrict in any manner
(i) the acquisition by Seller or any Affiliate of Seller of any company
partially engaged in a Competitive Business, provided that if such Competitive
Business accounts for more than the lesser of $10,000,000 or five percent (5%)
of the net revenues of the acquired company, Seller or such Affiliate shall use
23
<PAGE>
commercially reasonable efforts promptly after the consummation of the
acquisition to divest itself of the Competitive Business within eighteen (18)
months after such consummation, or (ii) acquisition or ownership by Seller or
any Affiliate of Seller of up to five percent (5%) of the debt or equity
interest in any company partially engaged in a Competitive Business whose
securities are traded on a national securities exchange or NASDAQ, so long as
such Competitive Business does not account for more than the lesser of
$10,000,000 or five percent (5%) of the net revenues of such company and neither
Seller nor an Affiliate of Seller is an Affiliate of such company.
(c) Modifications. Seller recognizes that the time and scope
-------------
limitations set forth in this Section 5.4 are reasonable and are required for
the protection of Buyer and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, Buyer and Seller agree to the reduction of either of such time or
scope limitations to such a period or scope as such court shall deem reasonable
under the circumstances.
(d) Injunctive Relief. The Parties specifically recognize that any
-----------------
breach of Section 5.4(a) may cause irreparable injury and that actual damages
may be difficult to ascertain, and in any event, may be inadequate. Accordingly
(and without limiting the availability of legal or equitable, including
injunctive, remedies under any other provisions of this Agreement), each Party
agrees that in the event of any such breach, the other Party shall be entitled
to injunctive relief in addition to such other legal and equitable remedies that
may be available.
5.5. Cooperation on Claims.
-----------------------
Without limiting the generality of any other provision of this Agreement,
with respect to any claim of any kind for which Varlen and Seller have retained
liability under this Agreement, (i) Roper and Buyer will not settle or
compromise any such claim without the consent of Varlen or Seller, (ii) Buyer
and Roper will make available to Varlen and Seller, their insurer and their
respective representatives all records and other materials as may be reasonably
requested by them for use in handling any such claim and (iii) Buyer and Roper
will reasonably cooperate, and will use their best efforts to cause their
employees to cooperate, with Varlen and Seller, their insurer and their
respective representatives in the handling of all such claims.
ARTICLE VI
MISCELLANEOUS
6.1. Further Actions.
----------------
From time to time, as and when requested by Roper or Buyer and at Roper or
Buyer's expense, Varlen and Seller shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions as Roper and Buyer may
reasonably deem necessary or desirable to carry out the intent and purposes of
this Agreement, to convey, transfer, assign and deliver on the Closing Date to
Buyer, and its successors and assigns, the Interest (or to evidence the
foregoing) and to consummate the other transactions contemplated hereby. As
soon as practicable, Roper shall
24
<PAGE>
cause the Company to change its name to a name that does not include the name
"Varlen." Roper shall have filed any necessary documents within sixty (60) days
from the date hereof.
6.2. Brokerage.
----------
Varlen and Seller represents and warrants to Roper and Buyer that Seller
has no obligation or liability to any broker or finder by reason of the
transactions which are the subject of this Agreement; Varlen and Seller shall
indemnify Roper and Buyer and the Company against, and shall hold Roper and
Buyer and the Company harmless from, at all times after the date hereof, any and
all liabilities (including without limitation legal fees), and shall pay any
final judgment obtained by any person claiming brokerage commissions or finder's
fees, or rights to similar compensation, on account of services purportedly
rendered on behalf of Varlen and Seller, or prior to Closing the Company, in
connection with this Agreement or the transactions contemplated hereby. Roper
and Buyer represent and warrant to Varlen and Seller that Roper and Buyer have
no obligation or liability to any broker or finder by reason of the transactions
which are the subject of this Agreement; Roper and Buyer shall indemnify Varlen
and Seller against, and shall hold Varlen and Seller harmless from, at all times
after the date hereof, any and all liabilities (including without limitation
legal fees), and shall pay any final judgment obtained by any person claiming
brokerage commissions or finder's fees, or rights to similar compensation, on
account of services purportedly rendered on behalf of Roper and Buyer, or after
Closing the Company, in connection with this Agreement or the transactions
contemplated hereby.
6.3. Expenses.
---------
Each of Roper, Buyer, Varlen and Seller shall pay their respective expenses
in connection with the negotiation, execution, delivery and performance of this
Agreement. The 4.80% registration duty on the Purchase Price payable to the
French tax authorities shall be paid by Buyer and Buyer shall take all necessary
actions to register the present transfer of the Interest with the French tax
authorities within one month following the Closing Date as required by French
law.
6.4. Entire Agreement.
-----------------
This Agreement, which includes the Schedules and Exhibits hereto and the
other documents, agreements and instruments executed and delivered pursuant to
or in connection with this Agreement, contains the entire agreement between
Buyer, the Company and Seller with respect to the transactions contemplated by
this Agreement and supersedes all prior arrangements or understandings with
respect thereto. As provided in Section 3.2(g) above, Seller and Buyer entered
on the Closing Date into an Acte de Cession de Parts which has been executed
only for the purposes of the tax registration with the French tax authorities
and other notifications to be made to third parties. The Parties expressly
agree that in the event of any difference in interpretation and/or inconsistency
between this Agreement and the Acte de Cession de Parts, this Agreement shall
prevail.
25
<PAGE>
6.5. Descriptive Headings.
---------------------
The descriptive headings of this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
6.6. Notices.
--------
All notices and other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
overnight delivery service or by registered or certified mail, postage prepaid,
addressed as follows:
If to Varlen and Seller, or pre-Closing to the Company:
Acieries de Ploermel
Varlen Corporation
55 Shuman Boulevard
P.O. Box 3089
Naperville, Illinois 60566-7089
Attn: Vicki Casmere
General Counsel
If to Roper and Buyer, or post-Closing to the Company:
Instrumentation Scientifique de Laboratoire
Roper Industries, Inc.
160 Ben Burton Road
Bogart, Georgia 30622
Attn: President
Any party may by notice change the address to which notices or other
communications to it are to be delivered or mailed.
6.7. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. Each of the parties hereto irrevocably submits
to the jurisdiction of the Courts of the State of Delaware, and of any Federal
Court located in the State of Delaware, in connection with any action or
proceeding arising out of or relating to, or breach of, this Agreement or of any
document or instrument delivered pursuant to or in connection with this
Agreement, save as provided in Section 1.2(c) above.
6.8. Assignability.
--------------
This Agreement (including the indemnification provisions) shall not be
assignable otherwise than by operation of law by any Party without the prior
written consent of the other Parties, which shall not be unreasonably withheld,
and any purported assignment by any Party without the prior written consent of
the other Parties shall be void. This Agreement shall inure to
26
<PAGE>
the benefit of and be binding upon the Parties hereto and their respective
successors and permitted assigns.
6.9. Waivers and Amendments.
-----------------------
Any waiver of any term or condition, or any amendment or supplementation,
of this Agreement shall be effective only if in writing. A waiver of any breach
of any of the terms or conditions of this Agreement shall not in any way be
construed as a waiver of any subsequent breach.
6.10. Third Party Rights.
-------------------
This Agreement shall be effective only as between the Parties hereto, their
successors and permitted assigns.
6.11. Illegality.
-----------
In the event that any one or more of the provisions contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in any other respect and the remaining provisions of this Agreement
shall not, at the election of the Party for whom the benefit of the provision
exists, be in any way impaired.
6.12. Release.
--------
As of the Effective Date, the Company hereby releases, acquits and forever
discharges each gerant (manager) and equity holder of the Company from any and
all liabilities, obligations, claims, demands, actions and causes of action
which the Company ever had, now has or hereafter may have based upon, relating
to or arising out of any event, occurrence, act, omission or condition occurring
or existing as of or prior to the Closing in any way connected with such
gerant's or equity holder's status as such or actions taken in such capacity.
Buyer and Roper consents to the foregoing release. Varlen, Seller, Roper and
Buyer agree that this release shall not in any manner limit or otherwise affect
the rights and obligations of Varlen, Seller, Roper and Buyer under this
Agreement.
[REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
27
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
Varlen:
VARLEN CORPORATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
Seller:
ACIERIES de PLOERMEL
By:________________________________________
Name:______________________________________
Title:_____________________________________
The Company:
HERZOG VARLEN INSTRUMENTS
By:________________________________________
Name:______________________________________
Title:_____________________________________
Buyer:
INSTRUMENTATION SCIENTIFIQUE DE LABORATOIRE
By:________________________________________
Name:______________________________________
Title:_____________________________________
<PAGE>
ROPER:
ROPER INDUSTRIES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
COUNTERSIGNED BY:
WALTER HERZOG GmbH
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
among
EASTMAN KODAK COMPANY
and
ROPER INDUSTRIES, INC.
and
ROPER ACQUISITION SUBSIDIARY, INC.
dated as of November 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
page
----
<S> <C>
ARTICLE I. DEFINITIONS.................................................................................... 1
Section 1.1 Certain Definitions.......................................................................... 1
Section 1.2 Interpretation............................................................................... 6
ARTICLE II. PURCHASE AND SALE............................................................................. 7
Section 2.1 Purchase and Sale of Business and Assets..................................................... 7
Section 2.2 Excluded Assets.............................................................................. 9
Section 2.3 License of Certain Rights.................................................................... 10
Section 2.4 Inability to Deliver Assets.................................................................. 11
Section 2.5 Assumption of Liabilities.................................................................... 12
Section 2.6 Excluded Liabilities......................................................................... 12
Section 2.7 Purchase Price............................................................................... 13
Section 2.8 Post-Closing Adjustment...................................................................... 14
Section 2.9 Closing...................................................................................... 15
Section 2.10 Purchase by Parent's Affiliates; Guaranty................................................... 15
Section 2.11 Staged Closings............................................................................. 16
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER..................................................... 17
Section 3.1 Organization and Power....................................................................... 17
Section 3.2 Corporate Authorization...................................................................... 17
Section 3.3 Approvals.................................................................................... 18
Section 3.4 Non-Contravention............................................................................ 18
Section 3.5 Binding Effect............................................................................... 18
Section 3.6 Certain Financial Statements................................................................. 18
Section 3.7 Assets; Title................................................................................ 19
Section 3.8 Compliance With Laws......................................................................... 20
Section 3.9 Litigation and Claims........................................................................ 20
Section 3.10 Intellectual Property....................................................................... 20
Section 3.11 Employee Benefits........................................................................... 22
Section 3.12 Environmental Matters....................................................................... 22
Section 3.13 Labor Matters............................................................................... 23
Section 3.14 Assumed Contracts........................................................................... 24
Section 3.15 Finders' Fees............................................................................... 24
Section 3.16 Subsequent Changes.......................................................................... 24
Section 3.17 Assumed Leases.............................................................................. 25
Section 3.18 Product Warranty............................................................................ 26
Section 3.19 Year 2000 Compliance........................................................................ 26
Section 3.20 Buyer's Representations and Warranties...................................................... 26
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................... 26
Section 4.1 Organization and Power....................................................................... 27
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.2 Corporate Authorization...................................................................... 27
Section 4.3 Approvals.................................................................................... 27
Section 4.4 Non-Contravention............................................................................ 27
Section 4.5 Binding Effect............................................................................... 28
Section 4.6 Financing.................................................................................... 28
Section 4.7 Litigation and Claims........................................................................ 28
Section 4.8 Finders' Fees................................................................................ 28
Section 4.9 Seller's Representations and Warranties...................................................... 28
ARTICLE V. CERTAIN COVENANTS.............................................................................. 28
Section 5.1 Access....................................................................................... 28
Section 5.2 Conduct of Business.......................................................................... 29
Section 5.3 Reasonable Efforts; Further Assurances....................................................... 30
Section 5.4 Antitrust and Competition Laws............................................................... 31
Section 5.5 Ancillary Agreements......................................................................... 31
Section 5.6 Corporate Trademarks and Other Intellectual Property......................................... 32
Section 5.7 Confidentiality.............................................................................. 34
Section 5.8 Public Disclosure............................................................................ 35
Section 5.9 Bulk Sales................................................................................... 35
Section 5.10 Taxes....................................................................................... 35
Section 5.11 Determination and Allocation of Consideration............................................... 37
Section 5.12 Exclusivity................................................................................. 37
Section 5.13 Pre-Closing Inventory Count................................................................. 37
Section 5.14 Non-Competition............................................................................. 37
ARTICLE VI. COVENANTS AS TO EMPLOYMENT MATTERS............................................................ 39
Section 6.1 Employees.................................................................................... 39
Section 6.2 Buyer's Offers of Employment................................................................. 39
Section 6.3 Severance Obligations........................................................................ 40
Section 6.4 Buyer's Obligations to Transferred Employees................................................. 42
Section 6.5 Seller's Obligations to Transferred Employees................................................ 42
Section 6.6 Consultation................................................................................. 43
Section 6.7 Compliance with WARN, Etc.................................................................... 43
Section 6.8 Non-Solicitation............................................................................. 44
Section 6.9 Family and Medical Leaves.................................................................... 44
ARTICLE VII. CONDITIONS TO CLOSING........................................................................ 44
Section 7.1 Conditions to the Obligations of Buyer and Seller............................................ 44
Section 7.2 Further Conditions to the Obligation of Buyer................................................ 45
Section 7.3 Further Conditions to the Obligation of Seller............................................... 46
ARTICLE VIII. INDEMNIFICATION; REMEDIES................................................................... 46
Section 8.1 Indemnification by Seller.................................................................... 46
Section 8.2 Indemnification by Buyer..................................................................... 48
Section 8.3 Indemnification Procedures................................................................... 49
Section 8.4 Sole Remedy.................................................................................. 50
Section 8.5 No Consequential Damages..................................................................... 50
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE IX. TERMINATION................................................................................... 50
Section 9.1 Termination.................................................................................. 50
Section 9.2 Effect of Termination........................................................................ 51
ARTICLE X. IN GENERAL..................................................................................... 51
Section 10.1 Notices..................................................................................... 51
Section 10.2 Amendment; Waiver........................................................................... 52
Section 10.3 No Assignment or Benefit to Third Parties................................................... 52
Section 10.4 Survival.................................................................................... 53
Section 10.5 Return of Information....................................................................... 53
Section 10.6 Expenses.................................................................................... 53
Section 10.7 Schedules................................................................................... 53
Section 10.8 Dispute Resolution.......................................................................... 54
Section 10.9 Governing Law; Submission to Jurisdiction; Selection of Forum............................... 55
Section 10.10 Inferences................................................................................. 55
Section 10.11 Severability............................................................................... 55
Section 10.12 Entire Agreement........................................................................... 56
Section 10.13 Headings................................................................................... 56
Section 10.14 Counterparts............................................................................... 56
TABLE OF EXHIBITS AND SCHEDULES........................................................................... 58
INDEX OF DEFINED TERMS.................................................................................... 59
</TABLE>
iii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of November 4, 1999 by and among EASTMAN KODAK
COMPANY, a New Jersey corporation ("Seller"), and ROPER INDUSTRIES, INC., a
Delaware corporation ("Parent"), and ROPER ACQUISITION SUBSIDIARY, INC., a
Delaware corporation ("Sub")
WHEREAS, Seller and the Seller Affiliates are engaged in the business and
operations of Seller's Motion Analysis Systems Division as currently conducted
("MASD"), including, variously, the design, manufacture, marketing,
distribution, service and support of (i) high speed image capturing equipment
for motion analysis and (ii) high resolution industrial cameras (collectively,
the "Business"); and
WHEREAS, Sub is the wholly-owned subsidiary of Parent; and
WHEREAS, the parties desire that Seller sell, transfer, assign and license
to Sub, and that Sub purchase, license and assume from Seller, the Business and
the assets and specified Liabilities comprising the Business, all as more
specifically provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and undertakings contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Certain Definitions.
In addition to the other definitions contained in this Agreement, the following
terms will, when used in this Agreement, have the following respective meanings:
"Affiliates" means, with respect to any Person, any Persons directly or
indirectly controlling, controlled by, or under common control with, such other
Person at any time during the period for which the determination of affiliation
is being made. For purposes of this definition, the term "control" means, with
respect to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of management policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" means this Asset Purchase Agreement, as the same may be amended
or supplemented from time to time in accordance with the terms hereof.
"Ancillary Agreements" means, collectively, those agreements and
instruments, substantially in the forms of Exhibits A-1 through F, to be entered
----------------------
into at Closing by Buyer and Seller, as more fully described in Section 5.5.
<PAGE>
"Antitrust Laws" means and includes the Sherman Act, as amended, the
Clayton Act, as amended, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, the Federal Trade Commission Act, as amended, EU competition
Laws, national competition Laws and all other U.S. or non-U.S. Laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
"Books and Records" means books, ledgers, files, reports, operating
records, accounting records, price lists, correspondence and other forms of
information relating in any manner to the business, operations or financial or
statistical history of a Person, whether in written, electronic or magnetic
form, in each case to the extent that the same is not Intellectual Property or
proprietary business information.
"Buyer" means, collectively and jointly and severally, Parent and Sub, and
has the further meaning set forth in Section 2.10.
"Claim" means any pending contest, claim, demand, assessment, action, cause
of action, complaint, litigation, proceeding, hearing or notice involving any
Person.
"Closing" means the closing and consummation of the Transaction, but does
not include any subsequent closings contemplated by Section 2.11.
"Closing Balance Sheet" means the unaudited balance sheet of the Business
as of the Closing Date which consists of only the following items of working
capital (as such terms are used in the September Balance Sheet): (a) Accounts
Receivable-San Diego; (b) Inventory-San Diego; (c) Inventory-Europe; (d)
Inventory Reserve; (e) Other Current Assets; (f) Accounts Payable-San Diego; (g)
Deferred Revenue-U.S.; (h) Deferred Revenue-U.K.; (i) Accrued Expenses; (j)
Accrued Vacation 1999 and prior (U.S.); and (k) Accrued Vacation 2000 (U.S.).
For purposes of this definition, the term "Accrued Expenses" includes all
Liabilities required to be accrued under GAAP with respect to the Assumed
Contracts (including any customer service agreements) and accrued Liabilities
with respect to the Transferred Employees, except that neither the term "Accrued
Expenses" nor the Closing Balance Sheet will include: (i) any assets of or
Liabilities under the Transferred Benefit Plans or (ii) any accrued vacation in
respect of non-U.S. employees.
"Closing Documents" means (a) with respect to Seller, all agreements,
documents and instruments, including the Ancillary Agreements, required to be
delivered by Seller or a Seller Affiliate at Closing, as set forth in Section
7.2, and (b) with respect to Buyer, all agreements, documents and instruments,
including the Ancillary Agreements, required to be delivered by Buyer at
Closing, as set forth in Section 7.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Continuation Coverage" means group health coverage required by section
4980B of the Code.
"Delivery" means, as the case may be, (a) the sale, assignment, transfer,
conveyance or delivery to Buyer of any Transferred Asset, (b) the license to
Buyer of any Seller-
2
<PAGE>
Licensed Intellectual Property, or (c) the license back to Seller of any Buyer-
Licensed Intellectual Property; and "Deliver" means to effect a Delivery.
"Encumbrances" means liens, charges, encumbrances, security interests,
options or any other restrictions or third party rights.
"Environmental Law" means any Law relating to (a) the protection of human
health or the environment (including air, water vapor, surface water,
groundwater, drinking water supply, and surface or subsurface land), or (b) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, management, release,
investigation, remediation, removal or disposal of, Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EU" means the European Union.
"Financial Statements" means the unaudited summary financial information of
the Business as of and for the fiscal years ended December 31, 1997 and December
31, 1998, which comprise Schedule 3.6(c).
---------------
"GAAP" means generally accepted accounting principles, methods and
practices set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants, and
statements and pronouncements of the Financial Accounting Standards Board or of
such other Person as may be approved by a significant segment of the U.S.
accounting profession, in each case as of the date or period at issue.
"Governmental Authorizations" means all licenses, permits, certificates and
other authorizations and approvals of any Governmental Entity required under any
Law to carry on the Business as currently conducted in the Ordinary Course.
"Governmental Entity" means any U.S. or non-U.S. local, state, federal or
other government, including each of their respective branches, departments,
agencies, courts, instrumentalities or other subdivisions.
"Hazardous Substance" means any matter or material containing any
substance, whether solid, liquid or gaseous, (a) that is listed, defined,
designated or classified as hazardous or toxic under any applicable
Environmental Law, (b) the presence of which may require investigation or
remediation under any Environmental Law, or (c) is otherwise legally regulated
by a Governmental Entity which enforces such applicable Environmental Laws.
"Indemnified Parties" means, as appropriate in the context, either the
Buyer Indemnified Parties or the Seller Indemnified Parties.
"Indemnifying Party" means a party providing indemnification pursuant to
Article VIII.
3
<PAGE>
"Intellectual Property" means patents, inventions, trade secrets, know-how,
copyrights (whether registered or unregistered), works of authorship, trademarks
(whether registered or unregistered), service marks (whether registered or
unregistered), mask works, trade names, trade dress, product names, slogans,
logos and internet domain names, including registrations and applications of any
of the foregoing, software, firmware, specifications, processes, drawings,
designs, technology, methods, techniques, formulae and proprietary information
and documents incorporating any similar rights, including technical reports,
laboratory books and notebooks.
"Law" means any applicable law, statute, ordinance, rule, regulation, code,
order, judgment, injunction, decree or judicial or administrative doctrine that
is legally promulgated or issued by any Governmental Entity.
"Leased Real Property" means the real property, fixtures and improvements
(inclusive of warranties, guaranties, permits and licenses in connection
therewith) that are the subject of the Assumed Leases.
"Liability" means any direct or indirect indebtedness, liability, Claim,
damage, deficiency, obligation or responsibility, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise.
"Losses" means Liabilities, losses, charges, actions, suits, proceedings,
interest, penalties and reasonable costs and expenses associated therewith
(including reasonable attorneys' fees, litigation costs, fines, penalties and
expenses of investigation), in each case subject to the provisions of Section
8.5.
"Material Adverse Effect" means an effect that is materially adverse to the
financial condition or results of operations of the Business taken as a whole.
"Ordinary Course" means the conduct of the Business in accordance with the
normal and customary practices and procedures of the Business.
"Permitted Encumbrances" means: (a) Encumbrances that secure or constitute
an Assumed Liability that is recorded on the Books and Records of Seller as of
the Closing Date; (b) liens for Taxes, assessments and other governmental
charges not yet due and payable or due but not delinquent or being contested in
good faith by appropriate proceedings; (c) mechanics', carriers', workers',
repairmen's, statutory or common law liens being contested in good faith by
appropriate proceedings; (d) conditional sales or title retention agreements (if
any) to which any of the capital assets comprising the Transferred Assets are
subject, which agreements are set forth on Schedule 2.1(e); and (e) the
---------------
previously granted licenses referred to in Section 2.1(f).
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization.
"Primarily Related to the Business" means an asset that is used, or a
circumstance that exists, or a Person or thing that relates, more than 80
percent of the time in or to the operation of the Business as conducted in the
Ordinary Course.
4
<PAGE>
"Product Warranty Claims" means Claims of customers of the Business or
other end users with respect to products manufactured, sold, leased or
delivered, or services provided, by the Business on or before the Closing Date,
including Claims which (a) are based on Seller's and the Seller Affiliates'
written product warranties disclosed to Buyer, and (b) are for the repair or
replacement or reimbursement remedies expressed in such written product
warranties.
"Required Approvals" means, collectively, the consents, approvals, waivers,
authorizations, novations, notices and filings which are necessary for the
consummation of the Transaction or the effective Delivery of any Transferred
Asset and are listed on Schedule 1.1(a).
---------------
"Seller Affiliates" means Kodak Ltd., Kodak Nederland BV and Kodak AG.
"September Balance Sheet" means the unaudited balance sheet of the Business
as of September 30, 1999, including the notes thereto, which comprises Schedule
--------
3.6(b).
- ------
"TAP" means Seller's Termination Allowance Plan effective January 1, 1999,
as amended January 12, 1999.
"Taxes" means all taxes levied or imposed by any Governmental Entity,
including income, gross receipts, windfall profits, value added, severance,
production, sales, use, license, excise, franchise, employment, environmental,
real property, personal property, transfer, alternative minimum, estimated,
withholding or other taxes, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or penalties,
whether or not disputed or contested.
"Tax Returns" means all U.S. and non-U.S. reports and returns required to
be filed with respect to Taxes, including all attachments thereto.
"Transaction" means, collectively, the purchase and sale of the Business
and the Transferred Assets, the assumption of the Assumed Liabilities and the
execution and delivery of the Closing Documents, all as herein provided.
"Transferred Benefit Plans" means only those employee benefit plans (or
portions thereof) of Seller or a Seller Affiliate, including severance
obligations of any type, of Seller or a Seller Affiliate to EU Employees, which
Buyer is required by non-U.S. Law to assume or continue after Closing.
"Transfer Time" means 12:01 a.m. local time on the date following (a) the
Closing Date, or (b) in the case of any subsequent closing contemplated by
Section 2.11, the date the closing is effected in the applicable Deferred
Country.
"U.S." means the United States of America.
SECTION 1.2 Interpretation.
In this Agreement, unless the express context otherwise requires:
5
<PAGE>
(a) the words "herein," "hereof" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement;
(b) references to "Article" or "Section" are to the respective Articles
and Sections of this Agreement, and references to "Exhibit" or "Schedule" are to
the respective Exhibits and Schedules annexed hereto;
(c) references to a "party" means a party to this Agreement and include
references to such party's successors and permitted assigns;
(d) references to a "third party" means a Person not party to this
Agreement;
(e) references to a party's "knowledge" or any similar phrase means: (i)
in the case of Seller, the collective actual knowledge of (A) the senior
management personnel of MASD listed on Schedule 1.2(e) after due inquiry with
---------------
respect to the relevant matter, or (B) with respect to Intellectual Property,
the Persons listed on Schedule 1.2(e); or (ii) in the case of Buyer, the
---------------
collective actual knowledge of the senior management personnel of Parent after
due inquiry with respect to the relevant matter;
(f) the terms "dollars" and "$" means U.S. dollars;
(g) terms defined in the singular have a comparable meaning when used in
the plural, and vice versa;
(h) the masculine pronoun includes the feminine and the neuter, and vice
versa, as appropriate in the context; and
(i) wherever the word "include," "includes" or "including" is used in
this Agreement, it will be deemed to be followed by the words "without
limitation."
ARTICLE II. PURCHASE AND SALE
Section 2.1 Purchase and Sale of Business and Assets.
On the terms and subject to the conditions set forth herein, at Closing Seller
will, and will cause the Seller Affiliates to, sell, convey, transfer, assign
and deliver to Sub, and Sub will purchase from Seller and the Seller Affiliates,
the Business and all of Seller's and the Seller Affiliates' respective right,
title and interest in and to all assets that are Primarily Related to the
Business (except for those assets or classes of assets which are defined in
Section 2.2 as Excluded Assets), including those set forth below and in each
case as the same exists on the Closing Date (collectively, the "Transferred
Assets"):
(a) all inventories that are Primarily Related to the Business, including
those that are of a type reflected on the September Balance Sheet;
6
<PAGE>
(b) all capital assets of the Business, including those that are
reflected on the September Balance Sheet, those that are Primarily Related to
the Business and all that are located in the San Diego facility of the Business;
(c) all accounts receivable reflected on the accounting system maintained
in the San Diego facility of the Business, but excluding any intercompany
accounts receivable;
(d) all credits, prepaid expenses, deferred charges, advance payments,
security deposits, prepaid items and duties exclusively related to the Business,
and all "Other" current assets, in each case including those that are of a type
reflected on the September Balance Sheet;
(e) the following contracts and instruments (collectively, including the
Assumed Leases, the "Assumed Contracts"): (i) those leases and subleases of
real property premises which are listed on Schedule 2.1(e) (the "Assumed
---------------
Leases"); (ii) all purchase orders (including all backlog) incurred in the
Ordinary Course, to the extent Primarily Related to the Business; (iii) all
product warranties incurred in the Ordinary Course which are Primarily Related
to the Business; and (iv) those other agreements, contracts, subcontracts,
leases and subleases of personal property, arrangements, commitments, licenses
and sublicenses (other than those with respect to rights in Intellectual
Property), with customers, suppliers, resellers, distributors, employees, works
councils, employee groups or other third parties, to which the Transferred
Assets are subject or which are Primarily Related to the Business, which are set
forth on Schedule 2.1(e);
---------------
(f) only the following Intellectual Property (collectively, the
"Transferred Intellectual Property"), in each case subject to all existing
licenses heretofore granted by Seller and subject to the license back to Seller
and its Affiliates contemplated by Section 2.3(b):
(i) the U.S. patents and patent applications that are set forth on
Schedule 2.1(f)(i), together with any division, continuation, continuation-in-
- ------------------
part, revival, reissue, extension or substitution of any thereof, and any
corresponding patents and patent applications in other countries (collectively,
the "Transferred Patents");
(ii) the trademarks that are set forth on Schedule 2.1(f)(ii) (the
-------------------
"Transferred Trademarks");
(iii) the product development projects Primarily Related to the
Business that are set forth on Schedule 2.1(f)(iii);
--------------------
(iv) the software and firmware Primarily Related to the Business
which are set forth on Schedule 2.1(f)(iv), together with the copyrights related
-------------------
thereto;
(v) all other Intellectual Property (other than patents, patent
applications, trademarks, trade names, trade dress, service marks, product
names, slogans, logos,
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internet domain names and applications therefor, product development projects
and software, firmware and related copyrights) that is owned by Seller and
Primarily Related to the Business; and
(vi) the licenses granted to Seller of rights in software and
firmware owned by third parties and Primarily Related to the Business, which
licenses are set forth on Schedule 2.1(f)(vi) (collectively, the "Transferred
-------------------
Licenses");
(g) subject to the provisions of Section 5.7, all Books and Records
(other than personnel files and employee medical records), and all proprietary
and non-proprietary business information, including marketing and sales
materials and publications, product literature, reports, plans, records,
pricing, cost and other manuals, advertising materials, catalogues, mailing
lists and customer lists and records (but excluding any Intellectual Property,
which is instead the subject of Section 2.1(f)) which are either (i) located in
the San Diego facility of the Business or (ii) Primarily Related to the Business
and located at another facility of Seller or a Seller Affiliate;
(h) to the extent their transfer is permitted by Law, all Governmental
Authorizations which are required for the conduct of the Business or Primarily
Related to the Business, and all applications therefor;
(i) all assets of all Transferred Benefit Plans;
(j) all internet, intranet and World Wide Web content, sites and pages
which are Primarily Related to the Business, and all HTML and other code related
thereto;
(k) all goodwill and similar intangible property Primarily Related to the
Business; and
(l) the assets, if any, that are set forth on Schedule 2.1(l).
---------------
Section 2.2 Excluded Assets.
Notwithstanding anything herein to the contrary, from and after Closing, Seller
and the Seller Affiliates will retain all of their respective existing right,
title and interest in and to, and there will be excluded from the sale,
conveyance, assignment or transfer to Sub hereunder, and the Transferred Assets
will not include, the following, in each case as the same exists on the Closing
Date (collectively, the "Excluded Assets"):
(a) all assets, agreements, contracts, leases, purchase orders,
arrangements, commitments, licenses and rights which are not Primarily Related
to the Business;
(b) all cash and cash equivalents, and all capital stock or other equity
interests or securities, whether or not Primarily Related to the Business or
related to any Transferred Asset;
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(c) all accounts receivable not reflected on the accounting system
maintained in the San Diego facility of the Business, and all intercompany
accounts receivable;
(d) all employee benefit plans of Seller or a Seller Affiliate, other
than the Transferred Benefit Plans, applicable to employees of the Business;
(e) independent contractor, consulting and similar agreements with former
employees of the Business;
(f) other than the leasehold or possessory interests created by the
Assumed Leases or the Ancillary Agreements, all real property, including land,
buildings, structures and improvements thereon, appurtenances thereto and
interests therein, and all fixtures constituting part of such real property;
(g) the following Intellectual Property:
(i) the Corporate Trademarks;
(ii) the Seller-Licensed Intellectual Property (other than the
license interests created pursuant to Section 2.3(a));
(iii) all product development projects other than those that are
set forth on Schedule 2.1(f)(iii);
--------------------
(iv) all agreements, contracts, licenses and sublicenses with
respect to rights in Intellectual Property owned by third parties, other than
the Transferred Licenses; and
(v) all other Intellectual Property that is not the Transferred
Intellectual Property;
(h) all parts, subassemblies and other internally sourced components
customarily supplied to the Business by Seller or its Affiliates and, as of the
Closing Date, not yet purchased by the Business in the Ordinary Course, and all
tooling, raw materials and supplies related to such components;
(i) all assets that are used: (i) to manufacture parts, subassemblies,
tooling supplies and other internally sourced components customarily supplied to
the Business by Seller or its Affiliates; (ii) in Seller's or its Affiliates'
product service and support operations other than those such operations
Primarily Related to the Business; or (iii) for administrative purposes other
than those Primarily Related to the Business (except for those such assets
located at the San Diego facility of the Business);
(j) all refunds, overpayments and prepayments of Taxes and duties paid by
Seller or a Seller Affiliate;
9
<PAGE>
(k) all Tax Returns of Seller and its Affiliates and all other Books and
Records (including work papers) related thereto;
(l) all Books and Records which are: (i) personnel files or employee
medical records; or (ii) human resources manuals, training materials and similar
documents not Primarily Related to the Business;
(m) except for the items specified in Section 2.1(j), all internet,
intranet and World Wide Web content, addresses, sites and pages, and all HTML
and other code, plug-ins, scripting, computer hardware and software related
thereto;
(n) all assets used in the Business that are located in the Ordinary
Course in Japan or Korea; and
(o) the assets, if any, that are set forth on Schedule 2.2(o).
---------------
Section 2.3 License of Certain Rights.
(a) On the terms and subject to the conditions set forth herein, at
Closing Seller will license to Buyer and its Affiliates, pursuant to the terms
of one or more Intellectual Property Licenses in the form of Exhibit A-1 or
-----------
Exhibit A-2, rights to the following Intellectual Property owned by Seller
- -----------
(collectively, the "Seller-Licensed Intellectual Property"):
(i) the patents owned by Seller and set forth on Schedule
--------
2.3(a)(i);
- ---------
(ii) the software and firmware owned by Seller and set forth on
Schedule 2.3(a)(ii); and
- -------------------
(iii) the other Intellectual Property described in Exhibit A-1.
-----------
(b) On the terms and subject to the conditions set forth herein, at
Closing Buyer will license back to Seller and its Affiliates, pursuant to the
terms of one or more Intellectual Property Licenses in the form of Exhibit B;
---------
rights to the Transferred Intellectual Property described in Exhibit B
---------
(collectively, the "Buyer-Licensed Intellectual Property").
Section 2.4 Inability to Deliver Assets.
(a) Notwithstanding anything to the contrary contained in this Agreement
or in any Closing Document, to the extent that the Delivery or attempted
Delivery of any Transferred Asset, or any Claim, right or benefit arising
thereunder or resulting therefrom, is prohibited by any Law, or would require
any consent, approval, waiver, authorization or novation by a Governmental
Entity or other Person and such consent, approval, waiver, authorization or
novation has not been obtained prior to Closing, or
10
<PAGE>
with respect to which any attempted Delivery would be ineffective or would
materially adversely affect the rights of Seller or its Affiliates thereunder or
therein, then this Agreement will not constitute a Delivery or attempted
Delivery thereof and the same will not be Delivered at Closing.
(b) Both prior and subsequent to Closing, the parties will use
commercially reasonable efforts, and cooperate with each other, to obtain
promptly all Required Approvals and all other consents, approvals, waivers,
authorizations, novations, notices and filings which are necessary for the
effective assignment to Buyer of any Assumed Contract or Transferred License.
Buyer and Seller will bear in equal portions the cost of all filing, recordation
and similar fees and Taxes incurred after the date hereof and payable to
Governmental Entities in connection with Delivery of the Transferred Assets, and
any additional fees or charges (howsoever denominated) required by any Persons
other than Governmental Entities in connection with the Delivery of any
Transferred Asset or obtaining any Required Approval or any other consent,
approval, waiver, authorization, novation, notice or filing in connection
therewith.
(c) To the extent that any consent, approval, waiver, authorization,
novation, notice or filing which is necessary for the effective assignment to
Buyer of any Assumed Contract or Transferred License cannot be obtained or made
and, as a result, the full benefits of use of such Assumed Contract or
Transferred License cannot be provided to Buyer following Closing otherwise in
accordance with this Agreement, then Buyer and Seller will cooperate with each
other and enter into such mutually agreeable, reasonable and lawful arrangements
(including subcontracting, subleasing or sublicensing, if permitted) to provide
to the parties the economic (taking into account all burdens and benefits,
including Tax costs and benefits) and operational equivalent, to the extent
permitted, of obtaining or making such necessary consent, approval, waiver,
authorization, novation, notice or filing, as the case may be, and the
performance by Buyer of Seller's obligations under such Assumed Contract or
Transferred License; provided, however, that Buyer and Seller will not enter
into such an arrangement with respect to any Assumed Contract or Transferred
License under which the Business has no further rights. Seller will pay to
Buyer, when received, all income, proceeds and other monies received by Seller
from third parties to the extent related to Buyer's intended rights under any
Assumed Contract or Transferred License, as contemplated by this Section 2.4(c).
Once any such necessary consent, approval, waiver, authorization, novation,
notice or filing, as the case may be, is obtained or made, Seller will assign
such Assumed Contract or Transferred License to Buyer at no additional cost.
Any expenses incurred by Seller, and any reasonable expenses incurred by Buyer,
in connection with the arrangements contemplated by this Section 2.4(c) will be
borne by Seller.
Section 2.5 Assumption of Liabilities.
On the terms and subject to the conditions set forth herein, at Closing Buyer
will assume, and discharge or perform when due, the following Liabilities of
Seller and the Seller Affiliates (collectively, the "Assumed Liabilities"):
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<PAGE>
(a) all accounts payable and other Current Liabilities which are
reflected on the accounting system maintained at the San Diego facility of the
Business and on the Closing Balance Sheet, consistent with the September Balance
Sheet, except for accrued payroll (excluding vacation) payable through the
Closing Date to U.S. or non-U.S. employees;
(b) all Liabilities arising under the Assumed Contracts and the
Transferred Licenses;
(c) all Product Warranty Claims and product liability Claims for products
manufactured, sold, leased or delivered, or services provided, by the Business
on or before the Closing Date, to the extent of the reserve therefor set forth
on the Closing Balance Sheet (except that such limitation will not apply to the
extent that any such Claim arises out of Buyer's provision of warranty service
or other acts or omissions after the Closing Date); and
(d) the following Liabilities arising under the Transferred Benefit
Plans: (i) all Liabilities outstanding on the Closing Date for accrued
vacations in respect of non-U.S. employees; (ii) all other such Liabilities that
arose on or before the Closing Date, to the extent of the assets of the
Transferred Benefit Plans that constitute Transferred Assets; and (iii) all such
Liabilities that arise from and after the Closing Date.
Section 2.6 Excluded Liabilities.
Notwithstanding any other provision of this Agreement, neither Buyer nor any
Affiliate of Buyer will assume or agree to pay, perform or discharge any of the
Liabilities of Seller or any of its Affiliates that are not Assumed Liabilities
(collectively, the "Excluded Liabilities"), including:
(a) all Current Liabilities not reflected on the Closing Balance Sheet
and not constituting Assumed Liabilities;
(b) all Liabilities to the extent related to or arising out of the
Excluded Assets, other than (i) those Liabilities arising out of or caused by
Buyer's use of the Seller-Licensed Intellectual Property following Closing, and
(ii) those Liabilities of Buyer arising under the Ancillary Agreements;
(c) all Liabilities arising out of or relating to any employee benefit
plans or programs maintained by Seller or its Affiliates, other than (i)
Liabilities to the extent arising out of or relating to the Transferred Benefit
Plans, and (ii) those Liabilities arising out of Buyer's covenants contained in
Article VI;
(d) all Liabilities arising out of or relating to Taxes incurred by the
Business prior to Closing, except to the extent reflected as Current Liabilities
on the Closing Balance Sheet;
12
<PAGE>
(e) all Liabilities arising out of that certain inquiry of the Federal
Trade Commission with respect to the Business which is pending on the date
hereof;
(f) all Liabilities for accrued payroll (excluding vacation) payable
through the Closing Date to U.S. or non-U.S. employees, which Seller will
satisfy either by payment directly to one or more employees or by means of the
adjustment to the Purchase Price provided by Section 2.8; and
(g) all other Liabilities of Seller not comprising the Assumed
Liabilities and arising out of or in connection with the conduct of the Business
prior to Closing.
Section 2.7 Purchase Price.
(a) The purchase price for the Business will be $51,000,000 adjusted, as
applicable, by the Increase Amount or the Reduction Amount (as so adjusted, the
"Purchase Price"). The Purchase Price will be allocated as provided by Section
5.11.
(b) On the terms and subject to the conditions set forth herein, at
Closing Buyer will pay to Seller the amount determined as provided by Section
2.7(c) (the "Estimated Purchase Price"), and the balance of the Purchase Price
will be determined and paid after Closing as provided by Section 2.8.
(c) No later than ten days prior to the Closing Date, Seller will deliver
to Buyer the regularly prepared monthly financial statements of the Business for
the calendar period ending not more than 31 days prior to the Closing Date,
prepared in accordance with GAAP, together with a separate statement calculating
the Estimated Purchase Price as of the date of such financial statements. Buyer
will have two days from its receipt thereof to review such statement and
calculations and, following such review, the amount of the Estimated Purchase
Price set forth therein will be the Estimated Purchase Price for purposes
contemplated by Section 2.7(b).
Section 2.8 Post-Closing Adjustment.
(a) The Closing Balance Sheet will be prepared and finally determined as
provided by this Section 2.8, whereupon all references herein to the "Closing
Balance Sheet" will mean the same as so finally determined. Within 45 days
following Closing, Buyer will prepare the Closing Balance Sheet and deliver the
same to Seller. Buyer will cause the Closing Balance Sheet to be derived from
the Books and Records of Seller and the Seller Affiliates, and to present fairly
the Transferred Assets, the Assumed Liabilities and the results of the Pre-
Closing Inventory Count as of the Closing Date, in accordance with GAAP and, to
the extent consistent with GAAP, Seller's policies, except as noted in such
footnotes to the Closing Balance Sheet as are consistent with the footnotes to
the September Balance Sheet; provided, however, that the Closing Balance Sheet
will not reflect any Liability for accrued payroll payable through the Closing
Date to U.S. or non-U.S. employees to the extent that Seller or any of its
Affiliates has (whether before or after the Closing Date) made payment therefor
directly to any employee.
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<PAGE>
(b) Within 60 days after the delivery of the Closing Balance Sheet, the
parties will mutually agree on the contents of the Closing Balance Sheet, which
will then be final and binding upon the parties for all purposes. Failing such
mutual agreement within such period, either party may submit the Closing Balance
Sheet, or the resolution of only such item(s) thereof as are in dispute, to
Ernst & Young LLP or such other nationally recognized firm of independent public
accountants agreed upon by Seller and Buyer, for computation, verification or
resolution in accordance with the provisions of this Agreement. Buyer and
Seller will make readily available to such firm all relevant Books and Records
(including work papers of a party's independent public accountants) as such firm
reasonably requests. Such firm's computation or verification of the Closing
Balance Sheet or resolution of such disputed item(s) thereof (as the case may
be), which Buyer and Seller will instruct such firm to deliver to them within 30
days after submission to such firm, will be final and binding upon the parties
for all purposes, and such firm's fees and expenses therefor will be borne by
the non-prevailing party or, in the event that each party prevails on some of
the issues in dispute, will be shared proportionately, as determined by such
firm. The Closing Balance Sheet, as so finally determined, will be annexed
hereto as Schedule 2.8 subsequent to the Closing Date.
------------
(c) If the amount of Total Current Assets, less the amount of Total
Current Liabilities, shown on the Closing Balance Sheet as so finally determined
(the "Net Current Asset Value") exceeds $12,942,000, then the amount of such
excess (the "Increase Amount") will be added to the Estimated Purchase Price to
result in the Purchase Price, and Buyer will, within ten days after such final
determination, pay the Increase Amount to Seller by wire transfer of federal
funds to an account designated by Seller.
(d) If the Net Current Asset Value is less than $12,942,000, then the
amount of such deficiency (the "Reduction Amount") will be subtracted from the
Estimated Purchase Price to result in the Purchase Price, and Seller will,
within ten days after such final determination, refund the Reduction Amount to
Buyer by wire transfer of federal funds to an account designated by Buyer.
Section 2.9 Closing.
Closing will take place at the offices of counsel to Seller, Harter, Secrest &
Emery LLP, 700 Midtown Tower, Rochester, New York 14604, at 9:00 a.m., local
time, on a mutually agreed date, on or before November 30, 1999, after the
conditions set forth in Article VII have been satisfied or waived, or on such
other date, or at such other time or place, as the parties may mutually agree.
The date in the U.S. on which Closing occurs is called the "Closing Date". The
required deliveries at Closing are set forth in Article VII.
Section 2.10 Purchase by Parent's Affiliates; Guaranty.
Parent may elect, by notice given to Seller within a reasonable time prior to
Closing, to have any of the Transferred Assets Delivered to, or any of the
Assumed Liabilities assumed by, or any of the Transferred Employees employed by,
one or more of Parent's Affiliates (including Sub), provided, however, that in
such event:
14
<PAGE>
(a) all references in this Agreement to "Buyer" will mean and include
each such Affiliate of Parent;
(b) such election will not result in any net greater cost (including
reasonable attorneys' fees) or obligation than Seller would otherwise have had,
nor relieve Parent of any of its obligations to Seller and its Affiliates
hereunder with respect to the Purchase Price, the Assumed Liabilities or
otherwise; nor modify the allocation of risk and responsibility between Seller
and Parent, to the net detriment of Seller;
(c) Parent will cause, and hereby fully and unconditionally guarantees to
Seller, the full and prompt performance of all of the obligations of Parent's
Affiliates (including Sub), and of any and all of such Affiliates' successors
and permitted assigns, under this Agreement, and the execution and delivery by,
and the full and prompt performance of all of the covenants and other
obligations of, each such Affiliate (and of any and all of such Affiliate's
successors and permitted assigns) under each Closing Document to which such
Affiliate is a party, including any such Affiliate's assumption of any Assumed
Liabilities; and
(d) Parent will execute and deliver such other agreements, documents and
instruments as may be reasonably required to evidence further the provisions of
this Section 2.10. Any discharge or limitation of the obligations of an
Affiliate of Parent (including Sub) under this Agreement or any Closing Document
by operation of Law or otherwise will not discharge or limit Parent's
obligations under this Section 2.10.
Section 2.11 Staged Closings.
(a) Notwithstanding anything to the contrary contained herein, in the
event that the conditions to Closing set forth in Article VII have been
satisfied (or waived), but the time required by local Law or contract for the
parties' performance of their obligations of notification and consultation
contemplated by Sections 6.2(b) and 6.6 (the "Notification Time") has not then
expired in one or more countries other than the U.S. (collectively, the
"Deferred Countries"), then: (i) Closing will nevertheless be effected with
respect to that portion of the Transferred Assets, the Assumed Liabilities, the
Business and the Employees located in the U.S. and in each other country in
which the Notification Time has then expired (collectively, the "Closing
Countries"); and (ii) so long as such party has performed its obligations of
notification and consultation contemplated by Sections 6.2(b) and 6.6 with
respect to a Deferred Country, either Buyer or Seller will have the option of
deferring closing in such Deferred Country as provided by this Section 2.11. If
either Buyer or Seller so elects to defer closing, then the conditions to
Closing set forth in Sections 7.2(e) and 7.3(e) will only be required to be
satisfied to the extent that they relate to the Closing Countries.
(b) One or more subsequent closings will occur as soon as practicable
following expiration of the Notification Time in each Deferred Country and, in
connection therewith, the conditions to Closing set forth in Sections 7.2(e) and
7.3(e) will only be required to be satisfied to the extent that they relate to
such Deferred Country.
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<PAGE>
The parties will use commercially reasonable efforts, and cooperate with each
other, to satisfy promptly their obligations of notification and consultation
contemplated by Sections 6.2(b) and 6.6 in each Deferred Country.
Notwithstanding any other provision hereof, closing with respect to each
Deferred Country will be effected within 90 days after the Closing Date.
(c) Pending closing with respect to any Deferred Country, Seller will,
with any necessary cooperation from Buyer, operate the Business in such Deferred
Country for the account of Buyer. In connection therewith: (i) Buyer will bear
the after-Tax costs, if any, for the portion of the Business operated in such
Deferred Country, and will receive the after-Tax cash benefit, if any, derived
from the Business as operated in such Deferred Country; (ii) Seller will pay to
Buyer, or Buyer will pay to Seller, as the case may be, and will deliver
appropriate documentation with respect to, any other contribution made or
received by Seller for the Business as operated in such Deferred Country so
that, as between Seller and Buyer, the operations will have been for the account
of Buyer on an after-Tax basis; and (iii) the Employees physically located in
such Deferred Country will continue to be employees of Seller, and the
provisions of Article 6 will apply to such Employees only as of a Transfer Time
based on the subsequent closing in such Deferred Country. The net amount of all
amounts required by this Section 2.11(c) to be paid by each party to the other
with respect to any Deferred Country will be paid by the appropriate party at or
within 30 days following closing in such Deferred Country. To the extent
permitted by Law, all amounts paid by Seller or Buyer, as the case may be, under
this Section 2.11(c) will be treated as adjustments to the Purchase Price for
Tax purposes.
(d) To the extent that Buyer is required by Law to pay at a subsequent
closing cash consideration for the Transferred Assets located in a Deferred
Country, Seller will remit to Buyer, in immediately available funds, the amount
of the Purchase Price allocated to such Deferred Country in accordance with
Section 5.11 and previously paid at Closing, and Buyer will pay such
consideration to Seller at such subsequent closing. In the event that Buyer so
requests, Seller will, in conjunction with any subsequent closing with respect
to a Deferred Country, remit to Buyer, in immediately available funds, the
amount of the Purchase Price allocated to such Deferred Country in accordance
with Section 5.11 and previously paid at Closing against payment by Buyer of
such amount in the local currency in such Deferred Country, the local currency
equivalent to such amount (based on the rate published in the Wall Street
Journal three business days prior to the subsequent closing in such Deferred
Country).
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1 Organization and Power.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of New Jersey. Seller and each Seller Affiliate has all
requisite corporate power and authority to own or lease and operate the
Transferred Assets and to carry on the Business
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as currently conducted. Seller and each Seller Affiliate is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where its ownership or operation of the Transferred Assets or its conduct of the
Business requires such qualification, except for failures to be so qualified or
in good standing, as the case may be, that would not have a Material Adverse
Effect or prevent consummation of the Transaction.
Section 3.2 Corporate Authorization.
Seller and each Seller Affiliate, as the case may be, has full corporate power
and authority to execute and deliver this Agreement and each Closing Document to
which it is a party, and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by Seller of this Agreement and, in the
case of Seller and each Seller Affiliate, each Closing Document to which it is a
party, have been duly and validly authorized, and no additional corporate
authorization or consent is required in connection therewith.
Section 3.3 Approvals.
Except for the Required Approvals, and except for consents, approvals, waivers,
authorizations, novations, notices and filings required under the contracts or
instruments identified in Schedule 3.3, no consent, approval, waiver,
------------
authorization or novation is required to be obtained by Seller or any Seller
Affiliate from, and no notice or filing is required to be given by Seller or any
Seller Affiliate to or made by Seller or any Seller Affiliate with, any
Governmental Entity or other Person in connection with the execution, delivery
and performance by Seller of this Agreement and, in the case of Seller and each
Seller Affiliate, each Closing Document to which it is a party.
Section 3.4 Non-Contravention.
The execution, delivery and performance by Seller of this Agreement and, in the
case of Seller and each Seller Affiliate, each Closing Document to which it is a
party, and the consummation of the Transaction, do not and will not: (a)
violate any provision of the articles of incorporation, bylaws or other
organizational documents of Seller or any Seller Affiliate; (b) assuming the
receipt or making of all necessary consents, approvals, waivers, authorizations,
novations, notices and filings, conflict with, or result in the breach of, or
constitute a default under, or result in the termination, cancellation or
acceleration (whether after the filing of notice or the lapse of time or both)
of any right or obligation of Seller under, or a loss of any benefit to which
Seller is entitled under, any Assumed Contract or any Transferred License, or
result in the creation of any Encumbrance (other than a Permitted Encumbrance)
upon any of the Transferred Assets; or (c) assuming receipt of all Required
Approvals, violate or result in a breach of or constitute a default under any
Law, judgment, injunction, order, decree or other restriction of any
Governmental Entity to which Seller or any Seller Affiliate is subject; except
for, in the cases of the foregoing clauses (b) and (c), conflicts, breaches,
terminations, defaults, cancellations, accelerations, losses, violations or
Encumbrances
17
<PAGE>
that would not have a Material Adverse Effect or prevent consummation of the
Transaction.
Section 3.5 Binding Effect.
This Agreement and each Closing Document, when executed and delivered by Buyer,
will constitute valid and legally binding obligations of Seller and each Seller
Affiliate party thereto, enforceable against Seller and each Seller Affiliate
party thereto in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
Section 3.6 Certain Financial Statements.
(a) [intentionally omitted]
(b) Annexed hereto as Schedule 3.6(b) is the September Balance Sheet.
---------------
The September Balance Sheet has been derived from the Books and Records of
Seller and the Seller Affiliates maintained in the Ordinary Course, and fairly
presents the financial position of the Business as of September 30, 1999, and
reflects adequate reserves for all known Liabilities, including all vacation
Liability earned, as of September 30, 1999, in accordance with GAAP and, to the
extent consistent with GAAP, Seller's policies, except as noted in the footnotes
to the September Balance Sheet.
(c) Annexed hereto as Schedule 3.6(c) are each of the Financial
---------------
Statements. Except to the extent that the Financial Statements present only
summary financial information, the Financial Statements fairly present the
financial position and the results of the operations of the Business for the
respective periods therein stated, and reflect adequate reserves for all known
Liabilities, including all vacation Liability earned, as of the respective dates
therein stated, in accordance with GAAP and, to the extent consistent with GAAP,
Seller's policies, except as noted in the footnotes to the Financial Statements.
(d) The Business does not have any Liability of any nature that is not
reflected or reserved against on the September Balance Sheet except for: (i)
Liabilities of a similar nature as those reflected or reserved against on the
September Balance Sheet that were incurred in the Ordinary Course since
September 30, 1999; (ii) Liabilities of any nature that are not required by GAAP
to be so reflected or reserved against; and (iii) those Liabilities set forth on
Schedule 3.6(d). Accounts payable reflected in the Financial Statements and the
- ---------------
September Balance Sheet have arisen from bona fide transactions. Except as set
forth on Schedule 3.6(d), all Liabilities of the Business incurred after
---------------
September 30, 1999 were incurred in the Ordinary Course, arose from bona fide
transactions, and are usual and normal in amount both individually and in the
aggregate. Except as set forth in the Financial Statements or the September
Balance Sheet, all Liabilities of the Business can be prepaid without penalty at
any time.
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Section 3.7 Assets; Title.
(a) The Transferred Assets, when taken together with the Seller-Licensed
Intellectual Property and the Excluded Assets, constitute all properties, assets
and leasehold estates, real, personal and mixed, tangible and intangible,
comprising or employed in the operation of the Business on the date hereof and
immediately prior to Closing, except for those assets that are part of Seller's
administrative support not unique to the Business.
(b) Seller and the Seller Affiliates, in the aggregate, have and will
have at Closing: (i) good title to all tangible property included in the
Transferred Assets, free and clear of all Encumbrances except for Permitted
Encumbrances; and (ii) all right, title and interest in and to all intangible
property included in the Transferred Assets, free and clear of all Encumbrances
except for Permitted Encumbrances and, in the case of the Assumed Contracts and
the Transferred Licenses, subject to the rights of third parties thereunder.
Section 3.8 Compliance With Laws.
The Business has been and is being conducted in compliance with all Laws, and
the Business has all Governmental Authorizations necessary for the conduct of
the Business as currently conducted, except for those failures of compliance or
lack of Governmental Authorizations which would not have a Material Adverse
Effect (it being understood that nothing in this Section 3.8 is intended to
address any matter of compliance that is the subject of any other representation
or warranty set forth herein).
Section 3.9 Litigation and Claims.
Except as set forth on Schedule 3.9(a), there is no civil, criminal or
---------------
administrative Claim or, to the knowledge of Seller, investigation pending or,
to the knowledge of Seller, overtly threatened, against Seller with respect to
or relating to the Business or any of the Transferred Assets or Seller-Licensed
Intellectual Property, in which the amount at issue relating to the Business
exceeds $10,000. Except as set forth on Schedule 3.9(b), neither the Business
---------------
nor any of the Transferred Assets or Seller-Licensed Intellectual Property is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity of competent jurisdiction or any arbitrator which would
either prevent consummation of the Transaction or have a Material Adverse
Effect.
Section 3.10 Intellectual Property.
(a) Seller owns or has the right to use pursuant to license, sublicense,
agreement or permission all of the Transferred Intellectual Property and Seller-
Licensed Intellectual Property. Subject to the receipt or making of all
necessary consents, approvals, waivers, authorizations, novations, notices and
filings under any contracts or instruments identified in Schedule 3.3, each item
------------
of Transferred Intellectual Property will be owned or available for use by Buyer
immediately subsequent to Closing, without the
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payment of any additional amounts to any third party (except as may be required
subsequent to Closing by the terms of any Transferred License).
(b) Except as set forth in Schedule 3.10(b), Seller with respect to the
----------------
Business has not interfered with, infringed upon, misappropriated or otherwise
violated any Intellectual Property rights of third parties, and has not received
any Claim alleging any such interference, infringement, misappropriation or
violation (including any Claim that Seller must license or refrain from using
any Intellectual Property rights of any third party). To the knowledge of
Seller, no third party has interfered with, infringed upon, misappropriated or
otherwise violated any rights of Seller with respect to the Transferred
Intellectual Property and the Seller-Licensed Intellectual Property.
(c) Schedule 2.1(f)(i), Schedule 2.1(f)(ii) and Schedule 2.3(a)(i)
------------------ ------------------- ------------------
identify each patent, patent registration, patent application and trademark
comprising, respectively, the Transferred Intellectual Property and the Seller-
Licensed Intellectual Property. Seller has made available to Buyer correct and
complete copies of all such items of Transferred Intellectual Property and
Seller-Licensed Intellectual Property (as amended to date) and has made
available to Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each such
item. With respect to each such item of Transferred Intellectual Property and
Seller-Licensed Intellectual Property:
(i) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge nor, to the knowledge of Seller, is
any of the foregoing threatened;
(ii) no Claim or, to the knowledge of Seller, investigation is
pending or, to the knowledge of Seller, threatened, which challenges the
legality, validity, enforceability, use or ownership of the item; and
(iii) Seller has not agreed to indemnify any Person for or against
any interference, infringement, misappropriation or other violation with respect
to the item.
(d) Schedule 2.1(f)(vi) identifies each license, sublicense, agreement
-------------------
and permission by which Seller uses Intellectual Property owned by a third party
and Primarily Related to the Business. Seller has made available to Buyer
correct and complete copies of all Transferred Licenses (as amended to date).
With respect to each Transferred License:
(i) the Transferred License is legal, valid, binding, enforceable
and in full force and effect with respect to Seller and, to the knowledge of
Seller, any other party thereto, subject to the qualifications that enforcement
of the rights and remedies created thereby is subject to (A) bankruptcy,
insolvency, reorganization, moratorium and other Laws of general application
affecting the rights and remedies of creditors, and (B) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law);
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(ii) the Transferred License will continue to be legal, valid,
binding, enforceable and in full force and effect with respect to Buyer and, to
the knowledge of Seller, any other party thereto following the consummation of
the Transaction, subject to the qualifications set forth in Section 3.10(d)(i)
and subject to the receipt or making of all necessary consents, approvals,
waivers, authorizations, novations, notices and filings under any contracts or
instruments identified in Schedule 3.3;
------------
(iii) subject to the receipt or making of all necessary consents,
approvals, waivers, authorizations, novations, notices and filings under any
contracts or instruments identified in Schedule 3.3, neither Seller nor, to the
------------
knowledge of Seller, any other party to the Transferred License is in breach or
default, and no event has occurred which with notice of lapse of time would
constitute a breach or default or permit termination, modification or
acceleration thereunder;
(iv) neither Seller nor, to the knowledge of Seller, any other
party to the Transferred License has repudiated any material provision thereof;
(v) to the knowledge of Seller, with respect to each sublicense
constituting a Transferred License, the representations and warranties set forth
in Sections 3.10(d)(i) through 3.10(d)(iv) are true and correct with respect to
the underlying license;
(vi) to the knowledge of Seller, the Intellectual Property
underlying the Transferred License is not subject to any outstanding Claim; and
(vii) no Claim or, to the knowledge of Seller, investigation is
pending or, to the knowledge of Seller, threatened, which challenges the
legality, validity or enforceability of the Intellectual Property underlying the
Transferred License.
Section 3.11 Employee Benefits.
(a) Schedule 3.11(a) lists all material formal or informal, written or
----------------
unwritten employee benefit plans or arrangements of Seller which cover U.S.
Employees, including: (i) "employee benefit plans" within the meaning of
section 3(3) of ERISA; (ii) incentive compensation (whether cash or equity),
commission, severance or other similar compensation arrangements; and (iii) all
other benefit obligations of any type made available by Seller to any current
U.S. Employee with respect to services performed by him on behalf of the
Business (collectively, "U.S. Plans"). Copies of all written U.S. Plans and
written descriptions of all unwritten U.S. Plans have been provided or made
available to Buyer.
(b) All U.S. Plans to the extent subject to ERISA and the Code are in
substantial compliance with ERISA and the Code. Each U.S. Plan that is an
"employee pension benefit plan" within the meaning of section 3(2) of ERISA (a
"Pension Plan") and that is intended to be qualified under section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service. Except as disclosed on Schedule
--------
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3.11(b), there is no material litigation pending or, to the knowledge of Seller,
- -------
overtly threatened against Seller relating to any U.S. Plan.
(c) All employee benefit plans or arrangements of Seller or the Seller
Affiliates covering EU Employees comply in all material respects with all Laws.
(d) Buyer will not have any Liability to contribute to any "multiemployer
plan," as defined in section 3(37) of ERISA, on behalf of any current or former
U.S. employee or other U.S. Person with respect to services performed by such
Person on behalf of the Business on or before the Closing Date.
Section 3.12 Environmental Matters.
(a) The Business has complied with all Environmental Laws, the failure to
comply with which could reasonably be expected to result in Losses after the
Closing Date in amounts in excess of $10,000 individually or in the aggregate,
and no Claim or, to Seller's knowledge, investigation has been filed or
commenced against the Business alleging such failure.
(b) Except as set forth in Schedule 3.12, and except for Liabilities that
-------------
could not reasonably be expected to result in Losses after the Closing Date in
amounts in excess of $10,000 individually or in the aggregate, the Business does
not have any Liability (and the Business has not handled, used, stored, recycled
or disposed of any Hazardous Substance, arranged for the disposal of any
Hazardous Substance, exposed any employee or other Person to any Hazardous
Substance or hazardous condition, or owned or operated any property or facility
in any manner that could reasonably be expected to form the basis for any
present or future Claim or investigation giving rise to any such Liability) for
damage or remediation to any site, location or body of water (surface or
subsurface), or for any illness of or personal injury to any employee or other
Person, under any Environmental Law.
(c) All properties and equipment owned by Seller or any Seller Affiliate
and used in the Business are free of any amounts of Hazardous Substances the
presence of which could reasonably be expected to result in Losses after the
Closing Date in amounts in excess of $10,000 individually or in the aggregate.
(d) Neither Seller nor any Seller Affiliate has placed any in service or
out of service underground storage tanks in or on the Leased Real Property.
Section 3.13 Labor Matters.
(a) Except as set forth on Schedule 3.13(a): (i) the Business is not a
----------------
party to or bound by any collective bargaining agreement; (ii) during the three-
year period preceding the date hereof, the Business has not experienced any
strikes, grievances or Claims of unfair labor practice; (iii) Seller has no
knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to the
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employees of the Business; (iv) during the three-year period preceding the date
hereof, there has not been, and there is not presently pending or existing or,
to the knowledge of Seller, threatened, any strike, work stoppage, labor
arbitration or proceeding in respect of the grievance of any employee, any
application or complaint filed by an employee or union with the National Labor
Relations Board or any comparable state or local agency, organizational activity
or other labor dispute against the Business or its premises; (v) no application
for certification of a collective bargaining agent is pending or, to the
knowledge of Seller, threatened; (vi) there is no lockout of any employees by
the Business; (vii) there are no Claims currently pending against Seller with
respect to employees of the Business alleging the violation of any Laws relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar Taxes, occupational safety and health and plant closing
(collectively, "Employment Laws"); and (viii) the Business has not been found
liable for the payment of Taxes, fines, penalties or other amounts, however
designated, for failure to comply with any Employment Laws. Except for the
Assumed Contracts, there are no contracts of employment applicable to any
Employees, including EU Employees.
(b) [intentionally omitted]
Section 3.14 Assumed Contracts.
Schedule 2.1(e) sets forth a list of each Assumed Contract other than purchase
- ---------------
orders and product warranties incurred in the Ordinary Course. Except for those
which expired by their terms prior to the date hereof or prior to the Closing
Date, each Assumed Contract is a valid and binding obligation of Seller or a
Seller Affiliate and is in full force and effect. Except for any default that
would be caused by the assignment or novation thereof to Buyer without the
consent, approval, waiver or authorization of a third party, there is no default
by Seller or any Seller Affiliate under any Assumed Contract that has not been
cured or waived. Except as set forth on Schedule 2.1(e), neither Seller nor any
---------------
Seller Affiliate is party to any written or, to Seller's knowledge, oral
agreement or arrangement that would materially modify or affect the economic
terms of any Assumed Contract, except for those modifications or effects which
would not have a Material Adverse Effect. To the knowledge of Seller, no other
party to any Assumed Contract is in default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute such a default.
Section 3.15 Finders' Fees.
There is no investment banker, broker, finder or other intermediary who has been
retained by or is authorized to act on behalf of Seller or any Affiliate of
Seller who might be entitled to any fee or commission from Buyer or any
Affiliate of Buyer in connection with the Transaction.
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Section 3.16 Subsequent Changes.
Since July 31, 1999, there has not been any change in the Business, or in
the financial condition, operations or results of operations of the Business,
that could reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, since July 31, 1999, except as set
forth on Schedule 3.16, the Business has not:
-------------
(a) sold, leased, transferred or assigned any of the Transferred Assets
outside the Ordinary Course;
(b) entered into any agreement, contract, lease or license (or series of
related agreements, contracts, leases, and licenses) other than Ordinary Course
sales and purchase orders;
(c) accelerated, terminated, modified or canceled any Assumed Contract
except in the Ordinary Course, or materially modified the Business's backlog;
and to the knowledge of Seller, no other party has done so as a result of any
default by Seller;
(d) made any capital expenditure (or series of related capital
expenditures) either involving more than $50,000 or outside the Ordinary Course;
(e) made any capital investment in, any loan to, or any acquisition of
the securities or assets of, any other Person;
(f) issued any note, bond or other debt security or created, incurred,
assumed or guaranteed any indebtedness for borrowed money or capitalized lease
obligation;
(g) delayed or postponed the payment of accounts payable or other
Liabilities outside of the Ordinary Course;
(h) canceled, compromised, waived or released any material right or Claim
(or series of related rights and Claims) outside the Ordinary Course;
(i) granted any license or sublicense of any rights under or with respect
to any Transferred Intellectual Property outside of the Ordinary Course;
(j) experienced any material damage, destruction or loss to the
Transferred Assets not covered by insurance;
(k) granted any increase in the base compensation of any of the Employees
or made any other material change in employment terms for any of the Employees,
except for normal compensation increases made in the Ordinary Course; or
(l) entered into any commitment to do any of the foregoing.
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Section 3.17 Assumed Leases.
Seller has made available to Buyer correct and complete copies of the Assumed
Leases (as amended to date). With respect to each Assumed Lease:
(a) the Assumed Lease is legal, valid, binding and enforceable on Seller
or a Seller Affiliate, and in full force and effect in accordance with its
terms;
(b) except for any breach or default that would be caused by the
assignment or novation thereof to Buyer without the consent, approval, waiver or
authorization of a third party, neither Seller nor any Seller Affiliate is, and
to the knowledge of Seller no other party to the Assumed Lease is, in breach or
default thereof, and no event has occurred and is continuing which, with notice
or lapse of time, would constitute a breach or default thereof or permit
termination, modification or acceleration thereunder;
(c) to the knowledge of Seller, there are no disputes, oral agreements or
forbearance programs in effect as to the Assumed Lease that would have a
Material Adverse Effect;
(d) Seller has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in the leasehold represented by the Assumed
Lease; and
(e) Seller or a Seller Affiliate has obtained all Governmental
Authorizations (including licenses and permits) required to be obtained by it in
connection with its operation of the Business at the premises leased under the
Assumed Lease, and has operated and maintained such premises in all material
respects in accordance with applicable Laws.
Section 3.18 Product Warranty.
Except to the extent of the warranty reserve set forth on the September Balance
Sheet, each product manufactured, sold, leased or delivered by the Business on
or before the date hereof has been in conformity with written commitments and
express and implied warranties of Seller. As of September 30, 1999, the
Business had no Liability for replacement or repair of such products or other
damages in connection therewith, except to the extent of the warranty reserve
set forth on the September Balance Sheet. No product manufactured, sold, leased
or delivered by the Business is subject to any contractual guaranty, warranty or
other indemnity of the Business beyond the applicable standard terms and
conditions of sale or lease. Seller has heretofore made available to Buyer
copies of the standard terms and conditions of sale or lease of the Business
(containing applicable guaranty, warranty and indemnity provisions).
Section 3.19 Year 2000 Compliance.
The Business: (a) has undertaken an assessment of all computer and automated
systems that are part of the Transferred Assets (collectively, "Transferred
Systems") that could be
25
<PAGE>
adversely affected by a failure to be Year 2000 Compliant; (b) has developed a
plan for rendering such Transferred Systems Year 2000 Compliant, a copy of which
plan is annexed as Schedule 3.19; and (c) to date, has implemented such plan as
-------------
set forth therein. As used herein, "Year 2000 Compliant" means that the
Transferred Systems will record, store, process and present calendar dates
falling on or after January 1, 2000, in the same manner and with the same
functionality as the Transferred Systems record, store, process and present
calendar dates falling on or before December 31, 1999.
Section 3.20 Buyer's Representations and Warranties.
Seller acknowledges that except for the representations and warranties contained
in Article IV or in any Ancillary Agreement, neither Buyer nor any other Person
makes any other express or implied representation or warranty on behalf of
Buyer.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1 Organization and Power.
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of Delaware and has all requisite corporate power and authority
to own or lease and operate its properties and assets and to carry on its
business as currently conducted. Buyer is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction where its
ownership or operation of its properties and assets or the conduct of its
business requires such qualification, except for failures to be so qualified or
in good standing, as the case may be, that would not prevent consummation of the
Transaction or materially impair the ability of Buyer to perform its obligations
hereunder.
Section 4.2 Corporate Authorization.
Buyer has full corporate power and authority to execute and deliver this
Agreement and each Closing Document, and to perform its obligations hereunder
and thereunder. The execution, delivery and performance by Buyer of this
Agreement and each Closing Document have been duly and validly authorized and no
additional corporate authorization or consent is required in connection
therewith.
Section 4.3 Approvals.
Except for the Required Approvals, no consent, approval, waiver, authorization
or novation is required to be obtained by Buyer from, and no notice or filing is
required to be given by Buyer to or made by Buyer with, any Governmental Entity
or other Person in connection with the execution, delivery and performance by
Buyer of this Agreement and each Closing Document.
26
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Section 4.4 Non-Contravention.
The execution, delivery and performance by Buyer of this Agreement and each
Closing Document, and the consummation of the Transaction, do not and will not:
(a) violate any provision of the articles of incorporation, bylaws or other
organizational documents of Buyer; (b) assuming receipt of all Required
Approvals, conflict with, or result in the breach of, or constitute a default
under, or result in the termination, cancellation or acceleration (whether after
the filing of notice or the lapse of time or both) of any right or obligation of
Buyer under, any agreement, contract, lease, sublease, arrangement, commitment
or license to which Buyer is a party or by which any of its assets is bound; or
(c) assuming receipt of all Required Approvals, violate or result in a breach of
or constitute a default under any Law, judgment, injunction, order, decree or
other restriction of any Governmental Entity to which Buyer is subject; except
for, in the cases of the foregoing clauses (b) and (c), conflicts, breaches,
terminations, defaults, cancellations, accelerations, or violations that would
not prevent consummation of the Transaction or materially impair the ability of
Buyer to perform its obligations hereunder.
Section 4.5 Binding Effect.
This Agreement and each Closing Document, when executed and delivered by Seller
and by each Seller Affiliate party thereto, will constitute valid and legally
binding obligations of Buyer, enforceable against Buyer in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
Section 4.6 Financing.
On the Closing Date, Buyer will have sufficient funds to consummate the
Transaction and to perform its obligations hereunder.
Section 4.7 Litigation and Claims.
There is no civil, criminal or administrative Claim or, to the knowledge of
Buyer, investigation pending or, to the knowledge of Buyer, overtly threatened,
against Buyer except for those that would not prevent consummation of the
Transaction or materially impair the ability of Buyer to perform its obligations
hereunder. Buyer is not subject to any order, writ, judgment, award, injunction
or decree of any Governmental Entity of competent jurisdiction or any
arbitrator, except for those that would not prevent consummation of the
Transaction or materially impair the ability of Buyer to perform its obligations
hereunder.
Section 4.8 Finders' Fees.
There is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of Buyer or any Affiliate of
Buyer who might be entitled to any fee or commission from Seller or any
Affiliate of Seller in connection with the Transaction.
27
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Section 4.9 Seller's Representations and Warranties.
Buyer acknowledges that except for the representations and warranties contained
in Article III or in any Ancillary Agreement, neither Seller nor any other
Person makes any other express or implied representation or warranty on behalf
of Seller, and that any implied warranties of merchantability or fitness for any
particular purpose are expressly disclaimed.
ARTICLE V. CERTAIN COVENANTS
Section 5.1 Access.
(a) Prior to Closing, Seller and the Seller Affiliates will permit Buyer
and its representatives to have access, during regular business hours and upon
reasonable advance notice, to the Books and Records of Seller relating to the
assets, Liabilities and operations of the Business, to the Employees and to the
locations at which the Business is conducted or at which such Books and Records
are located, subject to reasonable security regulations of Seller and any Laws.
Seller and the Seller Affiliates will furnish, or cause to be furnished, to
Buyer any financial and operating data and other information that is available
with respect to the Business as Buyer from time to time reasonably requests (it
being understood that in no event will Buyer have access to any Tax Returns or
Seller or its Affiliates), and will instruct its employees, counsel, independent
accountants and financial advisors to cooperate with Buyer in its investigation
of the Business.
(b) For seven years following the Closing Date (or for such longer period
as may be required by Section 5.10(b)), Buyer will keep and maintain all Books
and Records pertaining to the Business in existence on the Closing Date, and
Seller or the Seller Affiliates will keep and maintain all Books and Records
pertaining to the Business that are not Transferred Assets; provided, however,
that prior to expiration of such period, either party may dispose of such Books
and Records after reasonable notice offering the same to the other party.
(c) For the period provided by Section 5.1(b), and upon the request of
the other party, Seller and the Seller Affiliates, on the one hand, or Buyer, on
the other hand, will, to the extent permitted by Law and confidentiality
obligations existing on the Closing Date, grant to the other party and its
representatives (with reimbursement of the granting party's reasonably
documented reasonable and necessary out-of-pocket expenses incurred in complying
with such request) reasonable access, during normal business hours and upon
reasonable notice, to inspect and copy the Books and Records referred to in
Section 5.1(b). Such right of access will be subject to the reasonable security
requirements of the granting party and in no event will either party have access
to the Tax Returns of the other party.
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Section 5.2 Conduct of Business.
During the period from the date hereof to Closing, except as otherwise
contemplated by this Agreement or as Buyer otherwise consents in writing, Seller
and the Seller Affiliates will conduct the Business in the Ordinary Course and
will not permit the Business to:
(a) incur any indebtedness for borrowed money;
(b) knowingly incur, create or assume any Encumbrance (other than a
Permitted Encumbrance) on any Transferred Assets, other than in the Ordinary
Course;
(c) dispose of any assets Primarily Related to the Business, other than
in the Ordinary Course;
(d) make any change of accounting or accounting practice, procedure or
policy with respect to the Transferred Assets;
(e) enter into any agreement, contract, lease or license (or series of
related agreements, contracts, leases, and licenses) other than Ordinary Course
sales and purchase orders;
(f) accelerate, terminate, modify or cancel any Assumed Contract except
in the Ordinary Course, or materially modify the Business's backlog;
(g) make any capital expenditure (or series of related capital
expenditures) either involving more than $50,000 or outside the Ordinary Course;
(h) make any capital investment in, any loan to, or any acquisition of
the securities or assets of, any other Person;
(i) issue any note, bond or other debt security or create, incur, assume
or guarantee any indebtedness for borrowed money or capitalized lease
obligation;
(j) delay or postpone the payment of accounts payable or other
Liabilities outside of the Ordinary Course;
(k) cancel, compromise, waive or release any material right or Claim (or
series of related rights and Claims) outside the Ordinary Course;
(l) grant any license or sublicense of any rights under or with respect
to any Transferred Intellectual Property outside of the Ordinary Course;
(m) grant any increase in the base compensation of any of the Employees
or make any other material change in employment terms for any of the Employees,
except for normal compensation increases made in the Ordinary Course; or
29
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(n) enter into any commitment to do any of the foregoing.
Section 5.3 Reasonable Efforts; Further Assurances.
(a) During the period from the date hereof to Closing, Seller and Buyer
will each cooperate and use commercially reasonable efforts to fulfill the
conditions precedent to its own and the other party's obligations hereunder,
including taking or causing to be taken all actions necessary, proper or
advisable to obtain as promptly as practicable all Required Approvals; provided,
however that subject to the provisions of Section 2.4, Seller need not request
or make any Required Approval or any other consent, approval, waiver,
authorization, novation, notice or filing from or with any Governmental Entity
or other Person if Seller reasonably believes that such action would materially
endanger, injure or otherwise harm Seller's relationship with such Governmental
Entity or other Person with respect to any of Seller's businesses other than the
Business. Without limiting the generality of the foregoing, Buyer and Seller
will cooperate fully with each other to file promptly documentary materials
required by or necessary to obtain approval or clearance in connection with the
matters contemplated by Article VI.
(b) Seller and Buyer will cooperate and use their respective commercially
reasonable efforts to comply with all Laws in furtherance of the Transaction,
including the execution of additional agreements, instruments and documents that
may be required by local Law. Subject to the provisions hereof, from time to
time before and after the Closing Date, each party will promptly execute,
acknowledge and deliver any other assurances or documents reasonably requested
by the other party and necessary for the other party to satisfy its obligations
hereunder or to obtain the benefits contemplated hereby.
Section 5.4 Antitrust and Competition Laws.
(a) Without limiting the generality of Section 5.3, Seller and Buyer will
use their respective commercially reasonable efforts to take promptly all
actions and to do all other things necessary, proper or advisable to avoid or
eliminate each and every impediment under any Antitrust Law that may be asserted
by any Governmental Entity or any other Person to the consummation of the
Transaction by Seller and Buyer in accordance with the terms of this Agreement.
(b) Subject to confidentiality obligations imposed by Law, Seller and
Buyer will use their respective commercially reasonable efforts to include the
other party in all conversations, discussions, hearings or other meetings,
whether in person or by telephone, that it or its representatives has with any
Governmental Entity with respect to the Transaction, and ensure that the other
party promptly receives all notifications, letters, facsimiles or other written
documentation sent to or by any Governmental Entity to the extent that they
relate to the Transaction.
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Section 5.5 Ancillary Agreements.
At Closing, Seller or its Affiliates and Buyer or its Affiliates will enter into
various business relationships pursuant to the Ancillary Agreements, as follows:
(a) the license by Seller to Buyer and its Affiliates of the Seller-
Licensed Intellectual Property pursuant to one or more Intellectual Property
Licenses substantially in the forms of Exhibit A-1 and Exhibit A-2;
----------- -----------
(b) the license back by Buyer to Seller and its Affiliates of the Buyer-
Licensed Intellectual Property pursuant to one or more Intellectual Property
Licenses substantially in the form of Exhibit B;
---------
(c) the supply by Seller's MTD Division to Buyer of certain product
components pursuant to one or more Sensor Supply Agreements substantially in the
form of Exhibit C;
---------
(d) the distribution by Seller or its Affiliates of products of the
Business in Japan and Korea pursuant to one or more Transition Distribution
Agreements substantially in the form of Exhibit D and containing other customary
---------
terms and conditions, including those necessary under local Law;
(e) the license by Seller or its Affiliates of certain premises to Buyer
pursuant to a Master License Agreement containing the terms summarized in
Exhibit E and other customary terms and conditions; and
- ---------
(f) the development by Seller's MTD Division for Buyer of certain product
components pursuant to one or more Development Agreements containing the terms
summarized in Exhibit F and other customary terms and conditions.
---------
From and after the date hereof, Buyer and Seller will negotiate in good faith
all of the terms and conditions of the Ancillary Agreements contemplated by
Exhibit D, Exhibit E and Exhibit F. At Closing, Buyer and Seller and their
- --------- --------- ---------
respective Affiliates, as appropriate, will execute and deliver each of the
Ancillary Agreements and Closing Documents.
Section 5.6 Corporate Trademarks and Other Intellectual Property.
(a) By virtue of this Agreement, Seller is not Delivering to Buyer, the
terms "Transferred Assets" and "Seller-Licensed Intellectual Property" do not
include, and neither Buyer nor any of its Affiliates will have, whether by
virtue of this Agreement or otherwise, any right, title or interest in or to, or
any right to use, any of Seller's Intellectual Property except as specifically
and expressly set forth herein or in any Ancillary Agreement. Buyer
acknowledges that, except as expressly provided by Section 2.1(f), this Section
5.6 or any Ancillary Agreement, no right, interest, ownership or privilege of
use in or to any of Seller's trade dress, trade names, trademarks, service
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marks, logos, identification, names, slogans or internet domain names is
accorded to Buyer or any of its Affiliates by reason of this Agreement. Neither
Buyer nor any of its Affiliates will at any time use or attempt to register any
trade dress, trade name, trademark or service mark confusingly similar to any
trade dress, trade name, trademark, service mark, logo, identification, name,
slogan or internet domain name of Seller, including Seller's trade dress yellow
color. Without limiting the generality of the foregoing, neither Buyer nor any
Affiliate of Buyer will at any time, without Seller's prior written consent, use
a name, trade name or logo containing the letter combinations EK or KO.
(b) Without limiting the generality of Section 5.6(a), neither Buyer nor
any Affiliate of Buyer will at any time have any rights to use any of the
following names or symbols: KODAK, the Kodak corporate symbol, the KODAK
Service logo and all other trade names of Seller or its Affiliates that are not
Transferred Assets (collectively, the "Corporate Trademarks").
(c) Notwithstanding anything to the contrary contained herein, Seller and
its Affiliates will retain at all times after Closing its right, title and
interest in or to, and the non-exclusive right to use, all trade secrets, know-
how, processes and proprietary information, and copies of documents
incorporating any similar rights, constituting Transferred Intellectual Property
and existing on the Closing Date which is or has been used by Seller or any of
its Affiliates in business operations other than the Business.
(d) Notwithstanding anything to the contrary contained herein, Seller
will at all time have the sole and exclusive right to prosecute, defend, settle
or otherwise control any Claim relating to the Seller-Licensed Intellectual
Property, except as may be otherwise provided by any Ancillary Agreement or to
the extent such Claim is one between Buyer and Seller.
(e) Buyer may use in connection with its operation of the Business: (i)
for up to 30 days after the Closing Date, inventory existing on the Closing Date
of preprinted business forms bearing any Corporate Trademarks; (ii) for up to
six months after the Closing Date, inventory existing on the Closing Date, or
reprints thereof, of sales and promotional material bearing any Corporate
Trademarks; (iii) for up to six months after the Closing Date, signs bearing any
Corporate Trademarks; and (iv) for up to six months after the Closing Date,
inventory existing on the Closing Date of finished goods bearing any Corporate
Trademarks; provided, however, that (A) with respect to all goods and materials
referred to in this Section 5.6(e), Buyer will take such reasonable steps as are
necessary to notify third parties that the products of the Business are no
longer marketed by Seller, but are instead marketed by Buyer, and (B) on all
materials referred to in the foregoing clauses (i), (ii) and (iii), Buyer will
use commercially reasonable efforts to replace, as soon as practicable after
Closing, such existing materials bearing Corporate Trademarks with materials
bearing Buyer's own corporate identity. If any business forms require a
signature, Buyer will sign such forms in its own name, and not in the name of
Seller or any of its Affiliates.
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(f) As used herein, the term "Licensed Trademarks" means the trademarks
of Seller listed on Schedule 5.6(f). Seller hereby grants to Buyer a non-
---------------
exclusive, royalty free, limited right and license to use the Licensed
Trademarks, for a period of 18 months following the Closing Date, in connection
with the products of the Business as they exist on the Closing Date; provided,
however, that if Buyer makes any changes to any of the products of the Business,
Buyer will immediately remove the Licensed Trademarks from each such changed
product and cease use of the Licensed Trademarks in connection therewith. If at
any time Seller notifies Buyer that the quality of any product of the Business
bearing a Licensed Trademark is unacceptable to Seller, or that Buyer has
changed such product since the Closing Date, Buyer will, within five business
days of Seller's written request, remove all Licensed Trademarks from such
product and cease use of the Licensed Trademarks in connection therewith. Buyer
may not use any stylization or special fonts for the Licensed Trademarks, nor
may Buyer use in connection therewith the Kodak corporate symbol or any elements
of Seller's trade dress, including Seller's trade dress yellow color. All
rights and licenses granted to Buyer in this Section 5.6(f) will terminate and
be of no further force or effect, without further action of the parties, on the
date that is 18 months after the Closing Date; provided, however, that Seller
may extend such rights and licenses upon Buyer's written request.
(g) If subsequent to the date hereof Buyer or Seller discovers any
Intellectual Property (other than the Corporate Trademarks) that is (i) owned by
or licensed to Seller or its Affiliates, (ii) used in the Business as of the
date hereof or as of the Closing Date, and (iii) not included as part of the
Transferred Intellectual Property or the Seller-Licensed Intellectual Property,
then Seller will: (A) in the case of such Intellectual Property that is owned
by Seller or its Affiliates and Primarily Related to the Business as of the date
hereof or as of the Closing Date, cause the same to be transferred to Buyer
under the terms of this Agreement; and (B) in the case of all other such
Intellectual Property, cause the same to be licensed to Buyer, on a non-
exclusive, royalty-free basis, subject to the rights of third parties therein;
provided, however, that with respect to any of such Intellectual Property that
is licensed to Seller or its Affiliates, Seller will be obligated to license the
same to Buyer only to the extent that Seller or its Affiliates has the right so
to do, and has no obligation to pay consideration to any third party in
connection therewith (or, at Buyer's election, such consideration has been paid
by Buyer).
Section 5.7 Confidentiality.
(a) At all times after the date hereof, Seller will treat as confidential
and will safeguard any and all information, knowledge and data included in the
Transferred Assets, by using the same degree of care, but no less than a
reasonable standard of care, to prevent the unauthorized use, dissemination or
disclosure of such information, knowledge and data as Seller used with respect
thereto prior to the execution of this Agreement; provided, however, that
nothing contained in this Section 5.7(a) will prevent any use of Transferred
Intellectual Property as contemplated by Section 5.6(c).
(b) At all times after the date hereof, Buyer will treat as confidential
and will safeguard any and all information, knowledge or data included in the
Seller-Licensed
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Intellectual Property or relating to the business of Seller and its Affiliates,
whether or not related to the Business, that has become or becomes known to
Buyer as a result of the transactions contemplated by this Agreement or any
Ancillary Agreement, or Buyer's due diligence investigations in connection
therewith, except in each case as expressly agreed to by Seller in writing. If
for any reason the Transaction is not consummated, the foregoing obligation of
Buyer will also pertain to all information, knowledge or data relating to the
Business and, subject to the provisions of Section 5.7(c), Buyer will neither
use nor disclose any of such information, knowledge or data. With respect to all
such information, knowledge or data, (i) Buyer will use the same degree of care,
but no less than a reasonable standard of care, to prevent the unauthorized use,
dissemination or disclosure of such information, knowledge and data as Buyer
uses in the protection of other proprietary information of Buyer, and (ii)
nothing contained in this Section 5.7(b) will prevent the disclosure of any such
information, knowledge or data to any directors, officers, employees, agents and
representatives of Buyer to whom such disclosure is necessary or desirable in
the conduct of the Business if such Persons are informed by Buyer of the
confidential nature of such information and are directed by Buyer to comply with
the provisions of this Section 5.7(b).
(c) Nothing contained in this Section 5.7 will in any way restrict or
impair the right of either party or its Affiliates (collectively, the "Receiving
Party") to use, disclose or otherwise deal with information of the other party
or its Affiliates (collectively, the "Disclosing Party") which: (i) is or
becomes a matter of public knowledge through no fault of the Receiving Party or
its agents or representatives; (ii) was already in the Receiving Party's
possession at the time of disclosure of the information to the Receiving Party,
and was not acquired, directly or indirectly, under any obligation of
confidentiality to the Disclosing Party or to any other Person; (iii) is
rightfully received by the Receiving Party from a Person having no duty of
confidentiality to the Disclosing Party; (iv) was disclosed by the Disclosing
Party to another Person having no duty of confidentiality to the Disclosing
Party; (v) is independently developed by the Receiving Party; (vi) is disclosed
pursuant to legal process after prior notice to the Disclosing Party; or (vii)
is disclosed by the Receiving Party with the Disclosing Party's prior written
consent. The Receiving Party will have the burden of proving the applicability
of any provision of this Section 5.7(c) to any particular set of facts.
Section 5.8 Public Disclosure.
Notwithstanding anything herein to the contrary, each of the parties agrees
that, except as may be required to comply with the requirements of any Law and
the rules and regulations of each stock exchange upon which the securities of
either of the parties is listed, no press release or similar public announcement
or communication will, whether prior or subsequent to Closing, be made or caused
to be made concerning the execution or performance of this Agreement unless
specifically approved in advance by Seller and Buyer.
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Section 5.9 Bulk Sales.
To the extent, if any, that the same are applicable to the Transaction, Seller
and Buyer hereby waive compliance with article 6 of the Uniform Commercial Code
as adopted in each jurisdiction in which any of the Transferred Assets are
located, as well as section 1141(c) of the New York Tax Law and any similar Laws
in other jurisdictions.
Section 5.10 Taxes.
(a) Responsibility for the preparation and filing of Tax Returns and the
payment of Taxes incurred as a result of the sale and transfer of the
Transferred Assets and the Assumed Liabilities hereunder will be as follows:
(i) Buyer and Seller will each prepare and file such Tax Returns
as may be, respectively, required of them in connection with all excise, sales,
use, value added, transfer, stamp, documentary, filing, recordation or other
similar Taxes incurred as a result of the sale and transfer of the Transferred
Assets and the Assumed Liabilities hereunder in accordance with the form of the
Transaction or as may otherwise be required by a Governmental Entity; provided,
however, that the cost of all such Taxes will be borne by Buyer and Seller in
equal portions.
(ii) Seller will be responsible for the preparation and filing of
any required income Tax Returns and the payment of all of Seller's income Taxes
incurred as a result of the sale and transfer of the Transferred Assets and the
Assumed Liabilities hereunder.
(iii) Seller will be responsible for the preparation and filing of
all Tax Returns and the payment of all other Taxes of any nature incurred in the
Business or relating to the Transferred Assets or the Assumed Liabilities for
the period up to and including the Closing Date.
(iv) Buyer will be responsible for the preparation and filing of
all Tax Returns and the payment of all other Taxes of any nature incurred in the
Business or relating to the Transferred Assets or the Assumed Liabilities for
the period after the Closing Date.
(b) Buyer and Seller will provide each other with such cooperation and
information as either of them reasonably may request of the other in connection
with filing any Tax Return, amended return or Claim for refund, determining a
Liability for Taxes or a right to refund of Taxes or preparation for litigation
or investigation of Claims or in connection with any audit. Such cooperation
and information will include providing copies of all relevant Tax Returns, and
other documents and records, or portions thereof, relating to the Business.
Each of Buyer and Seller will retain all Tax Returns, schedules and work papers
and all material records or other documents relating to Tax matters of the
Business for the taxable year of Seller ending after the Closing Date and for
all previous years, until the expiration of the statute of limitations of the
taxable years to
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which such Tax Returns and other documents relate (and, to the extent notified
by the other party in writing, any extensions thereof). Any information obtained
under this Section 5.10(b) will be kept confidential as contemplated by Section
5.7, except as may be otherwise necessary in connection with the filing of Tax
Returns or Claims for refund or in conducting an audit or other proceeding.
(c) If in order to prepare properly documents required to be filed with
Governmental Entities or its financial statements, it is necessary that either
Buyer or Seller be furnished with additional information relating to the
Transferred Assets or the Assumed Liabilities and such information is in the
possession of the other party, such other party will use its reasonable efforts
to furnish such information in a timely manner to the party reasonably requiring
such information, at the cost and expense of the party requiring such
information.
(d) Seller will provide to Buyer, with respect to all U.S. Employees, all
information required to be reported on IRS Form W-2 for that portion of calendar
year 1999 ending on the Closing Date.
(e) Seller and Buyer will file or provide to each other such Tax Returns,
forms and other documents as may be required or necessary to minimize or obtain
an exemption from any excise, sales, use, value added, transfer, stamp,
documentary, filing, recordation or other similar Taxes that arise with respect
to the Transferred Assets or the Assumed Liabilities. Without limiting the
generality of the foregoing, on or before the Closing Date Buyer will provide
Seller with all required sales Tax exemption certificates.
(f) Notwithstanding any other provision of this Section 5.10, no party
will have access to the other party's federal, state or foreign income Tax
Returns or Books and Records relating thereto.
Section 5.11 Determination and Allocation of Consideration.
Within 60 days following the Closing Date, the parties will determine the amount
of and allocate the total consideration transferred by Buyer to Seller pursuant
to this Agreement (the "Consideration") in accordance with the fair market value
of the Transferred Assets and Assumed Liabilities transferred, taking into
account those Liabilities that properly may be accrued for federal income Tax
purposes as of Closing and other relevant items. Seller and Buyer will prepare
and file an IRS Form 8594 in a timely fashion in accordance with the rules under
section 1060 of the Code and the provisions of this Section 5.11. The
determination and allocation of the Consideration made pursuant to this Section
5.11 will be binding on Seller and Buyer for all Tax reporting purposes. In the
event that Seller and Buyer cannot agree on any determination or allocation
required under this Section 5.11, such determination or allocation will be made
by Ernst & Young LLP, or such other nationally recognized firm of independent
public accountants agreed upon by Seller and Buyer, whose decision will be final
and binding and whose expenses will be shared equally by Seller and Buyer.
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Section 5.12 Exclusivity.
Unless this Agreement is terminated as provided by Section 9.1, Seller will not,
directly or indirectly, solicit, initiate, negotiate or assist any proposal or
offer from any Person to acquire all or any substantial part of the Transferred
Assets or the Business.
Section 5.13 Pre-Closing Inventory Count.
After the date hereof but prior to the Closing Date, Seller, at its expense,
will conduct and complete a physical inventory count of the inventory of the
Business located in the U.S. (the "Pre-Closing Inventory Count"). Buyer will
have the right to observe, at its own expense, each aspect of the Pre-Closing
Inventory Count; provided that, in so doing, Buyer will use reasonable efforts
to minimize any interference with the ongoing operations of the Business.
Section 5.14 Non-Competition.
(a) As used herein, the following terms will have the following
respective meanings:
(i) "Area Image Sensor" means any integrated circuit having a two-
dimensional array of picture elements (pixels) used to detect image patterns of
radiant energy.
(ii) "Industrial Camera" means a device that (A) is externally
powered and rigidly mounted during use, (B) is housed in an industrial strength
enclosure with no viewfinder, either optical or an attached electronic
equivalent, (C) utilizes an Area Image Sensor as well as drive electronics, and
(D) captures and immediately outputs digital images via a cable interface.
(iii) "Motion Analysis Camera" means a device that (A) utilizes an
Area Image Sensor as well as drive electronics, (B) captures motion images of
radiant energy at a minimum of 100 images per second, and (C) is primarily
designed to analyze the motion of manufacturing processes or of products under
test.
(b) For a period of seven years following the Closing Date, Seller will
not, directly or indirectly through any of its Affiliates: (i) engage in the
manufacturing, marketing (including any Seller branding), distribution or sale
of Motion Analysis Cameras or Industrial Cameras, or kits for the assembly of
Motion Analysis Cameras or Industrial Cameras; or (ii) own, manage, operate,
control or have a material equity interest (as a partner, stockholder or
investor) in any Person that engages in any of the activities set forth in
Section 5.14(b)(i).
(c) Notwithstanding the provisions of Section 5.14(b):
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(i) nothing contained herein will prevent Seller or any of its
Affiliates from engaging in the manufacturing, marketing, distribution and/or
sale of: (A) Area Image Sensors; (B) optical components used in Motion Analysis
Cameras or Industrial Cameras; (C) document or film scanners using Area Image
Sensors; (D) medical cameras other than cameras sold to third party systems
manufacturers on an OEM (non-Kodak branded) basis; (E) satellite or aerial
surveillance cameras; (F) motion or still cameras used to produce portraits,
event photography, advertising, sales or marketing materials or entertainment
programming; (G) microscopy cameras selling for less than $5,000 each, whether
sold as a stand-alone product or as a component of a system (irrespective of the
sales price of the system), but excluding cameras for electron microscopes; (H)
cameras designed and marketed for consumer applications; and/or (I) Industrial
Cameras selling for less than $2,000 each, whether sold as a stand-alone product
or as a component of a system (irrespective of the sales price of the system);
and
(ii) nothing contained herein will prevent Seller or any of its
Affiliates from: (A) owning less than 25 percent in the aggregate of the voting
securities of any Person that engages in any of the activities set forth in
Section 5.14(b)(i); or (B) participating in venture capital funds, mutual funds
or investment funds that hold ownership interests in any Person that engages in
any of the activities set forth in Section 5.14(b)(i); in each case so long as
no employee of Seller or any of its Affiliates is involved in any way in the
management of such Person (other than as a director); provided, however, that if
after the Closing Date Seller or any of its Affiliates acquires any Person that
engages in any of the activities set forth in Section 5.14(b)(i), Seller or such
Affiliate will have a reasonable period of time, not to exceed one year, in
which to bring its ownership of such Person within the parameters permitted by
this Section 5.14(c)(ii) without thereby being in breach of this Section 5.14.
ARTICLE VI. COVENANTS AS TO EMPLOYMENT MATTERS
Section 6.1 Employees.
(a) Seller represents and warrants that Schedule 6.1 is a listing, as of
------------
the date hereof, of the names or employee codes of (i) all employees of Seller
who are employed in the U.S. and whose duties are Primarily Related to the
Business, and (ii) certain employees of Seller or a Seller Affiliate who are
employed in a country other than the U.S. and have been identified for purposes
of the requirements of this Article VI consistent with local Law. Schedule 6.1
------------
will be updated, if necessary, immediately prior to Closing.
(b) "Employee" means each employee who (i) is listed by name or employee
code on Schedule 6.1 and (ii) at the Transfer Time is either actively employed,
------------
or on an approved vacation or on any family leave, disability leave or other
leave status under which the employee is entitled to reinstatement or continued
employment.
(c) "EU Employees" means those Employees who are subject to Acquired
Rights.
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(d) "Acquired Rights" means (i) EU Directive No. 77/187 or any directive
replacing or amending the same and the implementing Laws in the relevant
countries and (ii) local Laws in other jurisdictions which provide for the
automatic transfer of employees and their rights to a purchaser in the event of
the sale of a business or other undertaking.
(e) "Transferred Employees" means (i) all EU Employees and (ii) all U.S.
Employees who accept employment with Buyer or its Affiliates.
(f) "U.S. Employees" or "U.S. Transferred Employees" means those
Employees or Transferred Employees, as the case may be, who at the Transfer Time
are employed in the U.S.
Section 6.2 Buyer's Offers of Employment.
(a) Within seven days after the date hereof, Buyer will offer to each
U.S. Employee:
(i) employment, commencing at the Transfer Time (or, in the case
of an Employee who is then on disability or medical leave, commencing on the
date he becomes willing and able to commence active service), in a position
reasonably comparable to that held by such Employee immediately prior to the
Transfer Time (but for such leave), and at a location no more than 50 miles from
his place of employment at the Transfer Time;
(ii) a salary (including variable pay, if applicable) or hourly
wage at least equal to such Employee's salary (including variable pay, if
applicable) or hourly wage immediately prior to the Transfer Time (but for such
leave); and
(iii) the employee benefit plans, programs, policies and
arrangements of Buyer annexed as Schedule 6.2(a) ("Buyer's Employee Benefits"').
---------------
Buyer will give each U.S. Employee at least one week in which to accept or
reject such offer of employment, unless a greater period is required by local
Law or applicable contract.
(b) Buyer and Seller confirm their understanding that the consummation of
the Transaction to the extent located in a member state of the EU or other
states with similar Laws will constitute the transfer of an undertaking or
business for the purposes of Acquired Rights, and that the contracts of
employment or employment relationships of the EU Employees in those states will,
at the Transfer Time, automatically transfer to Buyer and will continue
thereafter as if made between each EU Employee and Buyer. Seller and Buyer will
cooperate to send notification of the proposed transfer to the EU Employees
prior to Closing and appropriate confirmation of the transfer of employment to
the EU Employees as soon as reasonably practicable after the Transfer Time.
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Section 6.3 Severance Obligations.
(a) In the event that Buyer: (i) fails to offer employment to all U.S.
Employees on the terms required by Section 6.2(a); or (ii) fails to accept a
transfer of all EU Employees; or (iii) transfers any EU Employee on terms which
do not satisfy the requirements of local Law or applicable contract with respect
to the comparability of employment or the comparability of benefits offered to
Employees (including those who accept employment with Buyer); then Buyer will be
responsible for the payment of all severance, retention, termination and other
similar compensation or benefit payments, damages and costs, and the applicable
Taxes related thereto, which are or may become payable, under local Law,
applicable contract or (to the extent applicable) TAP, and for the employment of
any Employee who is awarded reinstatement by any Governmental Entity.
(b) In the event that Buyer offers employment to any U.S. Employee on the
terms required by Section 6.2(a), or accepts a transfer of any EU Employee on
terms which satisfy the requirements of local Law and applicable contract with
respect to the comparability of employment and the comparability of benefits
offered to Employees, but such Employee does not accept such employment or
refuses to transfer under Acquired Rights, then upon Seller's termination of
such Employee's employment Seller will be responsible for the payment of all
severance pay and benefits, if any, and the applicable Taxes related thereto, to
the extent payable under TAP as well as all severance, retention, termination
and other similar compensation or benefit payments, damages and costs, and the
applicable Taxes related thereto, which are or may become payable in that
circumstance under local Law or applicable contract.
(c) In the event that severance, retention, termination, change in
control or other similar compensation or benefit payments, damages or costs
(including those related to actual or constructive termination of employment),
or applicable Taxes related thereto, are payable, under local Law or applicable
contract or custom, solely by virtue of the consummation of the Transaction (and
notwithstanding Buyer's full compliance with the requirements of Section 6.2),
then Buyer will be responsible for the payment thereof.
(d) In the event that, within 12 months following the Transfer Time,
Buyer:
(i) terminates the employment of any U.S. Transferred Employee,
other than for cause, death or disability, under any circumstance that would
have entitled such U.S. Transferred Employee to severance benefits under TAP
(had TAP been adopted by Buyer); or
(ii) fails to provide a U.S. Transferred Employee with (A) a
position reasonably comparable to that held by him immediately prior to the
Transfer Time and (B) a salary (including variable pay, if applicable) or hourly
wage equal to his salary (including variable pay, if applicable) or hourly wage
immediately prior to the Transfer Time, as a result of either of which failures
such U.S. Transferred Employee terminates employment with Buyer; or
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(iii) requires as a condition to continued employment that a U.S.
Transferred Employee relocate more than 50 miles from his place of employment at
the Transfer Time, as a result of which such U.S. Transferred Employee
terminates employment with Buyer;
then Buyer will provide such U.S. Transferred Employee severance benefits
comparable to those that would have been provided him under the circumstances by
TAP (had Buyer adopted TAP) ("TAP-Comparable Benefits"); provided, however, that
Seller will, with respect to no more than 20 percent of the U.S. Transferred
Employees, reimburse Buyer for the amount by which the TAP-Comparable Benefits
paid by Buyer to each such U.S. Transferred Employee exceeded the amount that
would have been payable to such U.S. Transferred Employee under the severance
policies of Buyer included in Buyer's Employee Benefits (after giving such U.S.
Transferred Employee credit under such severance policies for all prior service
with or credited by Seller). During the 12-month period following the Transfer
Time, Buyer will cause the severance policies of Buyer included in Buyer's
Employee Benefits to be applicable to the events of employment termination
described in this Section 6.3(d).
Section 6.4 Buyer's Obligations to Transferred Employees.
(a) Buyer will maintain Buyer's Employee Benefits for a period of 12
months following the Transfer Time.
(b) Buyer will cause each Transferred Employee and his beneficiaries to
be included as of the Transfer Time in the medical, dental, health and life
insurance plans included in Buyer's Employee Benefits. Buyer will cause such
plans to waive any eligibility periods and pre-existing condition limitations
and will honor any deductible and out-of-pocket expenses incurred by each
Transferred Employee and his beneficiaries under the medical, dental, health and
life insurance plans of Seller and its Affiliates during the expired portion of
calendar year 1999, and will waive any proof of good health requirements for
life insurance coverage up to the level carried by such Transferred Employee
immediately prior to the Transfer Time.
(c) All Liabilities in or under contracts of employment or employment
relationships of EU Employees will automatically transfer to Buyer at the
Transfer Time in accordance with Acquired Rights.
(d) Buyer will give Transferred Employees credit for all service with or
credited by Seller under all employee benefit plans, programs, policies and
arrangements of Buyer or its Affiliates in which they become participants for
purposes of eligibility, vesting and benefit accrual.
(e) Buyer will assume and honor all vacation benefits of Transferred
Employees accrued under Seller's Vacation Plan which have not been used as of
the Closing Date. Notwithstanding the preceding sentence, Seller will remain
responsible for
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all vacation benefits accrued by Transferred Employees under Seller's Vacation
Buy Plan.
(f) Effective as of the Transfer Time, Buyer will perform the duties
required of a successor employer with respect to Continuation Coverage,
including making Continuation Coverage available to U.S. Transferred Employees
on and after the Transfer Time upon their termination of employment subsequent
to the Transfer Time to the extent required by Law.
(g) Buyer will assume and be responsible for all Liabilities arising out
of or related to the Transferred Benefit Plans, as well as all obligations under
all non-U.S. Laws relating to the Transferred Employees.
Section 6.5 Seller's Obligations to Transferred Employees.
(a) Except as may be required by Law or expressly provided by this
Article VI or Acquired Rights, and except for the Transferred Benefit Plans,
neither Buyer nor any Affiliate of Buyer will assume or continue any of Seller's
employee benefit plans or arrangements, and Seller will retain all Liability
under all such other plans.
(b) Effective as of the Transfer Time, all Transferred Employees (and
their dependents) who immediately prior to the Transfer Time are participating
in employee welfare benefit plans of Seller, including plans, programs, policies
and arrangements that provide medical and dental coverage, life and accident
insurance, disability coverage and vacation and severance pay (collectively,
"Seller's Welfare Plans"'), will cease to be covered by Seller's Welfare Plans,
except to the extent provided otherwise by the applicable Seller's Welfare Plan.
Seller will retain responsibility and Liability (if any) for providing
Continuation Coverage under the terms of the health plan maintained by Seller to
(i) U.S. employees of Seller who were employed in connection with the Business,
terminated employment prior to the Transfer Time, and elected Continuation
Coverage, and (ii) U.S. Employees who do not accept Buyer's offer of employment
and elect Continuation Coverage after termination of employment.
(c) Seller will retain responsibility and Liability (if any) for all
Seller's Welfare Plan claims incurred by Employees (i) under any medical, dental
or health plans for treatment or service rendered prior to the Transfer Time,
(ii) under any life insurance plans with respect to deaths occurring prior to
the Transfer Time, and (iii) with respect to any other payments or benefits
owing prior to the Transfer Time under any other Seller's Welfare Plans. For
purposes of this Section 6.5(c), a medical, dental or health claim will be
deemed to have been incurred on the date on which treatment or service was
rendered and not the date of the inception of the related illness or injury or
the date of submission of a Claim related thereto.
(d) Except to the extent provided otherwise by any Assumed Contract or
local Law, and except for matters arising under any Transferred Benefit Plan,
Seller will retain responsibility and Liability (if any) for all employment or
benefit-related matters
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attributable to any current or former employee or other Person with respect to
services performed on behalf of the Business prior to the Transfer Time.
Section 6.6 Consultation.
From and after the date hereof, Seller will use commercially reasonable efforts
in a timely manner to notify and consult with the respective works councils or
other employee representative bodies relating to the EU Employees as and to the
extent required by local Law with respect to the transfers of EU Employees
contemplated by this Agreement. In the event that Seller is required under Law
in any country to provide information to its works councils or other employee
representative bodies concerning Buyer or its Affiliates, or any measures that
Buyer anticipates will be taken after the Transfer Time with respect to the
Business, Buyer will immediately upon Seller's request provide all such
information as is required for such purposes and will otherwise cooperate fully
with Seller in connection with such consultations.
Section 6.7 Compliance with WARN, Etc.
Buyer will in a timely manner give all notices required to be given under the
Worker Adjustment and Retraining Notification Act or other similar Laws of any
jurisdiction relating to any plant closing or mass layoff or as otherwise
required by any such Law. Buyer will be deemed to have caused a mass layoff if
the mass layoff would not have occurred but for the failure of Buyer to employ
the Employees in accordance with the terms of this Agreement.
Section 6.8 Non-Solicitation.
(a) During the six-month period immediately following the Closing Date,
without the prior written consent of the other party, each party agrees not to
hire or otherwise use or solicit the services of (i) any employee of the other
party, or (ii) any former employee of the other party who terminated employment
with such other party during the period beginning six months prior to the
Closing Date and ending six months after the Closing Date.
(b) In the event that the parties fail for any reason to consummate the
Transaction, neither Buyer nor any of Buyer's Affiliates will, on or before July
31, 2001, directly or indirectly solicit for employment or knowingly hire any
employee of MASD with whom Buyer had a contact or who had become known to Buyer
in connection with Buyer's consideration of the Transaction.
Section 6.9 Family and Medical Leaves.
During the first 12 months following the Transfer Time, Buyer, in its sole
discretion, will take into consideration Seller's policy under the Family and
Medical Leave Act of 1993 in applying the provisions of its Family and Medical
Leave policy to any U.S. Transferred Employee.
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ARTICLE VII. CONDITIONS TO CLOSING
Section 7.1 Conditions to the Obligations of Buyer and Seller.
The obligations of Buyer and of Seller to effect Closing are subject to the
satisfaction or waiver prior to Closing of each of the following conditions:
(a) Antitrust Laws. All filings under U.S. Antitrust Laws will have been
made and any required waiting period under such Laws applicable to the
Transaction will have expired or been earlier terminated, and any other
Governmental Entity that has power or authority to enforce such Laws will have
approved, cleared and/or not intervened or attempted to prevent or modify the
material terms of the Transaction.
(b) No Injunctions. No U.S. Governmental Entity of competent
jurisdiction will have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, or non-appealable judgment, decree, injunction or
other order that is in effect on the Closing Date and prohibits Closing or the
consummation of the Transaction.
(c) Required Approvals. All Required Approvals will have been obtained
or accomplished, as the case may be, and the parties will have delivered to each
other appropriate evidence of the same.
Section 7.2 Further Conditions to the Obligation of Buyer.
The obligation of Buyer to effect Closing is subject to the satisfaction or
waiver prior to Closing of each of the following further conditions:
(a) Representations and Warranties. The representations and warranties
of Seller contained herein will have been true and correct in all material
respects when made, and will be so true and correct as of Closing as if made as
of Closing (except that representations and warranties that are made as of a
specific date need be so true and correct only as of such date), and Buyer will
have received a certificate to such effect dated the Closing Date and executed
by a duly authorized officer of Seller.
(b) Covenants. The covenants and agreements of Seller to be performed
prior to Closing will have been duly performed in all material respects, and
Buyer will have received a certificate to such effect dated the Closing Date and
executed by a duly authorized officer of Seller.
(c) No Material Adverse Change. Between the date hereof and the Closing
Date, there will not have occurred any change in the assets, Liabilities,
operations or condition of the Business that is materially adverse to the
Business taken as a whole, excluding general economic changes, changes in
currency exchange rates, changes that may affect the motion analysis camera or
industrial camera industries generally, the voluntary or involuntary termination
of Employees or independent contractors, and changes attributable to the
identity of Buyer or the pendency of the Transaction.
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(d) Ancillary Agreements. Seller or an Affiliate of Seller will have
duly executed and delivered each Ancillary Agreement.
(e) Additional Closing Deliveries. Subject to the provisions of Sections
2.4 and 2.10, at Closing Seller will have delivered to Buyer the following:
(i) duly executed bills of sale and other appropriate documents of
transfer, in form and substance reasonably acceptable to Buyer and Seller,
transferring to Buyer all tangible personal property included in the Transferred
Assets;
(ii) duly executed assignments, in form and substance reasonably
acceptable to Buyer and Seller, Delivering to Buyer all Transferred Intellectual
Property;
(iii) duly executed assignments or, where necessary, subcontracts,
subleases or sublicenses, in form and substance reasonably acceptable to Buyer
and Seller, Delivering to Buyer all Assumed Contracts and all Transferred
Licenses; and
(iv) such other instruments or documents, in form and substance
reasonably acceptable to Buyer and Seller, as may be necessary to effect
Closing.
Section 7.3 Further Conditions to the Obligation of Seller.
The obligation of Seller to effect Closing is subject to the satisfaction or
waiver prior to Closing of each of the following further conditions:
(a) Representations and Warranties. The representations and warranties
of Buyer contained herein will have been true and correct in all material
respects when made, and will be so true and correct as of Closing as if made as
of Closing (except that representations and warranties that are made as of a
specific date need be so true and correct only as of such date), and Seller will
have received a certificate to such effect dated the Closing Date and executed
by a duly authorized officer of Buyer.
(b) Covenants. The covenants and agreements of Buyer to be performed
prior to Closing will have been duly performed in all material respects, and
Seller will have received a certificate to such effect dated the Closing Date
and executed by a duly authorized officer of Buyer.
(c) Ancillary Agreements. Buyer or an Affiliate of Buyer will have duly
executed and delivered each Ancillary Agreement.
(d) Payment. Buyer will have caused the Estimated Purchase Price to be
delivered to Seller at Closing in federal funds by wire transfer to an account
or accounts designated by Seller prior to Closing.
(e) Additional Closing Deliveries. Subject to the provisions of Sections
2.10, at Closing Buyer will have delivered to Seller the following:
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(i) such duly executed instruments of assumption and other
instruments or documents, in form and substance reasonably acceptable to Seller
and Buyer, as may be necessary to effect the assumption by Buyer of the Assumed
Liabilities; and
(ii) such other instruments or documents, in form and substance
reasonably acceptable to Seller and Buyer, as may be necessary to effect
Closing.
ARTICLE VIII. INDEMNIFICATION; REMEDIES
Section 8.1 Indemnification by Seller.
(a) Subject to the further provisions of this Article VIII, Seller will
indemnify, defend and hold harmless Buyer, Buyer's Affiliates, and their
respective directors, officers, shareholders, partners, attorneys, accountants,
agents and employees (other than the Transferred Employees), and their heirs,
successors and assigns (collectively, the "Buyer Indemnified Parties"), from,
against and in respect of all Losses imposed on, sustained, incurred or suffered
by or asserted against any of the Buyer Indemnified Parties, directly or
indirectly relating to or arising out of any of the following (collectively,
"Buyer Losses"):
(i) any fact or circumstance that constitutes a breach of any
representation or warranty of Seller contained herein;
(ii) any act or omission that constitutes a breach of any covenant or
agreement of Seller contained herein;
(iii)any act or omission of Seller prior to Closing that constituted a
breach of its obligations under any Assumed Contract or Transferred License;
(iv) any act or omission of Seller prior to Closing that creates
Liability to a third party other than as contemplated by Section 8.1(a)(iii);
(v) any Excluded Liability; or
(vi) that certain inquiry of the Federal Trade Commission with
respect to the Business which is pending on the date hereof.
(b) As used herein, "Special Buyer Loss" means a Buyer Loss that arises
out of: (i) a breach of the representations and warranties contained in
Sections 3.1, 3.2, 3.4, 3.5, 3.7 or 3.9 (but not any other representation or
warranty); (ii) any Excluded Liability; or (iii) the matter described in Section
8.1(a)(vi). Notwithstanding the provisions of Section 8.1(a):
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(i) Seller will not be liable for any Buyer Loss, including a Special
Buyer Loss, unless a Buyer Indemnified Party gives Seller notice of a claim for
indemnification therefor within the applicable survival period provided by
Section 10.4;
(ii) Seller will not be liable for any Buyer Loss, including a Special
Buyer Loss, unless the aggregate amount of all Buyer Losses exceeds $200,000,
and then Seller will be liable only in the amount of all Buyer Losses in excess
of $200,000;
(iii)in no event will Seller's aggregate Liability for all Buyer
Losses that are not Special Buyer Losses exceed $10,000,000 (it being understood
that the limitation provided by this Section 8.1(b)(iii) does not apply to
Special Buyer Losses);
(iv) in no event will Seller's aggregate Liability for all Buyer
Losses, including all Special Buyer Losses, exceed the amount of the Purchase
Price; and
(v) Seller will not be liable for any Buyer Loss, including a Special
Buyer Loss, to the extent that such Buyer Loss is reflected in the Reduction
Amount.
Section 8.2 Indemnification by Buyer.
(a) Subject to the further provisions of this Article VIII, Buyer
will indemnify, defend and hold harmless Seller, Seller's Affiliates, and their
respective directors, officers, shareholders, partners, attorneys, accountants,
agents and employees, and their heirs, successors and assigns (collectively, the
"Seller Indemnified Parties"), from, against and in respect of any Losses
imposed on, sustained, incurred or suffered by or asserted against any of the
Seller Indemnified Parties, directly or indirectly relating to or arising out of
any of the following (collectively, "Seller Losses"):
(i) any fact or circumstance that constitutes a breach of any
representation or warranty of Buyer contained herein;
(ii) any act or omission that constitute a breach of any covenant
or agreement of Buyer contained herein;
(iii)any Assumed Liability; or
(iv) any Liability (other than an Excluded Liability) related to
the Business, the Transferred Assets or the Transferred Employees that arises
from and after the Closing Date.
(b) As used herein, "Special Seller Loss" means a Seller Loss that
arises out of: (i) a breach of the representations and warranties contained in
Sections 4.1, 4.2, 4.3, 4.4 or 4.5 (but not any other representation or
warranty); (ii) any Assumed Liability; or (iii) any Liability described in
Section 8.2(a)(iv). Notwithstanding the provisions of Section 8.2(a):
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(i) Buyer will not be liable for any Seller Loss, including a
Special Seller Loss, unless a Seller Indemnified Party gives Buyer notice of a
claim for indemnification therefor within the applicable survival period
provided by Section 10.4;
(ii) Buyer will not be liable for any Seller Loss, including a
Special Seller Loss, unless the aggregate amount of all Seller Losses exceeds
$200,000, and then Buyer will be liable only in the amount of all Seller Losses
in excess of $200,000;
(iii) in no event will Buyer's aggregate Liability for all Seller
Losses that are not Special Seller Losses exceed $10,000,000 (it being
understood that the limitation provided by this Section 8.2(b)(iii) does not
apply to Special Seller Losses); and
(iv) in no event will Buyer's aggregate Liability for all Seller
Losses, including all Special Seller Losses, exceed the amount of the Purchase
Price.
Section 8.3 Indemnification Procedures.
(a) All claims for indemnification by any Indemnified Party will be
asserted and resolved as set forth in this Section 8.3. In the event that any
written claim or demand for which an Indemnifying Party would be liable to any
Indemnified Party hereunder is asserted against or sought to be collected from
any Indemnified Party by a third party, such Indemnified Party will promptly,
but in no event more than 15 days following such Indemnified Party's receipt of
such claim or demand, notify the Indemnifying Party of such claim or demand and
the amount or the estimated amount thereof to the extent then feasible (which
estimate will not be conclusive of the final amount of such claim or demand)
(the "Claim Notice").
(b) The Indemnifying Party will have 90 days from the personal delivery
or mailing of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (a) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such claim
or demand and (b) whether or not it desires to defend the Indemnified Party
against such claim or demand. All reasonable costs and expenses incurred by the
Indemnifying Party in defending such claim or demand will be a Liability of, and
will be paid by, the Indemnifying Party, subject to the respective limitations
set forth in Sections 8.1(b) and 8.2(b).
(c) Except as provided in Section 8.3(d), in the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such claim or demand, the
Indemnifying Party will have the right to defend the Indemnified Party by
appropriate proceedings with counsel of the Indemnifying Party's choosing, and
will have the sole power to direct and control such defense. If any Indemnified
Party desires to participate in any such defense it may do so at its sole cost
and expense.
(d) If the Indemnifying Party elects not to defend the Indemnified Party
against such claim or demand, whether by not giving the Indemnified Party timely
notice as
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provided by Section 8.3(a) or otherwise, then the portion of any such
claim or demand as to which the defense by the Indemnified Party is unsuccessful
(and the reasonable costs and expenses pertaining to such defense) will be the
Liability of the Indemnifying Party hereunder, subject to the respective
limitations set forth in Sections 8.1(b) and 8.2(b). The Indemnified Party will
use commercially reasonable efforts in the defense of all such claims.
(e) The Indemnified Party will not settle a claim or demand without the
consent of the Indemnifying Party, which consent will not be unreasonably
withheld. The Indemnifying Party will not, without the prior written consent of
the Indemnified Party, settle, compromise or offer to settle or compromise any
such claim or demand on a basis that would result in the imposition of a consent
order, injunction or decree that would restrict the future activity or conduct
of the Indemnified Party or any Affiliate thereof.
(f) To the extent that the Indemnifying Party directs, controls or
participates in the defense or settlement of any third party claim or demand,
the Indemnified Party will give the Indemnifying Party and its counsel, during
normal business hours, access to the relevant business records and other
documents, and will permit them to consult with the employees and counsel of the
Indemnified Party.
(g) All amounts paid by Seller or Buyer, as the case may be, under this
Article VIII will be treated as adjustments to the Purchase Price for Tax
purposes.
Section 8.4 Sole Remedy.
If Closing occurs, the rights and remedies expressly provided by this Article
VIII will constitute the sole and exclusive basis for and means of recourse
between the parties with respect to the subject matter hereof, and Buyer and
Seller each expressly waives any and all other rights or causes of action with
respect to the subject matter hereof that it may have against the other party
now or in the future under any Law; provided, however, that equitable relief,
including the remedies of specific performance and injunction, will be available
with respect to any actual or attempted breach of this Agreement occurring
before Closing or with respect to the breach of any covenant or agreement to be
performed after Closing insofar as and to the extent that such relief would be
available under any Law. Without limiting the generality of the foregoing, each
party acknowledges that this Article VIII provides its sole remedy with respect
to any Losses arising under or in connection with this Agreement or the
Transaction. Notwithstanding the foregoing, the remedies and means of recourse
between the parties with respect to the subject matter of each Ancillary
Agreement is provided by such Ancillary Agreement and not by this Agreement.
Section 8.5 No Consequential Damages.
NOTWITHSTANDING ANY OTHER PROVISION HEREOF TO THE CONTRARY, NEITHER PARTY WILL
BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SUFFERED BY ANY INDEMNIFIED
PARTY WITH RESPECT TO ANY PROVISION OR THE SUBJECT MATTER OF THIS AGREEMENT OR
ANY ANCILLARY AGREEMENT; PROVIDED, HOWEVER, THAT THIS WAIVER WILL
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NOT LIMIT ANY LIABILITY OF EITHER PARTY TO INDEMNIFY ANY INDEMNIFIED PARTY FOR
ANY LOSS ARISING FROM DAMAGES OF SUCH TYPE WHICH THE INDEMNIFIED PARTY IS
REQUIRED TO PAY TO ANY OTHER UNAFFILIATED PERSON.
ARTICLE IX. TERMINATION
Section 9.1 Termination.
This Agreement may be terminated at any time prior to Closing as follows:
(a) by mutual agreement of Buyer and Seller;
(b) by either Buyer or Seller if there is in effect any U.S. Law that
prohibits or prevents Closing, or if Closing would violate any non-appealable
final order, decree or judgment of any U.S. Governmental Entity having competent
jurisdiction;
(c) by Seller if, as a result of any action or inaction by Buyer or its
Affiliates, Closing has not occurred within 30 days following the satisfaction
(or waiver) of all the conditions to Closing set forth in Sections 7.1 and 7.2;
(d) by Buyer if, as a result of any action or inaction by Seller or its
Affiliates, Closing has not occurred within 30 days following the satisfaction
(or waiver) of all the conditions to Closing set forth in Sections 7.1 and 7.3;
or
(e) by either Buyer or Seller, by giving written notice of such
termination to the other party, if Closing has not occurred on or prior to March
31, 2000; provided, however, that the terminating party is not in material
breach of its obligations under this Agreement.
Section 9.2 Effect of Termination.
In the event of the termination of this Agreement in accordance with Section
9.1, this Agreement will thereupon become void and have no effect, and no party
will have any Liability to any other party or their respective Affiliates,
directors, officers or employees, except for the obligations of the parties
contained in this Section 9.2 and in Sections 5.7 (Confidentiality), 5.8 (Public
Disclosure), 10.1 (Notices), 10.5 (Return of Information), 10.6 (Expenses), 10.9
(Governing Law; Submission to Jurisdiction; Selection of Forum) and 10.12
(Entire Agreement) (and any related definitional provisions set forth in Article
I), and except that nothing in this Section 9.2 will relieve any party from
Liability for any breach of this Agreement that arose prior to such termination,
for which Liability the provisions of Article VIII will remain in effect in
accordance with the provisions and limitations thereof.
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ARTICLE X. IN GENERAL
Section 10.1 Notices.
All notices or other communications given hereunder will be deemed to have been
duly given and made if in writing and if served by personal delivery upon the
party for whom it is intended, if delivered by registered or certified mail,
return receipt requested, or by a national courier service, or if sent by
telecopier, provided that the telecopy is promptly confirmed by telephone
confirmation thereof, to the party at the address set forth below, or such other
address as may be designated in writing hereafter, in the same manner, by such
party:
If to Seller: Eastman Kodak Company
343 State Street
Rochester, New York 14650-0218
Attention: General Counsel
Fax: (716) 724-9549
with a copy to: Harter, Secrest & Emery LLP
700 Midtown Tower
Rochester, New York 14604-2070
Attention: Susan Mascette Brandt, Esq.
Fax: (716) 232-2152
If to Buyer: Roper Industries, Inc.
160 Ben Burton Road
Bogart, Georgia 30622
Attention: N. Will Crocker, Group Vice President
Fax: (706) 353-6496
with a copy to: Roper Industries, Inc.
160 Ben Burton Road
Bogart, Georgia 30622
Attention: Shanler D. Cronk, General Counsel
Fax: (706) 353-6496
Section 10.2 Amendment; Waiver.
Any provision of this Agreement may be amended or waived if such amendment or
waiver is in writing and signed, in the case of an amendment, by Parent and
Seller, or in the case of a waiver, by the party against whom the waiver is to
be effective. No failure or delay by any party in exercising any right, power
or privilege hereunder will operate as a waiver thereof nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided will be cumulative and, except as otherwise expressly provided herein,
not exclusive of any rights or remedies provided by Law.
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Section 10.3 No Assignment or Benefit to Third Parties.
Except as otherwise provided by Section 2.10, neither party may assign any of
its rights or delegate any of its obligations under this Agreement, by operation
of law or otherwise, without the prior written consent of the other party, and
any attempt to assign this Agreement without such consent will be void and of no
force or effect. Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than Buyer, Seller or the Indemnified Parties, or
their respective successors or permitted assigns, any rights or remedies under
or by reason of this Agreement. Without limiting the generality of the
foregoing, nothing in this Agreement creates any rights in any employees or
groups of employees.
Section 10.4 Survival.
All of the respective representations, warranties, covenants and agreements of
Seller and Buyer contained in this Agreement, and all indemnification
obligations of any party with respect thereto, will survive Closing until April
30, 2001, except that:
(a) the following will survive Closing until expiration of the applicable
statute of limitations with respect thereto:
(i) Seller's indemnification obligations pursuant to Section
8.1(a)(v) with respect to Taxes; and
(ii) Seller's indemnification obligations pursuant to Section
8.1(a)(vi); and
(b) any covenant that contains an express term of years extending beyond
April 30, 2001, and all indemnification obligations of any party with respect
thereto, will survive Closing for such express term.
Notwithstanding the foregoing, if notice of any claim for indemnification has
been given (within the meaning of Section 10.1) within the applicable survival
period provided by this Section 10.4, such claim for indemnification, and the
underlying representations, warranties, covenants or agreements, and the
indemnification obligations that are the subject thereof, will survive until
such time as such claim is finally resolved.
Section 10.5 Return of Information.
If for any reason whatsoever the Transaction is not consummated, Buyer will
promptly return to Seller all Books and Records furnished by Seller, the
Business or any of their respective agents, employees, or representatives
(including all copies thereof, if any, in any media), and will not use or
disclose the information contained in such Books and Records for any purpose or
make such information available to any other Person.
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Section 10.6 Expenses.
Except as otherwise expressly provided by this Agreement, whether or not the
Transaction is consummated, all costs and expenses incurred in connection with
this Agreement and the Transactions will be borne by the party incurring the
same.
Section 10.7 Schedules.
(a) Any matter disclosed on any Schedule will only be deemed to be
disclosed in connection with (i) the specific representations and warranties to
which such Schedule is expressly referenced, (ii) any specific representations
and warranties that expressly cross-reference such Schedule, and (iii) any
specific representations and warranties or other Schedules to which such
Schedule is expressly referenced. The disclosure of any matter in any Schedule
will expressly not be deemed to constitute an admission by Seller or Buyer, or
otherwise to imply, that any such matter is material for the purposes of this
Agreement.
(b) The contents of the Schedules will not vary, change or alter the
language or substance of the representations and warranties contained in this
Agreement.
(c) Seller will promptly update each Schedule as necessary on or before
the Closing Date and deliver the same to Buyer.
(d) Buyer's rights to indemnification or other remedy provided by Article
VIII based on any breach by Seller of its representations, warranties, covenants
and agreements will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) by Buyer at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or agreement. The due
diligence review conducted by Buyer and/or its representatives will not relieve
Seller of any duties concerning its representations, warranties, covenants or
agreements contained in this Agreement or in any Ancillary Agreement.
Section 10.8 Dispute Resolution.
If any dispute arises between Buyer and Seller regarding this Agreement, any
Closing Document or the Transaction (other than a dispute relating to
Intellectual Property), the General Counsel of Parent on behalf of Buyer, and
the Director of Finance of Seller's Digital and Applied Imaging Division on
behalf of Seller, or their respective designees, will attempt in good faith to
resolve the dispute. If those Persons have not agreed to a resolution within ten
days from the date on which the dispute was first presented to them, any party,
by written notice to the other parties, may require that the dispute be
submitted for resolution to the Group Vice President of Parent and the President
of Seller's Digital and Applied Imaging Division (collectively, the "Business
Unit CEOs"). The Business Unit CEOs will meet, in person or by other means
mutually satisfactory to them, to
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attempt to resolve the dispute within ten days after reference of the matter to
them. If the Business Unit CEOs reach a decision within such ten-day period,
their decision will be final and binding on the parties for all purposes. If the
Business Unit CEOs fail to resolve the dispute within such period, either of the
Business Unit CEOs may, on notice to the other, refer the matter to the Chief
Executive Officer of Parent and the Director, Business Strategy and Information
Technology of Seller (collectively, the "Chief Executives"). The Chief
Executives will meet, in person or by other means mutually satisfactory to them,
to attempt to resolve the dispute within ten days after reference of the matter
to them. If the Chief Executives reach a decision within such ten-day period,
their decision will be final and binding on the parties for all purposes. If the
Chief Executives fail to resolve the dispute within such period, Buyer and
Seller may, if they then so agree, refer the matter for arbitration on such
terms as they may then agree or, failing that, proceed to litigation.
Section 10.9 Governing Law; Submission to Jurisdiction; Selection of
Forum.
This Agreement will be governed by and construed in accordance with the Laws of
the State of New York without regard to its principles of conflicts of laws.
Each party agrees that it will bring any action or proceeding in respect of any
Claim arising out of or related to this Agreement, the Transaction or any
Ancillary Agreement, whether in tort or contract or at law or in equity,
exclusively in either the U.S. District Court for the Western District of New
York, sitting in Monroe County, New York, or the U.S. District Court for the
Northern District of Georgia, sitting in Fulton County, Georgia (the "Chosen
Courts") and, solely in connection with Claims arising out of or related to this
Agreement, the Transaction or any Ancillary Agreement, (a) irrevocably submits
to the exclusive jurisdiction of the Chosen Courts, (b) waives any objection to
laying venue in any such action or proceeding in the Chosen Courts, (c) waives
any objection that the Chosen Courts are an inconvenient forum or do not have
jurisdiction over any party, and (d) agrees that service of process in person or
by certified or registered U.S. mail to its address set forth in Section 10.1
will constitute valid in personam service upon such party and its successors and
assigns in any action or proceeding with respect to any matter as to which it
has submitted to jurisdiction hereunder. EACH PARTY HEREBY ACKNOWLEDGES THAT
THIS IS A COMMERCIAL TRANSACTION, THAT THE FOREGOING PROVISIONS FOR CONSENT TO
JURISDICTION AND SERVICE OF PROCESS HAVE BEEN READ, UNDERSTOOD AND VOLUNTARILY
AGREED TO BY SUCH PARTY AND THAT BY AGREEING TO SUCH PROVISIONS SUCH PARTY IS
WAIVING IMPORTANT LEGAL RIGHTS.
Section 10.10 Inferences.
Inasmuch as this Agreement is the result of negotiations between sophisticated
parties of equal bargaining power represented by counsel, no inference in favor
of or against either party will be drawn from the fact that any portion of this
Agreement has been drafted by or on behalf of such party.
54
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Section 10.11 Severability.
The provisions of this Agreement will be deemed severable and the invalidity or
unenforceability of any provision will not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision will be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (b) the
remainder of this Agreement and the application of such provision to other
Persons or circumstances will not be affected by such invalidity or
unenforceability, nor will such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
Section 10.12 Entire Agreement.
This Agreement, including the Exhibits, the Schedules, the Ancillary Agreements
and the other Closing Documents, contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such matters.
Section 10.13 Headings.
The heading references herein and the tables hereto are for convenience purposes
only, do not constitute a part of this Agreement and will not be deemed to limit
or affect any of the provisions hereof.
Section 10.14 Counterparts.
This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, and all of which will constitute one and the same
Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EASTMAN KODAK COMPANY
By: _____________________________
Its:
ROPER INDUSTRIES, INC.
By: _____________________________
Its:
ROPER ACQUISITION SUBSIDIARY, INC.
By: _____________________________
Its:
56
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 Form of Patent License (Seller to Buyer)
Exhibit A-2 Form of Software License (Seller to Buyer)
Exhibit B Form of Intellectual Property License (Buyer to Seller)
Exhibit C Form of Sensor Supply Agreement
Exhibit D Form of Transition Distribution Agreement
Exhibit E Term Sheet for Master License Agreement
Exhibit F Term Sheet for Development Agreement
Schedule 1.1(a) Required Approvals
Schedule 1.2(e) Persons Having Knowledge on Behalf of Seller
Schedule 2.1(e) Assumed Leases and Assumed Contracts
Schedule 2.1(f)(i) Transferred Patents
Schedule 2.1(f)(ii) Transferred Trademarks
Schedule 2.1(f)(iii) Transferred Product Development Projects
Schedule 2.1(f)(iv) Transferred Software and Firmware
Schedule 2.1(f)(vi) Transferred Licenses
Schedule 2.1(l) Certain Transferred Assets
Schedule 2.2(n) Certain Excluded Assets
Schedule 2.3(a)(i) Seller-Licensed Intellectual Property: Patents
Schedule 2.3(a)(ii) Seller-Licensed Intellectual Property: Software
Schedule 2.8 Closing Balance Sheet
Schedule 3.3 Consents Other Than Required Approvals
Schedule 3.6(b) September Balance Sheet
Schedule 3.6(c) Financial Statements
Schedule 3.6(d) Certain Liabilities
Schedule 3.9(a) Litigation and Claims
Schedule 3.9(b) Orders and Judgments
Schedule 3.10(b) Intellectual Property: Infringement
Schedule 3.11(a) Employee Benefits: U.S. Plans
Schedule 3.11(b) Employee Benefits: Litigation
Schedule 3.12 Environmental Matters
Schedule 3.13(a) Labor Matters
Schedule 3.16 Subsequent Changes
Schedule 3.19 Year 2000 Compliance Plan
Schedule 5.6(f) Licensed Trademarks
Schedule 6.1 Employees
Schedule 6.2 Buyer's Employee Benefits
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Acquired Rights.......................................................... 39
Affiliates............................................................... 1
Agreement................................................................ 1
Ancillary Agreements..................................................... 1
Antitrust Laws........................................................... 2
Article.................................................................. 6
Assumed Contracts........................................................ 7
Assumed Leases........................................................... 7
Assumed Liabilities...................................................... 12
Books and Records........................................................ 2
Business................................................................. 1
Business Unit CEOs....................................................... 54
Buyer.................................................................... 2
Buyer Indemnified Parties................................................ 47
Buyer Losses............................................................. 47
Buyer's Employee Benefits................................................ 40
Buyer-Licensed Intellectual Property..................................... 11
Chief Executives......................................................... 55
Chosen Courts............................................................ 55
Claim.................................................................... 2
Claim Notice............................................................. 49
Closing.................................................................. 2
Closing Balance Sheet.................................................... 2,14
Closing Countries........................................................ 16
Closing Date............................................................. 15
Closing Documents........................................................ 2
Code..................................................................... 2
Consideration............................................................ 37
Continuation Coverage.................................................... 2
Corporate Trademarks..................................................... 32
Deferred Countries....................................................... 16
Delivery................................................................. 3
Disclosing Party......................................................... 35
dollars, $............................................................... 6
Employee................................................................. 39
Employment Laws.......................................................... 23
Encumbrances............................................................. 3
Environmental Law........................................................ 3
ERISA.................................................................... 3
Estimated Purchase Price................................................. 13
EU....................................................................... 3
EU Employees............................................................. 39
Excluded Assets.......................................................... 9
</TABLE>
58
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<TABLE>
<S> <C>
Excluded Liabilities...................................................... 13
Exhibit................................................................... 6
Financial Statements...................................................... 3
GAAP...................................................................... 3
Governmental Authorizations............................................... 3
Governmental Entity....................................................... 3
Hazardous Substance....................................................... 3
herein, hereof, hereunder................................................. 6
include, includes, including.............................................. 6
Increase Amount........................................................... 15
Indemnified Parties....................................................... 4
Indemnifying Party........................................................ 4
Intellectual Property..................................................... 4
knowledge................................................................. 6
Law....................................................................... 4
Leased Real Property...................................................... 4
Liability................................................................. 4
Licensed Trademarks....................................................... 33
Losses.................................................................... 4
MASD...................................................................... 1
Material Adverse Effect................................................... 4
Net Current Asset Value................................................... 15
Notice Period............................................................. 49
Notification Time......................................................... 16
Ordinary Course........................................................... 4
Parent.................................................................... 1
party..................................................................... 6
Pension Plan.............................................................. 22
Permitted Encumbrances.................................................... 4
Person.................................................................... 5
Pre-Closing Inventory Count............................................... 37
Primarily Related to the Business......................................... 5
Product Warranty Claims................................................... 5
Purchase Price............................................................ 13
Receiving Party........................................................... 35
Reduction Amount.......................................................... 15
Required Approvals........................................................ 5
Schedule.................................................................. 6
Section................................................................... 6
Seller.................................................................... 1
Seller Affiliates......................................................... 5
Seller Indemnified Parties................................................ 48
Seller Losses............................................................. 48
Seller's Welfare Plans.................................................... 43
Seller-Licensed Intellectual Property..................................... 10
September Balance Sheet................................................... 5
</TABLE>
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<PAGE>
EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into on November
___, 1999, by and among PMCB ACQUISITION CORP., a Delaware corporation (the
"Buyer"), ROPER INDUSTRIES, INC., a Delaware corporation and parent of Buyer
("Parent"), REDLAKE IMAGING CORPORATION, a California corporation (the
"Company") and the Stephen W. Ferrell Revocable Family Trust dated July 27,
1992, a trust established under the laws of the State of California and
represented herein by its trustee, Stephen W. Ferrell (the "Trust"), Stephen W.
Ferrell, Galen Collins , Marlin Collins, John Foley, Donald Thomas, Bruce
Bastl, Deborah Robinson and Garrett Garrettson, each individual residents of the
state of California (each of the latter individuals as well as the Trust, a
"Stockholder"). The Buyer, Parent, the Company and the Stockholders are
referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which Buyer shall merge with
the Company, with Buyer being the surviving corporation and in connection
therewith, the Stockholders will receive certain consideration in the form of
cash.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. Definitions.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, penalties, fines, costs, amounts
paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses,
and fees, including court costs and reasonable attorneys' fees and expenses;
provided, however, that "Adverse Consequences" shall not include any of the
foregoing attributable to an Indemnified Party's conduct which occurs other than
in its exercise of its reasonable business judgment or in the good faith defense
or contesting of any of the foregoing.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504(a) (or any similar group defined under a similar provision of
state, local, or foreign law).
"Applicable Rate" means the corporate base rate of interest announced
from time to time by Bank of America.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, occurrence, event, incident, action,
failure to act, or transaction that forms or would probably form the basis for
any specified consequence.
"Business" means the business conducted by the Company on and as of
the Closing Date.
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"Buyer" has the meaning set forth in the preface above.
"California Act" shall mean the General Corporations Law of the State
of California.
"Closing" has the meaning set forth in (S) 2(e) below.
"Closing Date" has the meaning set forth in (S) 2(e) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Disclosure Schedule" has the meaning set forth in (S) 3
below.
"Company Loans" means any and all loans of the Company for borrowed
money.
"Company Plans" has the meaning set forth in (S) 3(x)(ii) below.
"Company Shares" means share(s) of the Common Stock, no par value, of
the Company.
"Confidential Information" means: (a) confidential data and
confidential information relating to the business of any Party (the "Protected
Party") which is or has been disclosed to another Party (the "Recipient") or of
which the Recipient became aware as a consequence of or through its relationship
with the Protected Party and which has value to the Protected Party and is not
generally known to its competitors and which is designated by the Protected
Party as confidential or otherwise restricted; and (b) information of the
Protected Party, without regard to form, including, but not limited to,
Intellectual Property, technical or nontechnical data, algorithms, formulas,
patents, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, product or service plans or lists of
customers or suppliers which is not commonly known or available to the public
and which information (i) derives economic value from not being generally known
to, and not being readily ascertainable by proper means by, other Persons who
can obtain economic value from its disclosure or use, and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
Notwithstanding anything to the contrary contained herein, Confidential
Information shall not include any data or information that (v) has been
voluntarily disclosed to the public by the Protected Party, (w) has been
independently developed and disclosed to the public by others, (x) otherwise
enters the public domain through lawful means, (y) was already known by
Recipient prior to such disclosure or was lawfully and rightfully disclosed to
Recipient by another Person, or (z) that is required to be disclosed by law or
order.
"Controlled Group of Corporations" has the meaning set forth in Code
Sec. 1563.
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"Delaware Act" shall mean the General Corporation Law of the State of
Delaware, as amended.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan (as defined in ERISA Sec. 3(2)), (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan, (c)
qualified defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan (as defined in ERISA Sec. 3(1)) or material fringe benefit plan or
program.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, state law rulings, codes, plans, permits, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, natural resources, public health and safety, or
employee health and safety, including, but not limited to, laws relating to
emissions, discharges, releases, or threatened releases of Hazardous Substances
in ambient air, surface water, drinking water, wetlands, ground water, or lands
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, recycling, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means SunTrust Bank, Atlanta.
"Escrow Agreement" means the Escrow Agreement dated the Closing Date,
entered into among the Parties and the Escrow Agent with respect to the
indemnification obligations of the Stockholders under (S) 8 of this Agreement,
the form of which is set forth as Exhibit A.
---------
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in (S) 3(g)(ii)
below.
"GAAP" means United States generally accepted accounting principles as
in effect as of the date hereof.
"Hazardous Substance" means any substance regulated under or defined
by Environmental, Health, and Safety Laws, including, but not limited to, any
pollutant,
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<PAGE>
contaminant, hazardous substance, hazardous constituent, hazardous waste,
special waste, solid waste, industrial waste, petroleum derived substance or
waste, or toxic substance.
"Indemnified Party" has the meaning set forth in (S) 8(d) below.
"Indemnifying Party" has the meaning set forth in (S) 8(d) below.
"Intellectual Property" means, with respect to the Business:
(a) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof;
(b) all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations,
and combinations thereof and including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith;
(c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith;
(d) all mask works and all applications, registrations, and renewals
in connection therewith;
(e) all trade secrets and confidential business information (including
ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals);
(f) all computer software (including data and related documentation);
(g) all other proprietary rights; and
(h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Knowledge" means knowledge of the Stockholders, after due inquiry of
the Company employees with management responsibility in the area of the Company
operations with respect to which the applicable representation or warranty
applies.
"Leased Real Property" has the meaning set forth in (S) 3(l) below
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<PAGE>
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Merger" has the meaning set forth in (S) 2(a) below.
"Merger Consideration" shall have the meaning set forth in (S) 2(c)(i)
hereof.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Option" shall have the meaning set forth in Section 7(e) hereof.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Principal Stockholders" shall mean Stephen Ferrell, Galen Collins,
Marlin Collins, Donald Thomas and John Foley.
"Process Agent" has the meaning set forth in (S) 9 below.
"Product Warranty Claims" means claims of the Company customers and/or
users made at any time following Closing in the Ordinary Course of Business with
respect to products sold, manufactured, leased or delivered by the Company on or
prior to the Closing Date which (i) are based solely on the Company's written
product warranties disclosed to Buyer, and (ii) are only for the refund, repair
or replacement remedies expressed in such written product warranties.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
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<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"September Balance Sheet" has the meaning set forth in Section 3(g)(i)
below.
"Stockholder(s)" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Trust" has the meaning set forth in the preface above.
2. Merger.
(a) At the Effective Time (as hereinafter defined) and subject to the
terms and conditions of this Agreement, Buyer shall be merged with and into
the Company (the "Merger"), in accordance with the relevant provisions of
the California Act and the Delaware Act, the separate corporate existence
of the Company shall cease and the Buyer shall continue as the surviving
corporation (the "Surviving Corporation"). The Merger shall otherwise have
the effect set forth in the Delaware Act and the California Act.
(b) At the Closing, the parties hereto shall cause the Merger to be
consummated by delivering articles of merger to the Secretary of State of
California and the Secretary of State of Delaware executed in accordance
with relevant provisions of the California Act and the Delaware Act for
filing thereby (the time of such filing being the "Effective Time"). The
Articles of Incorporation and Bylaws, respectively, of the Buyer as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation; provided, however,
that the name of the
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Surviving Corporation shall be Redlake Imaging
Corporation. The officers and directors of Buyer immediately prior to the
Effective Time shall be the officers and directors of the Surviving
Corporation, in each case, until their respective successors are duly
elected and qualified.
(c) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof:
(i) all of the Company Shares shall be converted into, and
represent the right to receive in the manner provided in (S) 2(d) and
(S) 2(e) below, cash in the amount of Seven Million Seven Hundred
Four Thousand Six Hundred Dollars and Eighty Three Cents
($7,704,600.83) (the "Merger Consideration");
(ii) each share of capital stock of the Company that is held in
the treasury of the Company, if any, shall be cancelled and retired
and cease to exist and no consideration shall be issued in exchange
therefor; and
(iii) each issued and outstanding share of capital stock of
Buyer shall be converted into and become one fully paid and non-
assessable share of common stock of the Surviving Corporation.
(d) At the Closing Date, the Merger Consideration shall be allocated
among the Stockholders pro rata based on the number of Company shares held
by each as shall be paid as follows:
(i) One Million Five Hundred Thousand Dollars $1,500,000.00
shall be paid to the Escrow Agent pursuant to the Escrow Agreement to
be held and disbursed as provided in (S) 8 hereof and the Escrow
Agreement, which amount shall be contributed solely by the Principal
Stockholders pro rata based on the number of Company shares held by
each in accordance with the allocation schedule set forth as Section
2(d) of the Company Disclosure Schedule (the "Allocation Schedule");
and
(ii) the balance of the Merger Consideration shall be paid to the
Stockholders, Rosenblum, Parrish and Isaacs, Professional Corporation
and Alliant Partners as set forth on the Allocation Schedule.
(e) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Powell,
Goldstein, Frazer & Murphy LLP at noon, on November 1, 1999 or such other
date and time as the Parties may agree (the "Closing Date").
(f) Deliveries at the Closing. (i) At the Closing, the Company will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 5(a) below; (ii) the Buyer will deliver to the Company
the various certificates, instruments, and
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<PAGE>
documents referred to in (S) 5(b) below; (iii) the Company and the
Stockholders will execute, acknowledge (if appropriate), and deliver to the
Buyer (A) a consent and estoppel with respect to the Leased Real Property
in the forms attached hereto as Exhibit B and (B) such other documents as
---------
the Buyer and its counsel may reasonably request; (iv) the Buyer will
execute, acknowledge (if appropriate), and deliver to the Company (A) such
documents as the Company and the Stockholders and their counsel reasonably
may request; and (v) the Buyer will deliver to the Company the Merger
Consideration.
3. Representations and Warranties of the Stockholders. The Stockholders
jointly and severally represent and warrant to the Buyer and Parent that the
statements contained in this (S) 3 are correct and complete as of the Closing
Date, except as specified to the contrary in the disclosure schedule prepared by
the Company accompanying this Agreement and initialed by the Company and the
Buyer (the "Company Disclosure Schedule"). The Company Disclosure Schedule will
be arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this (S) 3.
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to conduct business
in every jurisdiction where such qualification is required. The Company
Shares are held of record and beneficially by the Stockholders as described
in (S) 3(a) of the Company Disclosure Schedule.
(b) Authorization of Transaction. The Company and each Stockholder
has full power and authority (including, with respect to the Company, full
corporate power and authority, and with respect to the Stockholder which is
a trust, full power and authority under the trust agreement and the laws
governing such trust) to execute and deliver this Agreement and to perform
its or his obligations hereunder. Without limiting the generality of the
foregoing, the board of directors of the Company and the stockholders of
the Company have duly authorized the execution, delivery, and performance
of this Agreement by the Company. This Agreement constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with
its terms and conditions. The Company and the stockholders do not need to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company or any
Stockholder is subject or any provision of the charter or bylaws of the
Company, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Company or any Stockholder is a party or
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<PAGE>
by which it is bound or to which any of its assets is subject (or result in
the imposition of any Security Interest upon any of its assets).
(d) Brokers' Fees. Except as set forth on (S) 3(d) of the Company
Disclosure Schedule, neither the Company nor any Stockholder has any
Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.
(e) Title to Assets. Each Stockholder has the right to convey, and
upon the transfer of the Company Shares to the Buyer, each Stockholder will
have conveyed, good title and interest in and to the Company Shares free
and clear of all Security Interests. The Company has good title to all of
the assets of the Company free and clear of any Security Interest.
(f) The Company Shares. The Company Shares constitute all of the
issued and outstanding capital stock of the Company, are validly issued,
fully paid and non-assessable and owned, beneficially and of record, by the
Stockholders and no the Company Shares are subject to, nor have any been
issued in violation of, pre-emptive or similar rights. All issuances,
sales and repurchases of equity interests by the Company have been effected
in compliance with all applicable laws, including, without limitation,
applicable federal and state securities laws. The Stockholders have good
title to the Company Shares, free and clear of any Security Interest or
restriction on transfer. The stock ledger and other corporate records of
the Company contain a complete and correct record of all issuance and
transfer of equity interests of the Company. There are no preemptive or
similar rights on the part of any holder of any Company Shares. Except for
the options which are set forth on Section 3(f) of the Company Disclosure
Schedule, no options, warrants, conversion or other rights, agreements,
commitments, arrangements or understandings of any kind obligating the
Company, contingently or otherwise, to issue or sell any shares of its
common stock or any securities convertible into or exchangeable for any
such shares or any other securities, are outstanding, and no authorization
therefor has been given.
(g) Financial Statements.
(i) Attached hereto as Exhibit C-1 is the unaudited balance sheet
-----------
of the Company as of September 30, 1999 (the "September Balance
Sheet"). The September Balance Sheet has been derived from the books
and records of the Company maintained in the Ordinary Course of
Business, and fairly presents the financial position and the results
of operations of the Company, and reflects adequate reserves for all
known liabilities as of September 30, 1999, in accordance with GAAP
and, to the extent consistent with GAAP, Seller's policies (except
that there are no statements of change in financial position or equity
and there are no footnotes).
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<PAGE>
(ii) Attached hereto as Exhibit C-2 are each of the unaudited
-----------
income statements and balance sheets of the Company as of and for the
fiscal years ended December 31, 1997 and December 31, 1998 (the
"Financial Statements"). The Financial Statements fairly present the
financial position and the results of the operations of the Company,
and reflect adequate reserves for all known liabilities, for the
respective periods therein stated, in accordance with GAAP
consistently applied, and, to the extent consistent with GAAP,
Seller's policies, except as noted in the footnotes to the Financial
Statements (except that there are no statements of change in financial
position or equity and there are no footnotes).
(iii) The Company does not have any debt, Liability or
obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or
reserved against in the September Balance Sheet. Accounts payable
reflected in the Financial Statements and the September Balance Sheet
have arisen from bona fide transactions. All debts, Liabilities and
obligations of the Company incurred after the date of the September
Balance Sheet were incurred in the Ordinary Course, arose from bona
fide transactions, and are usual and normal in amount both
individually and in the aggregate. The Company is not, directly or
indirectly, liable to or obligated to provide funds in respect of or
to guaranty or assume any obligation of any person except to the
extent reflected and fully reserved against in the Financial
Statements and the September Balance Sheet. Except as set forth in
the Financial Statements and the September Balance Sheet, all
Liabilities of the Company can be prepaid without penalty at any time.
(h) Subsequent Events.
(i) Since September 30, 1999, there has not been any material
adverse change in the business, financial condition, operations, or
results of operations of the Company. Without limiting the generality
of the foregoing, except as listed on (S) 3(h)(i) of the Company
Disclosure Schedule, since that date, the Company:
(A) has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible outside the Ordinary Course of
Business;
(B) has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) either involving more than $5,000 or outside the
Ordinary Course of Business;
(C) has not, and to the Knowledge of the Company or any
Stockholder no party has, accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements,
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<PAGE>
contracts, leases, and licenses) involving more than $5,000 to
which the Company is a party or by which it is bound;
(D) has not imposed or permitted any Security Interest upon
any of its assets, tangible or intangible;
(E) has not made any capital expenditure (or series of
related capital expenditures) either involving more than $5,000
or outside the Ordinary Course of Business;
(F) has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of, any other Person;
(G) has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
(H) has not delayed or postponed the payment of accounts
payable or other Liabilities outside of the Ordinary Course of
Business;
(I) has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside
the Ordinary Course of Business;
(J) has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(K) has not changed or authorized any change in its charter
or bylaws;
(L) has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(M) has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
(N) has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(O) has not granted any increase in the base compensation of
any of its directors, officers, and employees;
(P) has not adopted, amended, modified or terminated any
bonus, profit-sharing incentive, severance, or other plan,
contract, or
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<PAGE>
commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other
Employee Benefit Plan);
(Q) has not made any other change in employment terms for
any of its directors, officers, and employees;
(R) has not made or pledged to make any charitable or other
capital contribution;
(S) has not suffered or experienced any other occurrence,
event, incident, action, failure to act, or transaction outside
the Ordinary Course of Business;
(T) has not declared or paid any dividend or other
distribution, whether in cash or other property; and
(U) has not committed to any of the foregoing.
(ii) Except as set forth on (S) 3(h)(ii) of the Company
Disclosure Schedule, since August 1, 1999, the Company has made no
distributions of any kind to any Stockholder, debt holder or other
party, except as set forth on Section 3(h)(ii) of the Company
Disclosure Schedule.
(i) Undisclosed Liabilities. The Company has no Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Acquired Companies
giving rise to any Liability), except for (i) Liabilities set forth on the face
of the Financial Statements or the September Balance Sheet, and (ii) Liabilities
which have arisen after the date of the September Balance Sheet in the Ordinary
Course of Business (none of which results from, arises out of, or was caused by
any breach of contract, breach of warranty claims, product liability, tort,
infringement, or violation of law), (iii) Liabilities which will arise from and
after the Closing Date under contracts, instruments and similar obligations of
the Company to be performed following the Closing Date and (iv) Liabilities set
forth on (S) 3(i) of the Company Disclosure Schedule ("Undisclosed
Liabilities").
(j) Legal Compliance. The Company has complied with all applicable
laws (including rules, regulations, codes, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), which the failure to comply
with will result in Adverse Consequences the costs of which will exceed
$5,000, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against the
Company alleging any failure so to comply.
(k) Tax Matters.
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<PAGE>
(i) The Company has filed all Tax Returns that they were
required to file and were due. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by the Company
(whether or not shown on any Tax Return) have been paid. The Company
currently is not the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made by an authority in
a jurisdiction where the Company does not file Tax Returns that such
Company is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of any of the Company
that arose in connection with any failure (or alleged failure) to pay
any Tax. The Company has not been a member of an Affiliated Group that
has filed a "consolidated return" within the meaning of Code Sec.
1501, or has filed a combined or consolidated return with another
corporation with any other taxing authority.
(ii) The Company has made all withholdings of Taxes required to
be made in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, or other third party
and such withholdings have either been paid to the appropriate
governmental agency or set aside in appropriate accounts for such
purpose.
(iii) The Company has not received any notice or other indication
that any authority is considering assessing any additional Taxes for
any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which the
Company or any Stockholder has knowledge based upon personal contact
with any agent or representative of such authority. (S) 3(k) of the
Company Disclosure Schedule lists all federal, state, local, and
foreign income Tax returns filed with respect to the Company for
taxable periods ended on or after December 31, 1995, indicates those
Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Company has delivered to
the Buyer correct and complete copies of all federal and foreign
income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since
December 31, 1995.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The Company has not made any payments, is not obligated to
make any payments, or is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will
not be deductible under Code Sec. 280G. The Company is not a party to
any Tax allocation or sharing agreement. The Company (A) has not been
a member of an Affiliated Group
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<PAGE>
filing a consolidated federal income Tax Return (other than a group
the common parent of which was the Company) or (B) has no Liability
for the Taxes of any Person (other than the Company) under Treas. Reg.
(S) 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(l) Real Property.
(i) The Company does not own, and has never owned, any real
property.
(ii) (S) 3(l)(ii) of the Company Disclosure Schedule lists and
describes briefly all real property leased to the Company (the "Leased
Real Property"). The Company has delivered to the Buyer correct and
complete copies of the leases for the Leased Real Property (as amended
to date). With respect to each lease for Leased Real Property:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the Company is not, and to the Knowledge of the Company,
no party to the lease or sublease is, in breach or default, and
no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(C) the Company is not, and to the Knowledge of the Company,
no party to the lease or sublease has, repudiated any provision
thereof;
(D) to the Knowledge of the Company, there are no disputes,
oral agreements, or forbearance programs in effect as to the
lease;
(E) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold; or
(F) to the Knowledge of the Company, all facilities leased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and
maintained in all material respects in accordance with applicable
laws, rules, and regulations.
(m) Intellectual Property.
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<PAGE>
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission of all Intellectual
Property necessary for the operation of the Business as presently
conducted or as proposed to be conducted. Each Stockholder and other
director, officer or employer of the Company has heretofore
transferred to the Company all right, title and interest of such
person in and to any Intellectual Property used, necessary or
desirable for the operation of the Business as presently conducted or
as proposed to be conducted. Each item of Intellectual Property
included among the assets of the Company or owned or used by the
Company or any Stockholder immediately prior to the Closing hereunder
will be owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder.
(ii) To the Knowledge of the Stockholders, neither the Company
nor any Stockholder has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties. Neither the Company nor any
Stockholder has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation,
or violation (including any claim that any of the Company or any
Stockholder must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of the Company
or any Stockholder, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) (S) 3(m)(iii) of the Company Disclosure Schedule identifies
each patent or registration which has been issued or transferred to
the Company or any Stockholder with respect to any of its Intellectual
Property, identifies each pending patent application for registration
which the Company or any Stockholder has made with respect to any of
its Intellectual Property, and identifies each license, agreement, or
other permission which the Company or any Stockholder has granted to
any third party with respect to any of its Intellectual Property. The
Company has delivered to the Buyer correct and complete copies of all
such patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer
correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such
item. (S) 3(m)(iii) of the Company Disclosure Schedule also identifies
each trade name or unregistered trademark used by the Company in
connection with the Business. With respect to each item of
Intellectual Property required to be identified in (S) 3(m)(iii) of
the Company Disclosure Schedule:
(A) the Company possess all right, title, and interest
in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
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<PAGE>
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Company threatened, which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Neither the Company nor any Stockholder has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) (S) 3(m)(iv) of the Company Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission. The
Company has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in (S) 3(m)(iv) of the Company Disclosure Schedule;
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the Merger referred to in
(S) 2 above);
(C) Neither the Company, nor to the Knowledge of the Company, no
other party to the license, sublicense, agreement, or permission, is
in breach or default, and no event has occurred which with notice of
lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) The Company has not, and to the Knowledge of the Company, no
other party to the license, sublicense, agreement, or permission has,
repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the Knowledge of the
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<PAGE>
Company, threatened, which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property;
and
(H) The Company has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or
permission.
(n) Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct
of the Business as presently conducted. Each such tangible asset is free
from any known material defects, has been maintained in accordance with
normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(o) Inventory. The inventory of the Company consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow-moving
(except for parts and components on hand for servicing products already
sold), obsolete, damaged, or defective in excess of the amount reserved
against inventory on the September Balance Sheet.
(p) Contracts. (S) 3(p) of the Company Disclosure Schedule lists the
following contracts and other agreements, written or oral, to which the
Company is a party:
(i) all customer orders, and the purchase prices thereof,
accepted by the Company and in order backlog as of September 30,
1999;
(ii) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for
lease payments in excess of $5,000 per annum;
(iii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year, or which to the Knowledge of the Company, will result in a loss
to the Company, or which involves consideration, in excess of $5,000;
(iv) any agreement concerning a partnership or joint venture;
(v) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, under which it
has imposed a Security Interest on any of its assets, tangible or
intangible;
(vi) any agreement concerning confidentiality or noncompetition;
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(vii) any agreement involving any Stockholder to which the
Company is a party;
(viii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $30,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default or
termination would have an adverse effect in the amount of $5,000 or
more on the business, financial condition, operations or results of
operations of the Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Company has delivered to the Buyer a correct and complete copy of each
written agreement listed in (S) 3(p) of the Company Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in (S) 3(p) of the Company
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect, subject to applicable bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, arrangement, moratorium or other similar laws
from time to time affecting creditor's rights generally; (B) to the
Knowledge of the Company, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in (S) 2 above),
subject to applicable bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, arrangement, moratorium or other similar laws
from time to time affecting creditor's rights generally; (C) the Company is
not, and to the Knowledge of the Company, no other party, is in material
breach or default, and no event has occurred which with notice or lapse of
time would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreements; (D) no party has
repudiated to the other party any provision of the agreement; and (E) such
agreement does not prohibit or require consent in the event of a change of
control of the Company. With respect to each customer order listed in (S)
3(p) of the Company Disclosure Schedule, the Company has no Knowledge of
any basis for cancellation thereof.
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(q) Notes and Accounts Receivable. Notes and accounts receivable of
the Company included among the assets are at least in the amounts reflected
in the Financial Statements and all such notes and accounts receivable are
reflected properly on their books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and
will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the
Balance Sheet.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(s) Insurance. (S) 3(s) of the Company Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which any Company has been a
party, a named insured, or otherwise the beneficiary of coverage at any
time within the past five 5 years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) all policy premiums due to
date have been paid in full, and to the Knowledge of the Company, the
policy is legal, valid, binding, enforceable, and in full force and effect
with respect to the periods for which it purports to provide coverage
subject to applicable bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, arrangement or moratorium or other similar laws
from time to time affecting creditor's rights generally; (B) the Company
or, to the Knowledge of the Company, any other party to the policy is not
in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (C) no
party to the policy has repudiated any provision thereof. (S) 3(s) of the
Company Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
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<PAGE>
(t) Litigation. The Company (i) is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge and (ii) is not a
party nor, to the Knowledge of the Company, is threatened to be made a
party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
(u) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company or service provided by the Company has been in
conformity with all applicable contractual commitments and all express and
implied warranties, and the Company has no Liability (and, to the Knowledge
of the Stockholders, there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against it giving rise to any Liability) for refund, replacement or
repair thereof or other damages in connection therewith in excess of the
amount reserved against product warranty claims on the September Balance
Sheet. Except as otherwise may be provided by applicable law, no product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. (S) 3(u) of the Company Disclosure
Schedule includes copies of the standard terms and conditions of sale or
lease for the Company (containing applicable guaranty, warranty, and
indemnity provisions).
(v) Product Liability. There are no existing or, to the Knowledge of
the Company, threatened, claims against the Company arising out of any
injury to individuals or property as a result of the ownership, possession,
or use of any product manufactured, sold, leased, or delivered by the
Company which could result in Liability to the Company and neither the
Company nor the Stockholders have any knowledge of a reasonable basis for
any such claim.
(w) Employees. To the Knowledge of the Company, no executive, key
employee, or group of employees has any plans to terminate employment with
the Company. The Company is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practice. The Company has no Knowledge of any
organizational effort presently being made or threatened by or on behalf of
any labor union with respect to its employees. There is no claim
outstanding or, to the Knowledge of the Company, threatened or, to the
Knowledge of the Stockholders, any Basis for a claim respecting employment
of any past or present employee of the Company including, without
limitation, claims of personal injury (unless fully covered by worker's
compensation, liability or indemnity insurance) discrimination, wage, hours
or similar laws or regulations.
(x) Employee Benefits.
(i) No other corporation, trade, business, or other entity,
would, together with the Company, now or in the past 5 years,
constitute a single employer within the meaning of Code (S) 414.
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(ii) (S) 3(x) of the Company Disclosure Schedule contains a
true and complete list of all of the Employee Benefit Plans which are
presently in effect or which have previously been in effect in the
last 5 years for the benefit of current or former employees, officers,
directors or consultants of the Company (the "Company Plans").
(iii) Except as set forth in (S) 3(x) of the Company Disclosure
Schedule, the Company does not maintain and has never maintained an
"employee benefit pension plan," within the meaning of ERISA (S) 3(2),
that is or was subject to Title IV of ERISA.
(iv) There is no lien outstanding upon any Assets pursuant to
Code (S) 412(n) in favor of any of the Company Plans. No Assets or
assets of any Affiliate have been provided as security to any of the
Company Plans pursuant to Code (S) 401(a)(29).
(v) Except as set forth in (S) 3(x) of the Company Disclosure
Schedule, the Company has no past, present or future obligation or
liability to contribute to any Multiemployer Plan.
(vi) The Company has complied in all material respects with the
continuation health coverage requirements of Code (S) 4980B and ERISA
(S)(S) 601 through 608.
(vii) The Company is not obligated, contingently or otherwise,
under any agreement to pay any amount which would be treated as a
"parachute payment," as defined in Code (S) 280G(b) (determined
without regard to Code (S) 280G(b)(2)(A)(ii)).
(viii) With respect to each of the Company Plans, except as set
forth in (S) 3(x) of the Company Disclosure Schedule:
(A) each of the Company Plans has been established,
maintained, funded and administered in all material respects in
accordance with its governing documents, and any applicable
provisions of ERISA, the Code, other applicable law, and all
regulations promulgated thereunder;
(B) none of the Company Plans nor any fiduciary has engaged
in a prohibited transaction as defined in ERISA (S) 406 or Code
(S) 4975 (for which no individual or class exemption exist under
ERISA (S) 408 or Code (S) 4975, respectively);
(C) all filings and reports as to each of the Company Plans
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required to have been made on or before the Closing Date to the
Internal Revenue Service, or to the United States Department of
Labor or to the PBGC, have been or will be duly made by that
date;
(D) each of the Company Plans which is intended to qualify
as a tax-qualified retirement plan under Code (S) 401(a) has
received a favorable determination letter(s) from the Internal
Revenue Service as to qualification of such Company Plan for the
period from its adoption through the Closing Date; nothing has
occurred, whether by action or failure to act, which has resulted
in or would cause the loss of such qualification; and each trust
thereunder is exempt from tax pursuant to Code (S) 501(a);
(E) each of the Company Plans which is required to satisfy
Code (S)(S) 401(k)(3) or 401(m)(2) has been tested for compliance
with, and has satisfied the requirements of, Code (S)(S)
401(k)(3) and 401(m)(2) for each plan year ending prior to the
Closing Date;
(F) no event has occurred and no condition exists relating
to any of the Company Plans that would subject the Company to any
tax or Liability under IRS (S)(S) 4971, 4972 or 4979, or to any
Liability under ERISA (S)(S) 502 or 4071; and
(G) to the extent applicable, each of the Company Plans has
been funded in accordance with its governing documents, ERISA and
the Code, has not experienced any accumulated funding deficiency
(whether or not waived) and has not exceeded its full funding
limitation (within the meaning of Code (S) 412) at any time.
(ix) With respect to the Company Plans which provide group health
benefits to employees of the Company and are subject to the
requirements of Code (S) 4980B and ERISA Title I Part 6 ("COBRA"),
such group health plan has been administered in every material respect
in accordance with its governing documents and COBRA.
(x) With respect to employee benefit matters generally:
(A) the Company (nor any person, firm or corporation which
is or has been under common control within the meaning of Section
4001(b) of ERISA of the Company) does not maintain or contribute
to or has ever maintained or contributed to any Company Plan
subject to Title IV of ERISA;
(B) except as set forth on (S) 3(x) of the Company
Disclosure Schedule, the consummation of the transactions
contemplated hereby will
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not accelerate or increase any Liability under any of the Company
Plans because of an acceleration or increase of any of the rights
or benefits to which Company Plan participants or beneficiaries
may be entitled thereunder;
(C) except as set forth on (S) 3(x) of the Company
Disclosure Schedule, the Company has no obligation to any retired
or former employee or any current employee of the Company upon
retirement or termination of employment under any Company Plans,
other than such obligations imposed by COBRA; and
(D) except as set forth on (S) 3(x) of the Company
Disclosure Schedule, any of the Company Plans which is an
"employee welfare benefit plan," within the meaning of ERISA (S)
3(1), may be terminated prospectively without Liability to the
Company or Parent or Buyer, including, without limitation,
Liability for unreported (e.g., run-off) benefit claims, premium
adjustments or termination charges of any kind.
(y) Guaranties. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other
Person.
(z) Environment, Health, and Safety.
(i) The Company has complied with all Environmental, Health, and
Safety Laws, the failure to comply with which could result in Adverse
Consequences in an amount in excess of $5,000 individually or in the
aggregate, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or
commenced against the Company alleging such failure.
(ii) The Company has no Liability (and the Company has not
handled, used, stored, treated, recycled or disposed of any Hazardous
Substance, arranged for the disposal of any Hazardous Substance,
exposed any employee or other individual to any Hazardous Substance or
condition, or owned or operated any property or facility in any manner
that, to the Knowledge of the Stockholders, could form the Basis for
any present or future action, suit, proceeding, hearing,
investigations, charge, complaint, claim or demand giving rise to any
Liability) for penalties, investigations of or damage to any site,
location, body of water (surface or subsurface), or other natural
resources, for any illness of or personal injury to any employee or
other individual, or for any reason under any Environmental, Health,
and Safety Laws.
(iii) Except as set forth in (S) 3(z) of the Company Disclosure
Schedule, all properties and equipment used in the Business are and in
the past have been free of any amounts of asbestos, PCB's, methylene
chloride, trichlorethylene, 1,2
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trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances, the presence of which could result in Adverse
Consequences.
(aa) Certain Business Relationships With the Company. Except as set
forth in (S) 3(aa) of the Company Disclosure Schedule, none of the
Stockholders or their relatives has been involved directly or indirectly in
any business arrangement or relationship with the Company within the past
36 months, and, except for the Real Property, none of Stockholders owns any
asset, tangible or intangible, which is used in the Business.
(bb) Disclosure. To the Knowledge of the Company, the representations
and warranties contained in this (S) 3 (including the Company Disclosure
Schedule) do not as of the Closing Date contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statement and information contained in this (S) 3 not misleading.
4. Representations and Warranties of the Buyer. Parent and Buyer,
jointly and severally, represent and warrant to the Stockholders that the
statements contained in this (S) 4 are correct and complete as of Closing Date.
(a) Organization of the Buyer. Each of Parent and Buyer is a
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation and is duly qualified as
a foreign corporation to do business in every jurisdiction where such
qualification is required.
(b) Authorization of Transaction. Each of Parent and Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of Parent and Buyer, enforceable in accordance with its terms
and conditions. Parent and Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agencies in order for the Parties to consummate
the transactions contemplated by this Agreement (including the assignment
and assumption referred to in (S) 2 above).
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in (S) 2 above) will
(i) violate any constitution, state, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Parent or Buyer is
subject, or any provision of its charter or bylaws or (ii) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which Parent or Buyer
is a party or by which they are bound or to which any of their assets are
subject.
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(d) Broker's Fees. Neither Parent nor Buyer has Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
the Stockholders could become liable or obligated.
(e) Investment Decision. Parent and Buyer have had an opportunity to
conduct due diligence and ask questions of the Company, and have sufficient
knowledge to decide to enter into this Agreement and participate in the
Merger.
(f) Disclosure. To the Knowledge of Parent and Buyer, the
representations and warranties contained in this (S) 4 do not contain any
untrue statements of a material fact or omit to state any material fact
necessary in order to make the statements contained in this (S) 4 not
misleading.
5. Conditions to Obligation to Close.
(a) Conditions to Obligation of Parent and Buyer. The obligation of
Parent and Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S) 3 above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Company and the Stockholders shall have performed and
complied with all of their covenants hereunder in all material
respects through the Closing;
(iii) the Company shall have procured all of the third party
consents specified on Exhibit D hereto, including a consent and
---------
estoppel for the transfer of the Leased Real Property;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own
the assets of the Company or to operate the Business (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Company shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in (S)
5(a)(i)-(iv) is satisfied in all respects;
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(vi) each of the Principal Stockholders and Gus Carroll shall
have entered into a Noncompetition Agreement with a term of five years
prohibiting the manufacture, production or sale of any products which
compete with the products manufactured, produced or sold by the
Company, in form and substance as set forth in Exhibits E attached
----------
hereto and the same shall be in full force and effect;
(vii) each of the Principal Stockholders shall have entered into
an employment agreement in the form of Exhibit F attached hereto;
---------
(viii) each holder of Options shall have executed and delivered
an acknowledgement and release in form and substance satisfactory to
the Buyer;
(ix) the Buyer shall have received from counsel to the Company
an opinion in form and substance as set forth in Exhibit G attached
---------
hereto, addressed to the Buyer, and dated as of the Closing Date;
(x) the Buyer shall have received a spousal consent from each
married Stockholder, in form and substance satisfactory to the Buyer;
(xi) the certificates of merger with respect to the Merger shall
have been filed in accordance with the California Act and the Delaware
Act; and
(xii) all actions to be taken by the Company in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this (S) 5(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Stockholders. The obligation of
Stockholders to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S) 4 above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Parent and Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of
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any of the transactions contemplated by this Agreement or (B) cause
any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Company a certificate
to the effect that each of the conditions specified above in (S)
5(b)(i)-(iii) is satisfied in all respects;
(v) the Company shall have received from counsel to the Buyer
an opinion form and substance as set forth in Exhibit H attached
---------
hereto, addressed to the Company, and dated as of the Closing Date;
(vi) the certificates of merger with respect to the Merger shall
have been filed in accordance with the California Act and the Delaware
Act; and
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
The Stockholders may waive any condition specified in this (S) 5(b) if it
executes a writing so stating at a prior to the Closing.
6. Pre-Closing Covenants. The parties agree as follows with respect to
the period prior to the Closing:
(a) Access and Investigation. Between the date hereof and the Closing
Date, the Company and the Stockholders will, and will cause their
representatives to:
(i) afford the Buyer and its representatives (collectively,
"Buyer's Advisors") reasonable access to the Company and its
personnel, properties (including for purposes of environmental
testing), contracts, books and records, and other documents and data
so as to not unreasonably interfere with the conduct of the Business;
(ii) furnish the Buyer with copies of all such contracts, books
and records, and other existing documents and data as the Buyer may
reasonably request; and
(iii) furnish the Buyer and Buyer's Advisors with such
additional financial, operating and other data and information as the
Buyer may reasonably request.
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<PAGE>
(b) Operation of the Businesses of the Company. Between the date
hereof and the Closing Date, the Company and the Stockholders will, and the
Company will cause its representatives to:
(i) conduct the business of the Company and each Company
Subsidiary only in the Ordinary Course of Business or otherwise with
the written consent of the Buyer; provided that there shall be no
transactions between the Stockholders and the Company without the
prior written consent of the Buyer;
(ii) use their best efforts to preserve intact the current
business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and
maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Company; and
(iii) confer with the Buyer concerning operational matters of a
material nature and the status of business operations and finances.
(c) Negative Covenant. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date,
the Company and the Stockholders will not, without the prior consent of the
Buyer, take any affirmative action, or fail to take any reasonable action
within their or its control, which would cause or result in an inaccuracy
or breach of any of the representations, warranties or covenants of the
Company and the Stockholders set forth in this Agreement, including,
without limitation, any action specified in (S) 3(h) of this Agreement.
Without limiting the generality of the foregoing, the Company agrees that
it shall not, and shall cause each of the Company Subsidiaries not to, take
any of the following actions without the prior written consent of the
Buyer:
(i) amend its Certificate or Articles of Incorporation or
Bylaws; make any change in its authorized, issued or outstanding
capital stock or any other equity security; issue, sell, pledge,
assign or otherwise encumber or dispose of, or purchase, redeem or
otherwise acquire, any of its shares of capital stock or other equity
securities or enter into any agreement, call or commitment of any
character so to do; grant or issue any stock option or warrant
relating to, right to acquire, or security convertible into, shares of
their capital stock or other equity security; purchase, redeem, retire
or otherwise acquire any shares of, or any security convertible into,
capital stock or other equity security of their respective companies,
or agree to do any of the foregoing;
(ii) propose, declare, set aside or pay any dividend or other
distribution in respect of any of its capital stock (including,
without limitation, any stock dividend or distribution);
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<PAGE>
(iii) incur any indebtedness other than normal, Ordinary Course
of Business trade payables and accruals;
(iv) make any distribution outside of the Ordinary Course of
Business or any distributions in excess of $5,000; and
(v) commit to any new capital expenditure in excess of $5,000.
(d) Termination of Plans. Prior to the Closing Date, the Company shall
terminate all of its option and equity programs, and all outstanding options
shall be terminated. In addition, the Company shall terminate its tax-qualified
retirement plan immediately prior to the Closing and as soon as practicable
thereafter shall file a request with the appropriate Key District Office of the
Internal Revenue Service seeking a favorable determination that such plan
continues to satisfy applicable tax-qualification requirements upon termination.
The Company shall make all reasonable efforts to secure such a favorable
determination from the Internal Revenue Service and, upon obtaining the same,
shall provide Parent with a copy thereof.
7. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing:
(a) General. In case at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, each of the
Stockholders and Buyer will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party reasonably may request, at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to
indemnification therefor hereunder). The Stockholders acknowledge and
agree that from and after the Closing the Buyer will have the right to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company in this
Agreement; provided, however, that the Stockholders shall have the right to
obtain access to such documents, books, records (including Tax records),
agreements, and financial data and make photocopies thereof for a proper
purpose, such as in connection with the preparation of their tax returns.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Surviving Corporation or any
Stockholder, each of the other Parties will reasonably cooperate with the
contesting or defending Party and his or its counsel in the contest or
defense, make available his or its personnel, and provide such testimony
and access to his or its books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of
the contesting or defending Party (unless the contesting or defending Party
is entitled to indemnification therefor under (S) 8 below).
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<PAGE>
(c) Transition. Each of the Stockholders will use his best efforts
not to take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company from maintaining the same business relationships
with the Surviving Corporation after the Closing as it maintained with the
Company prior to the Closing.
(d) Confidentiality. Each Stockholder will treat and hold as
confidential all of the Confidential Information, refrain from using any of
the Confidential Information and deliver promptly to the Surviving
Corporation or destroy, at the request and option of the Surviving
Corporation, all tangible embodiments (and all copies) of the Confidential
Information which are in his or its possession. In the event that a
Stockholder is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any
Confidential Information, that Party will notify the Surviving Corporation
promptly of the request or requirement so that the Surviving Corporation
may seek an appropriate protective order or waive compliance with the
provisions of this (S) 7(d). If, in the absence of a protective order or
the receipt of a waiver hereunder, a Stockholder is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal
or else stand liable for contempt, that Party may disclose the Confidential
Information to the tribunal; provided, however, that a Stockholder shall
use its reasonable efforts to obtain, at the reasonable request of the
Surviving Corporation and at the Surviving Corporation's sole expense, an
order or other assurance that confidential treatment will be accorded to
such portion of the Confidential Information required to be disclosed as
the Surviving Corporation shall designate.
(e) Stock Options. Immediately following the Closing, each then
outstanding option to purchase shares of Company Shares (in each case, an
"Option"), shall be canceled and in consideration of such cancellation,
Parent shall cause the Surviving Corporation to pay to the holders thereof
the amounts set forth on Section 7(e) of the Company Disclosure Schedule.
Such payment shall be less any required withholding Taxes and without
interest.
(f) Tax Matters. Buyer and the Company will provide each other with
such cooperation and information as either of them may reasonably require
of the other in connection with the filing of any Tax Return, including Tax
Returns relating to the application of the successor employer rules for
payroll Tax purposes contained in Code (S)(S) 3121(a)(1) and 3306(b)(1),
the determination of a liability for Taxes or a right to a refund for
Taxes, or the preparation for litigation or investigation of any claim for
Taxes or a right to a refund for Taxes, or the preparation for cooperation
and information shall include all relevant Tax Returns, and other documents
and records, or portions thereof relating to or necessary in connection
with the preparation of records, or portions thereof relating to or
necessary in connection with the preparation of such Tax Returns or other
determination of Tax liability. Each Party shall retain all Tax Returns,
schedules, workpapers, and all other materials, records or documents until
the expiration of the
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statute of limitations for the taxable years to which such Tax Returns and
other documents relate. After expiration of the statute of limitations,
such party shall notify the other party in writing that it desires to
dispose of or destroy the Tax Returns and other documents and shall provide
such other party with the right for thirty (30) days after the tendering of
such notice to copy or take possession of such Tax Returns and other
documents. Any information obtained under this provision shall be kept
confidential by the parties, except as may be necessary in connection with
the filing of such Tax Returns.
8. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties contained in (S) 3(g)-(ab), except (S) 3(k)
and 3(x) of this Agreement and of Buyer contained in (S) 4(e)-(g) of this
Agreement shall survive the Closing and continue in full force and effect
for a period of one year thereafter; the representation and warranties
contained in (S) 3(k) and (S) 3(x) shall survive the Closing and continue
in full force and effect for a period of 90 days following the expiration
of the applicable statute of limitations with respect to such matters; and
all of the other representations, warranties, covenants, indemnities, and
other agreements of the Buyer and the Stockholders contained in this
Agreement (including the representations and warranties contained in (S)
3(a)-(f) and (S) 4(a)-(d)) shall survive the Closing and continue in full
force and effect forever thereafter, subject to any applicable statues of
limitations. No action, claim, or proceeding may be brought by any Party
hereto against any other Party resulting from, arising out of, or caused by
a breach of a representation or warranty contained herein, or the failure
to perform any covenant or other obligations hereunder, after the time such
representation, warranty or covenant ceases to survive pursuant to the
preceding sentence, unless written notice of such claim setting forth with
specificity the basis for such claim is delivered to the applicable Party
prior to such time.
(b) Indemnification Provisions for Benefit of the Parent and the
Buyer.
(i) In the event a Stockholder breaches (or in the event any
third party alleges facts that, if true, would mean Stockholder has
breached) any of its representations, warranties, and covenants
contained in this Agreement, and, if there is an applicable survival
period pursuant to (S) 8(a) above, provided that the Buyer makes a
written claim for indemnification setting forth with specificity the
basis for such claim against the Stockholders pursuant to (S) 9(g)
below within such survival period, then each of the Stockholders
jointly and severally agrees to indemnify Parent, Buyer and the
Surviving Corporation, subject to the limitations set forth herein,
from and against the entirety of any Adverse Consequences the Parent,
the Buyer or the Surviving Corporation may suffer through and after
the date of the claim for indemnification (including any Adverse
Consequences the Parent, the Buyer or the Surviving Corporation may
suffer after the end of any applicable survival period) resulting
from, arising out of, or caused by the breach (or the alleged breach);
provided, however, that
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(A) The Stockholders shall not have any obligation to
indemnify the Buyer from and against any Adverse Consequences
resulting from, arising out of, or caused by the breach (or
alleged breach) of any representation, warranty or covenant
contained in (S) 3(g)-(ab) except (S) 3(k) and (S) 3(x) of the
Agreement which exceed the Escrow Fund. No such restriction
shall be applicable to (I) claims for uncollected accounts
receivable in excess of the reserve therefor on the September
Balance Sheet; (II) product warranties claims for amounts in
excess of the reserve therefor on the September Balance Sheet;
and (III) tax liabilities in excess of the amount accrued
therefore on the September Balance Sheet;
(B) The Stockholders shall have no such indemnification
obligation with respect to such (S) 3(g)-(ab) breaches (or
alleged breaches) until the Buyer has suffered Adverse
Consequences by reason thereof (i) for any individual claim or
series of related claims, until the amount of such claim or
claims exceeds $5,000, and (ii) in the aggregate, until the
amount of all claims for breaches exceeds $50,000. No such
restrictions shall be applicable to: (I) claims for breaches of
the representation and warranties as contained in (S)(S) 3(a)-
(f), (S) 3(k) and (S) 3(x); (II) claims for uncollected accounts
receivable in excess of the reserve therefor on the September
Balance Sheet; (III) product warranties claims for amounts in
excess of the reserve therefor on the September Balance Sheet; or
(IV) tax liabilities in excess of the amount accrued therefor on
the September Balance Sheet; and
(C) The Stockholders' liability for a breach of the
covenants contained in Sections 7(c) and 7(d) shall not be joint
and several.
(ii) Each of the Stockholders jointly and severally agrees to
indemnify Parent, Buyer and the Surviving Corporation for any worker's
compensation claims incurred by any employee, consultant, independent
contractor, agent, affiliate or other individual of the Company prior
to Closing, including, without limitation any claims for personal
injuries, property damages and lost wages, except to the extent
coverage is provided for such claims under the Company's applicable
insurance policy.
(iii) Each of the Stockholders jointly and severally, agrees to
indemnify Parent, Buyer and the Surviving Corporation for any damages
(including costs of cleanup, containment, or other remediation)
arising, directly or indirectly from or in connection with any
Environmental, Health, and Safety Laws arising out of or relating to:
(A) the ownership, operation, or condition at any time on or prior to
the Closing Date of any facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible)
in which the Company has or had an interest, (B) any Hazardous
Substances that were present on the Facilities or such other
properties and assets at any time on or prior to the Closing
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Date, or (C) any Hazardous Substances, wherever located, that were, or
were allegedly, used, generated, recycled, disposed, transported,
stored, treated, released, or otherwise handled by the Company or by
any other person for whose conduct they are or may be held responsible
at any time on or prior to the Closing Date.
(iv) As security for the indemnification obligations of
Stockholders under this Agreement, Parent, Buyer and the Principal
Stockholders shall enter into the Escrow Agreement as of the Closing
Date, which shall be funded with $1,500,000.00 of the Merger
Consideration otherwise payable to the Stockholders (the "Escrow
Fund"). Parent and Buyer shall seek payment for any indemnification
claims hereunder first from the Escrow Fund, however, the Escrow Fund
shall be a nonexclusive source of indemnification hereunder and shall
not limit the liability of the Stockholders with respect to
indemnification under this Agreement. The amount of the Escrow Fund
shall be reduced on the first anniversary of the Closing Date to
$250,000 (plus the amount of any then-outstanding claims) which
remaining amount shall be used solely to fund claims under (S) 3(k)
and (S) 3(x) (and any then-outstanding claims) and shall be held until
the second anniversary of the Closing Date.
(v) Each of the Stockholders jointly and severally agrees to
indemnify and reimburse the Surviving Corporation upon demand for the
full amount of any accounts receivable of the Company which were (A)
invoiced more than ninety (90) days prior to the Closing Date and (B)
remain uncollected by the Surviving Corporation one hundred eighty
(180) days following the Closing Date. Within a reasonable time
following such 180 day period, Parent or the Surviving Corporation
shall provide the Stockholders with a reconciliation of such accounts
receivable and certify to the Stockholders that such receivables
remain unpaid. The Stockholders shall pay to the Surviving
Corporation or Parent such uncollected amount within ten (10) days
following receipt of such reconciliation and certification.
(vi) Notwithstanding any provision of this Agreement to the
contrary, each Stockholder's liability shall be limited to the amount
of his or her pro rata share of the Merger Consideration; provided,
however that Stephen W. Ferrell and the Trust shall be jointly and
severally liable to the extent of the pro rata share of the Merger
Consideration received by the Trust.
(c) Indemnification Provisions for Benefit of the Stockholders.
In the event Parent or Buyer breaches (or in the event any third party
alleges facts that, if true, would mean Parent or Buyer has breached) any
of their representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to (S)
8(a) above or in the event of any third party claim relating to the
operation of the business after the Closing, provided that the Stockholders
makes a
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written claim for indemnification setting forth with specificity the basis
for such claim against Parent or Buyer pursuant to (S) 9(g) below within
such survival period, then Parent and Buyer jointly and severally agree to
indemnify the Stockholders from and against the entirety of any Adverse
Consequences (up to but not in excess of the Merger Consideration) the
Stockholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Stockholders may
suffer after the end of any applicable survival period) resulting from,
arising out of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter ( a "Third Party Claim") which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S) 7, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15
days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (C)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing
business interest of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with (S) 8(d)(ii)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third
Party Claim, (B) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party
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<PAGE>
Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in 8(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it may
deem appropriate (and the Indemnified Party need not consult with, or
obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this
(S) 8.
(e) Determination of Adverse Consequences. The Parties shall take
into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this (S)
8. All indemnification payments under this (S) 8 shall be deemed
adjustments to the Merger Consideration.
(f) Post-Closing. Following the Closing, the remedy of the
Stockholders, on the one hand, and Parent and the Buyer on the other hand,
with respect to any breach or threatened breach of a representation,
warranty or covenant contained herein or with respect to any event,
circumstance or condition occurring on or before the Closing shall be
limited to the enforcement of the indemnification obligations set forth in
(S) 8; provided, however, that nothing provided in this (S) 8(f) shall
limit the right of any Party to seek any equitable remedy available to
enforce his or its rights hereunder in accordance with (S) 9 (n).
9. Miscellaneous.
(a) Press Releases and Public Announcements. Neither the Company nor
any Stockholder shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the
prior written approval of the Parent. Parent, upon prior notice to the
Company, may make any public disclosure it believes in good faith is
required or permitted by applicable law or any listing or trading agreement
concerning its publicly-traded securities.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties
and supersedes any prior
-35-
<PAGE>
understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party; provided, however, that the
Buyer may (i) assign any or all of its rights and interests hereunder to
one or more of its affiliates and (ii) designate one or more of its
affiliates to perform its obligations hereunder (in any or all of which
cases the Buyer nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Company and the Stockholders, to the addresses set forth on Exhibit I
---------
hereto.
<TABLE>
<CAPTION>
If to Buyer:
<S> <C>
Derrick N. Key Copy to: Shanler D. Cronk, Esq.
Roper Industries, Inc. Roper Industries, Inc.
160 Ben Burton Road 160 Ben Burton Road
Bogart, Georgia 30622 Bogart, Georgia 30622
(706) 369-7170 (706) 369-7170
</TABLE>
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the
manner herein set forth.
-36-
<PAGE>
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of California without
giving effect to any choice or conflict of law provision or rule (whether
of the State of California or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
California.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
each of the Parent, Buyer, the Company and the Stockholders. No waiver by
any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend
to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(k) Expenses. Buyer and each Stockholder will bear its (his) own
costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
The Stockholders shall bear all such expenses incurred by the Company.
(l) Construction. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
The word "including" shall mean including without limitation. Items set
forth in the Company Disclosure Schedule or the Buyer Disclosure Schedule
shall be deemed an exception only to the representations and warranties for
which they are identified and any other representations or warranties to
which the Company Disclosure Schedule or Buyer Disclosure Schedule with
respect to representations and warranties contain in appropriate cross-
reference.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state
thereof having, in accordance with
-37-
<PAGE>
the terms of this Agreement, jurisdiction over the Parties and the matter,
in addition to any other remedy to which it may be entitled, at law or in
equity.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of
California in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not
to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto. Each Party appoints The
Prentice-Hall Corporation System, Inc. (the "Process Agent") as his or its
agent to receive on is or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or
proceeding. Any Party may make service on any other Party by sending or
delivering a copy of the process (i) to the Party to be served at the
address and in the manner provided for the giving of notices in (S) 9(g)
above or (ii) to the Party to be served in care of the Process Agent at the
address and in the manner provided for the giving of notices in (S) 9(g)
above. Each Party agrees that a final judgment in any action or proceeding
so brought shall be conclusive and may be enforced by suit on the judgment
or in any other manner provided by law or in equity.
(p) Arbitration. Except as otherwise set forth in this Agreement, all
disputes arising out of or under this Agreement shall be settled by
arbitration in a location in the State of California mutually acceptable to
the Parties before a single arbitrator pursuant to the rules of the
American Arbitration Association. Arbitration may be commenced at any time
by any of the parties hereto by giving written notice to each other than
such dispute has been referred to arbitration under this (S) 9(p). The
arbitrator shall be selected by the joint agreement of the Parties, but if
they do not so agree within twenty (20) days after the date of receipt of
the notice referred to above, the selection shall be made pursuant to the
rules from the panels of arbitrators maintained by the American Arbitration
Association. Any award rendered by the arbitrator shall be conclusive and
binding upon the Parties hereto; provided, however, that any such award
shall be accompanied by a written opinion of the arbitrator giving the
reason for the award. This provision for arbitration shall be specifically
enforceable by the Parties and the decision of the arbitrator in accordance
herewith shall be final and binding and there shall be no right of appeal
therefrom. The arbitrator shall assess, as part of his award to the
prevailing Party, all or such part as the arbitrator deems proper of the
arbitration expenses of the prevailing Party (including reasonable
attorneys' fees) and of the arbitrator against the Party that is
unsuccessful in such claim, defense or objection.
-38-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
BUYER
PMCB Acquisition Corp.
By:_______________________________
Name:_____________________________
Title_____________________________
PARENT
Roper Industries, Inc.
By:_______________________________
Name:_____________________________
Title:____________________________
THE COMPANY
Redlake Imaging Corporation
By:_______________________________
Name:_____________________________
Title:____________________________
STOCKHOLDERS
THE STEPHEN W. FERRELL REVOCABLE
FAMILY TRUST
By:_______________________________
Trustee
[signatures continued on following page]
-39-
<PAGE>
[signatures continued from previous page]
_________________________________
Galen Collins
_________________________________
Stephen W. Ferrell
_________________________________
Marlin Collins
_________________________________
John Foley
_________________________________
Donald Thomas
_________________________________
Bruce Bastl
_________________________________
Deborah Robinson
_________________________________
Garrett Garrettson
-40-
<PAGE>
STATE OF JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ --------------------
Acton Research Corporation Delaware
Amot Controls Corporation Delaware
Amot Controls Ltd. United Kingdom
Amot Controls, S.A. Switzerland
Amot/Metrix Investment Company Delaware
Amot Sales Corporation Delaware
Amot Controls GmbH Germany
Compressor Controls Corporation (an Iowa Corp) Iowa
Compressor Controls Corporation (a Delaware
Corporation) d/b/a in Iowa as Compressor
Controls - CIS/EE) Delaware
Cornell Pump Company Delaware
Cornell Pump Manufacturing Corporation Delaware
Fluid Metering, Inc. Delaware
FTI Flow Technology, Inc. Arizona
Gatan International, Inc. Pennsylvania
Gatan, Inc. Pennsylvania
Gatan Service Corporation Pennsylvania
Gatan Limited United Kingdom
Gatan GmbH Germany
Herzog-ISL SNC France
Integrated Designs L.P. Delaware
ISL Holdings, S.A. France
ISL International, Inc. Delaware
ISL Scientifique de Laboratoire - ISL, S.A. France
Metrix Instrument Co., L.P. Delaware
Molecular Imaging Corporation Arizona
Nippon Roper K.K. Japan
Petrotech, Inc. Delaware
Petrotech International, Inc. Louisiana
Petrotech Batam Indonesia
Petroleum Analyzer Company LP Delaware
Photometrics GmbH Germany
Princeton Instruments Limited United Kingdom
Princeton Instruments SARL France
Redlake Imaging Corporation Delaware
Roper Capital Deutschland GmbH Germany
Roper Fundings KG Germany
Roper Industries Deutschland GmbH Germany
Roper Holdings, Inc. Delaware
Roper Industrial Products Investment Company Iowa
Roper Industries (Europe) Limited United Kingdom
Roper Industries Limited United Kingdom
Roper International, Inc. Delaware
Roper International Products, LTD Virgin Islands
Roper Pump Company Delaware
Roper Scientific B.V. Netherlands
Roper Scientific MASD, Inc. Delaware
Roper Scientific, Inc. Delaware
Turbocontroles de Venezuela Venezuela
Uson L.P. Delaware
Walter Herzog GmbH Germany
<PAGE>
EXHIBIT 23.1
[LOGO OF ARTHUR ANDERSEN]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 333-36897, 33-71094, 33-77770, 33-78026, and
333-73139.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 27, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Roper Industries, Inc.:
We consent to incorporation by reference in the registration statement No.'s
333-36897, 33-71094, 33-77770, 33-78026, and 333-73139 on Form S-8 of Roper
Industries, Inc. of our report dated December 4, 1998, relating to the
consolidated balance sheet of Roper Industries, Inc. and subsidiaries as of
October 31, 1998, and the related consolidated statements of earnings,
stockholders' equity and comprehensive earnings, and cash flows for the years
ended October 31, 1998 and 1997, and the related schedule for the years ended
October 31, 1998 and 1997, which report appears in the October 31, 1999 annual
report on Form 10-K of Roper Industries, Inc.
/s/ KPMG LLP
Atlanta, Georgia
January 24, 2000
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 13,490
<SECURITIES> 0
<RECEIVABLES> 89,154
<ALLOWANCES> 0
<INVENTORY> 56,401
<CURRENT-ASSETS> 161,819
<PP&E> 80,840
<DEPRECIATION> 46,043
<TOTAL-ASSETS> 420,163
<CURRENT-LIABILITIES> 72,243
<BONDS> 0
0
0
<COMMON> 316
<OTHER-SE> 231,652
<TOTAL-LIABILITY-AND-EQUITY> 420,163
<SALES> 407,256
<TOTAL-REVENUES> 407,256
<CGS> 196,753
<TOTAL-COSTS> 196,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,254
<INCOME-PRETAX> 72,284
<INCOME-TAX> 24,938
<INCOME-CONTINUING> 47,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,346
<EPS-BASIC> 1.56
<EPS-DILUTED> 1.53
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