UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1996
------------------------------
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 1-6853
SHAW INDUSTRIES, INC.
----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1032521
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
616 E. WALNUT AVENUE, DALTON, GEORGIA 30720
-------------------------------------- --------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(706) 278-3812
--------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
NOT APPLICABLE
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x . No ______.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: August 5, 1996 - 136,244,035 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBERS
--------------------- ------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 29, 1996
and December 30, 1995 ......................................... 3-4
Condensed Consolidated Statements of Income and Retained
Earnings - For the Three Months Ended
June 29, 1996 and July 1, 1995 ............................... 5
Condensed Consolidated Statements of Income and Retained
Earnings - For the Six Months Ended
June 29, 1996 and July 1, 1995 ............................... 6
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 29, 1996
and July 1, 1995 .............................................. 7
Notes to Condensed Consolidated Financial Statements .......... 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .............. 9-10
PART II - OTHER INFORMATION ........................................... 11
SIGNATURES ............................................................ 12
<PAGE>
PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS JUNE 29, DECEMBER 30,
1996 1995
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 84,272 $ 31,453
---------------- ----------------
Accounts receivable, less
allowance for doubtful accounts and
discounts of $18,643 and $14,746 ........... 406,187 345,443
---------------- ----------------
Inventories -
Raw materials .............................. 220,487 232,693
Work-in-process ............................ 30,590 25,330
Finished goods ............................. 250,328 231,189
---------------- ----------------
501,405 489,212
---------------- ----------------
Other current assets ....................... 37,855 36,403
---------------- ----------------
TOTAL CURRENT ASSETS ......... 1,029,719 902,511
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT,
at cost:
Land and land improvements ................. 28,525 27,173
Buildings and leasehold improvements ....... 281,230 269,715
Machinery and equipment .................... 952,837 914,126
Construction in progress ................... 20,113 22,986
---------------- ----------------
1,282,705 1,234,000
Less - Accumulated depreciation and
amortization ........................ (652,315) (602,010)
---------------- ----------------
630,390 631,990
---------------- ----------------
GOODWILL, net ............................... 129,237 104,280
---------------- ----------------
INVESTMENT IN JOINT VENTURE ................. 15,972 15,513
---------------- ----------------
OTHER ASSETS ................................ 13,041 8,489
---------------- ----------------
TOTAL ASSETS ................. $1,818,359 $1,662,783
================ ================
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
JUNE 29, DECEMBER 30,
1996 1995
---------------- ----------------
CURRENT LIABILITIES:
Current maturities of long-term debt ....... $ 17,503 $ 5,305
Accounts payable ........................... 180,704 114,326
Accrued liabilities ........................ 167,015 141,435
---------------- ----------------
TOTAL CURRENT LIABILITIES ............. 365,222 261,066
---------------- ----------------
LONG-TERM DEBT, less current maturities ..... 682,473 627,130
---------------- ----------------
DEFERRED INCOME TAXES ....................... 50,965 51,000
---------------- ----------------
OTHER LIABILITIES ........................... 12,831 13,398
---------------- ----------------
SHAREHOLDERS' INVESTMENT:
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 136,236,034 at June 29,
1996 and 135,956,602 shares at December ... 151,223 150,913
30, 1995
Paid-in capital ............................ 105,387 101,718
Cumulative translation adjustment .......... 2,505 1,895
Retained earnings .......................... 447,753 455,663
---------------- ----------------
TOTAL SHAREHOLDERS' INVESTMENT ........ 706,868 710,189
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT .......................... $1,818,359 $1,662,783
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 29, 1996 JULY 1, 1995
----------------- -----------------
NET SALES .................................. $785,735 $738,326
COSTS AND EXPENSES:
Cost of sales ............................ 614,786 593,810
Selling, general and administrative ...... 113,513 98,624
Pre-opening expenses, retail operations .. 1,651 -
Nonrecurring charges ..................... - 5,401
Interest expense, net .................... 10,133 11,062
Other (income) expense, net .............. (1,586) 76
----------------- -----------------
INCOME BEFORE INCOME TAXES ................. 47,238 29,353
PROVISION FOR INCOME TAXES ................. 19,696 12,098
----------------- -----------------
INCOME BEFORE EQUITY IN INCOME OF JOINT
VENTURE .................................. 27,542 17,255
EQUITY IN INCOME OF JOINT VENTURE ........... 557 1,418
----------------- -----------------
NET INCOME .................................. $28,099 $ 18,673
================= =================
DIVIDENDS PAID PER COMMON SHARE ............. $ 0.075 $ 0.075
================= =================
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis - ......... $0.21 $0.14
================= =================
RETAINED EARNINGS:
Beginning of period ....................... $429,833 $426,320
Add - net income ....................... 28,099 18,673
Deduct - dividends paid ................... (10,179) (10,193)
----------------- -----------------
End of period ............................. $447,753 $434,800
================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 29, 1996 JULY 1, 1995
----------------- -----------------
NET SALES ................................. $1,443,477 $1,414,876
COSTS AND EXPENSES:
Cost of sales ........................... 1,143,024 1,153,279
Selling, general and administrative ..... 217,256 196,484
Pre-opening expenses, retail operations . 1,809 -
Nonrecurring charges .................... 29,139 5,401
Interest expense, net ................... 19,699 21,836
Other (income), net ..................... (2,451) (864)
----------------- -----------------
INCOME BEFORE INCOME TAXES ................ 35,001 38,740
PROVISION FOR INCOME TAXES ................ 23,972 16,205
----------------- -----------------
INCOME BEFORE EQUITY IN INCOME OF JOINT
VENTURE AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE ................................. 11,029 22,535
EQUITY IN INCOME OF JOINT VENTURE ......... 1,486 615
----------------- -----------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ....................... 12,515 23,150
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF TAX BENEFIT .......................... - (12,077)
----------------- -----------------
NET INCOME ................................ $12,515 $ 11,073
================= =================
DIVIDENDS PAID PER COMMON SHARE ........... $ 0.15 $ 0.15
================= =================
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis -
Income before cumulative effect
of accounting change ................ $0.09 $0.17
Cumulative effect of accounting change,
net of tax benefit .................. - (0.09)
----------------- -----------------
Net income ............................ $0.09 $0.08
================= =================
RETAINED EARNINGS:
Beginning of period ..................... $455,663 $444,115
Add - net income ..................... 12,515 11,073
Deduct - dividends paid ................. (20,425) (20,388)
----------------- -----------------
End of period ........................... $447,753 $434,800
================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS SIX MONTHS SIX MONTHS
(IN THOUSANDS) ENDED ENDED
JUNE 29, 1996 JULY 1, 1995
--------------- --------------
OPERATING ACTIVITIES:
Net income ..................................... $12,515 $11,073
--------------- --------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ................ 44,776 45,464
Provision for doubtful accounts .............. 4,654 3,697
Deferred income taxes ........................ (221) 831
Nonrecurring charges ......................... 29,139 -
Cumulative effect of accounting change ....... - 12,077
Other, net ................................... (9,154) 3,476
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable ..................... (33,323) (30,777)
Inventories ............................. 1,680 (36,473)
Other current assets .................... 3,192 16,020
Accounts payable ........................ 49,234 20,462
Accrued liabilities ..................... 15,409 28,968
--------------- --------------
Total adjustments ..................... 105,386 63,745
--------------- --------------
Net cash provided by operating activities .... 117,901 74,818
--------------- --------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment ..... (38,905) (36,556)
Acquisition of businesses, net of cash acquired (35,006) (29,503)
Investment in joint venture .................... - (3,500)
Deconsolidation of joint venture ............... - (3,828)
--------------- --------------
Net cash used in investing activities ........ (73,911) (73,387)
--------------- --------------
FINANCING ACTIVITIES:
Increase in long-term debt ..................... 51,583 48,389
Dividends paid ................................. (20,425) (20,388)
Purchase and retirement of common stock ........ (22,760) (20,590)
Proceeds from exercise of stock options ........ 431 269
--------------- --------------
Net cash provided by financing activities .... 8,829 7,680
--------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....... 52,819 9,111
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,453 34,365
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... $84,272 $43,476
=============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
not misleading. These financial statements should be read in conjunction
with the financial statements and related notes contained in the Company's
1995 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments
necessary to present fairly the Company's financial position, results of
operations and cash flows at the dates and for the periods presented.
Interim results of operations are not necessarily indicative of the
results to be expected for a full year. Certain prior period amounts have
been reclassified to conform with the current period presentation.
2. INVENTORIES
The Company uses the last-in, first-out (LIFO) method of valuing
substantially all of its domestic inventories. If LIFO inventories were
valued at current costs, the inventories would have been $12,555,000 lower
at June 29, 1996 and $9,992,000 lower at December 30, 1995. The Company's
foreign inventories are valued at the lower of first-in, first-out (FIFO)
cost or market.
3. ACQUISITIONS
In December 1995, the Company announced a new retail and contract
distribution strategy and during the first six months of 1996 acquired
Bell-Mann, Inc., Carpetland USA, Inc., as well as several other retailers
and commercial carpet contractors for cash and common stock. As a result
of these acquisitions, goodwill of $43.6 million was recorded and is being
amortized over 20 years. On July 3, 1996, the Company completed the
acquisition of New York Carpet World, Inc. for cash and other
considerations. New York Carpet World, Inc. is headquartered in
Southfield, Michigan and is the largest retailer of carpet products in the
United States with approximately 200 stores located in 15 states.
4. ACCOUNTING CHANGE
Effective January 1, 1995, the Company changed its method of
accounting for sample costs from expensing sample costs that exceed the
estimated net realizable value when shipped to expensing that portion of
sample costs as they are produced. This change was made in recognition of
an increasing number of samples placed with customers that do not result
in future sales and to better control the sample order process. The
cumulative effect of the change was to decrease net income by $12,077,000,
or $.09 per share, net of income tax benefit.
5. NONRECURRING CHARGES
During the first quarter of 1996, the Company recorded nonrecurring
charges of $29,139,000 ($26,519,000 after income taxes, or $.19 per share)
for the reduction of the carrying value of certain goodwill and property,
plant and equipment at the Company's international operations related to
the adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and to provide for the disposal of certain
other assets at their estimated fair value. These asset write-downs will
reduce amortization and depreciation expense of the respective assets in
future periods.
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The Company's business, as well as the U.S. carpet industry in general, is
cyclical in nature and is significantly affected by general economic conditions.
The level of carpet sales tends to reflect fluctuations in consumer spending for
durable goods and, to a lesser extent, fluctuations in interest rates and new
housing starts. The Company's international operations are also impacted by the
economic climates in the markets in which they operate (primarily the United
Kingdom, Australia and Mexico).
In December 1995, the Company announced a new retail and contract
distribution strategy and during the first six months of 1996 acquired
Bell-Mann, Inc., Carpetland USA, Inc., as well as several other retailers and
commercial carpet contractors for cash and common stock. During June, the
Company opened its first Shaw Carpet Showplace residential retail stores in
Pittsburgh, Pennsylvania. On July 3, 1996, the Company completed the acquisition
of New York Carpet World, Inc. for cash and other considerations. New York
Carpet World, Inc. is headquartered in Southfield, Michigan and is the largest
retailer of carpet products in the United States with approximately 200 stores
located in 15 states. The Company believes that, by combining the resources of
the manufacturer and retailer and developing a contract distribution network, it
can provide a full range of products and services to more effectively meet the
needs of the end-users of both residential and commercial carpet products at
significantly improved margins. These plans are progressing according to the
Company's expectations. The Company now has approximately 275 retail and
commercial contract locations. In addition, the Company continues its efforts to
develop an alignment program with dealers of both residential and commercial
carpet products to provide a collection of services, benefits and programs that
will encourage dealers to purchase more from the Company. The Company now has
approximately 1,200 aligned dealers.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 1996, the Company had working capital of $664.5 million, an
increase of $23.1 million, or 3.6 percent, over working capital of $641.4
million at December 30, 1995. Cash and cash equivalents increased $52.8 million
from $31.5 million at December 30, 1995 to $84.3 million at June 29, 1996. Cash
flow provided by operating activities was $117.9 million for the six months
ended June 29, 1996 compared to $74.8 million in 1995. The increase in operating
cash flow was primarily due to a slight decrease in inventories (prior to
including inventories acquired through acquisitions of $13.9 million) combined
with a larger increase in accounts payable than in the comparable period of the
prior year. In addition, non-cash charges of $29.1 million were recorded in 1996
related to the adoption of SFAS No. 121 and to provide for the disposal of
certain other assets at their estimated fair value, compared to non-cash charges
of $12.1 million recorded in 1995 to reflect a cumulative effect of an
accounting change. Cash used in investing activities for the 1996 period
consisted of additions to property, plant and equipment of $38.9 million and
acquisitions of business assets of $35.0 million. Cash flow provided by
financing activities during 1996 was $8.8 million which includes an increase in
long-term debt of $51.5 million offset by payments of cash dividends of $20.4
million and stock repurchases of $22.8 million.
The Company has continued to maintain a strong working capital position.
Effective use of capital and the Company's ability to generate cash flow from
operations has enabled it to invest in technologies which reduce production
costs, generate operating margins that have historically exceeded industry
averages and to be a preeminent force in the carpet industry.
Capital expenditures for property, plant and equipment necessary to
maintain the Company's facilities in a modern state-of-the-art condition were
$38.9 million for the first six months of 1996. Management anticipates total
capital expenditures and capitalized lease obligations of approximately $40.0
million during the remainder of 1996 in order to maintain its facilities and to
expand and upgrade its manufacturing and distribution equipment to meet
anticipated increases in sales volume and to improve efficiency. In addition,
management estimates capital expenditures of approximately $20.0 million during
the remainder of 1996 related to the continuing development of the retail and
contract distribution strategy.
The Company's primary source of financing is an unsecured revolving credit
agreement with a banking syndicate which provides for borrowings of up to $620.0
million and expires in December 1998. Interest on borrowings under this facility
is currently based on LIBOR and approximated 6.2 percent at June 29, 1996 after
giving effect to an interest rate swap agreement entered into on April 2, 1996
which effectively fixed the interest rate on $100.0 million of the outstanding
borrowings at 6.16 percent. At June 29, 1996, borrowings outstanding under this
credit facility were $584.0 million. The Company also maintains revolving credit
facilities in the United Kingdom and Australia with $31.0 million and $63.0
million, respectively, available and outstanding at June 29, 1996.
The Company believes that available borrowings under its existing credit
agreements, available cash and internally generated funds will be sufficient to
support its working capital, capital expenditures and debt service requirements
for the foreseeable future. In addition, the Company believes it could expand
its revolving credit and long-term bank facilities, if necessary.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1996 COMPARED TO THREE MONTHS ENDED JULY 1, 1995
Net sales increased $47.4 million, or 6.4 percent, to $785.7 million in the
second quarter of 1996. The increase was attributable to residential and
commercial retail acquisitions with net sales of $63.2 million for the second
quarter of 1996. Gross margin as a percent of net sales increased to 21.8
percent for the second quarter of 1996, compared to 19.6 percent in 1995. The
increase in the gross margin percentage was due to less product pricing
pressures, slight raw materials cost reductions and higher margins for retail
sales. Wholesale and manufacturing operations contributed over one-half of the
increase in the gross margin percentage.
Selling, general and administrative expenses for the second quarter of
1996 were $113.5 million, or 14.4 percent of net sales, compared to $98.6
million, or 13.4 percent of net sales, in the comparable period of 1995. The
marginal increase of 1.0 percent as a percent of net sales was primarily due to
an increase in discretionary expenses associated with the pursuit of new
business. Interest expense, net, decreased $0.9 million, or 8.4 percent, as a
result of lower weighted average borrowings and lower average interest rates.
The effective income tax rate for the second quarter of 1996 was 41.7 percent
compared to 41.2 percent for the second quarter of 1995. The Company recorded
equity in income of joint venture of $530,000 during the second quarter of 1996
related to its investment in the Tenedora Terza, S.A. De C.V. Monterrey, Mexico
joint venture.
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995
Net sales increased $28.6 million, or 2.0 percent, to $1,143.5 million in
the first six months of 1996. The increase was a result of improving market
conditions combined with residential and commercial retail acquisitions with net
sales of $85.9 million for the first six months of 1996. Gross margin as a
percent of net sales increased to 20.8 percent for the first six months of 1996,
compared to 18.5 percent in 1995. The increase in the gross margin percentage
was primarily due to less product pricing pressures, slight raw materials cost
reductions and higher margins for retail sales.
Selling, general and administrative expenses for the first six months of
1996 were $217.3 million, or 15.1 percent of net sales, compared to $196.5
million, or 13.9 percent of net sales, in the comparable period of 1995. The
increase of 1.2 percent as a percent of net sales was primarily due to increased
discretionary expenses associated with the pursuit of new business. Interest
expense, net, decreased $2.1 million, or 9.8 percent, as a result of lower
weighted average borrowings and lower average interest rates. During the first
six months of 1996, the Company recorded a tax provision of $24.0 million on
taxable income of $35.0 million, net of a tax benefit of $2.6 million applicable
to nonrecurring charges of $29.1 million. The nonrecurring charges were recorded
in the first quarter of 1996 as a result of the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" to reflect the
reduction of the carrying value of certain goodwill and property, plant and
equipment at the Company's international operations, and a provision for the
disposal of certain other assets at their estimated fair value. Net earnings for
the first six months, before nonrecurring charges, increased 47.7 percent, to
$39.0 million, or $.29 per share, from $26.4 million in 1995, or $.19 per share.
After reflecting the nonrecurring charges, the Company had net income for the
first six months of 1996 of $12.5 million, or $.09 per share, compared to net
income of $11.1 million, or $.08 per share, for the first six months of 1995.
The Company recorded equity in income of joint venture of $1.5 million during
the first six months of 1996 related to its investment in the Tenedora Terza,
S.A. De C.V. Monterrey, Mexico joint venture.
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its United
Kingdom and Australian subsidiaries, where the functional currencies are British
pounds and Australian dollars, respectively. Fluctuations in the value of
foreign currencies create exposures which can impact the Company's operating
results. The Company may employ foreign currency forward exchange contracts
when, in the normal course of business, they are determined to effectively
manage and reduce such exposure. The Company does not enter into foreign
currency forward exchange contracts for speculative trading purposes.
<PAGE>
PART II - OTHER INFORMATION
ITEM ONE - LEGAL PROCEEDINGS
From time to time, the Company is subject to claims and suits arising in
the course of its business. The Company is a defendant in certain litigation
alleging personal injury resulting from personal exposure to volatile organic
compounds found in carpet produced by the Company. The complaints seek
injunctive relief and unspecified money damages on all claims. The Company has
denied any liability. The Company believes that it has meritorious defenses and
that the litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
In June 1994, the Company and several other carpet manufacturers received
grand jury subpoenas from the Antitrust Division of the United States Department
of Justice relating to an investigation of the industry. In December 1995, the
Company learned that it was one of six carpet companies named as additional
defendants in a pending antitrust suit filed in the United States District Court
in Rome, Georgia. The amended complaint alleges price-fixing regarding certain
types of carpet products in violation of Section 1 of the Sherman Act. The
Company believes that the suit is spurious and without merit, and that once
completed, it will not have a material adverse effect on the Company's financial
condition or results of operations.
In February 1996, a jury in Greensboro, North Carolina, returned a verdict
against the Company in litigation brought by four former employees of Salem
Carpet Mills, acquired by the Company in 1992, alleging age discrimination and
sex discrimination in employment decisions made with regard to such employees.
The verdict is now under review by the trial judge and may subsequently be
appealed by either party after judgment is entered. The Company believes that
the litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM TWO - CHANGES IN SECURITIES
On June 4, 1996, the Company registered 5,000,000 shares of Common
Stock, no par value, and 5,000,000 Rights to purchase shares of Series A
Participating Preferred Stock on Form S-4 with the Securities and Exchange
Commission.
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
None
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on April 25, 1996, the
shareholders elected three Class I Directors, as provided for in the Articles of
Incorporation and By-Laws of the Company. The results of voting on the foregoing
matter was as follows:
Authority
Nominee For Withheld
----------------------- ----------- ---------
J.C. Shaw 121,376,602 1,578,407
Robert E. Shaw 121,267,946 1,687,063
Clifford M. Kirtland, Jr. 121,921,712 1,033,297
ITEM FIVE - OTHER INFORMATION
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10(m) - Stock Purchase Agreement dated May 23, 1996 among Registrant and
Irving Nusbaum Revocable Trust UAD, May 4, 1977, Amended and Restated April 30,
1984, Francis Fetter Revocable Trust UAD, August 16, 1990, Marvin Berlin
Revocable Trust UAD, May 22, 1990, Robert C. Nusbaum Revocable Trust UAD,
January 30, 1990 and Arthur S. Nusbaum Revocable Trust UAD, June 1, 1993,
Amended and Restated April 26, 1994 ("Sellers"). The Exhibit contains a list
briefly identifying the contents of the Schedules to the Stock Purchase
Agreement, which have been omitted.
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule
Shareholders may obtain copies of Exhibits without charge upon written
request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-22,
P.O. Drawer 2128, Dalton, Georgia 30722-2128.
(B) No reports on Form 8-K have been filed during the fiscal
quarter ended June 29, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHAW INDUSTRIES, INC.
(The Registrant)
DATE: August 13, 1996
/s/ Robert E. Shaw
----------------------------------
Robert E. Shaw
Chairman of the Board and Chief Executive
Officer
DATE: August 13, 1996
/s/ Kenneth G. Jackson
-----------------------------------
Kenneth G. Jackson
Vice President and Chief Financial Officer
(Principal Financial Officer)
STOCK PURCHASE AGREEMENT
dated May 23, 1996
with respect to
NEW YORK CARPET WORLD, INC.
among
SHAW INDUSTRIES, INC.
and
IRVING NUSBAUM REVOCABLE TRUST UAD, MAY 4, 1977,
AMENDED AND RESTATED APRIL 30, 1984
FRANCIS FETTER REVOCABLE TRUST UAD, AUGUST 16, 1990
MARVIN BERLIN REVOCABLE TRUST UAD, MAY 22, 1990
ROBERT C. NUSBAUM REVOCABLE TRUST UAD, JANUARY 30, 1990
AND
ARTHUR S. NUSBAUM REVOCABLE TRUST UAD, JUNE 1, 1993,
AMENDED AND RESTATED APRIL 26, 1994
S:\N007852\shaw\sto-pur.CLN
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TABLE OF CONTENTS
1. DEFINITIONS........................................................ 1
2. SALE AND TRANSFER OF SHARES; CLOSING............................... 7
2.1 Shares............................................................ 7
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2.2 Purchase Price.................................................... 7
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2.3 Closing........................................................... 7
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2.4 Closing Obligations................................................ 8
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2.5 Stock Election..................................................... 9
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3. REPRESENTATIONS AND WARRANTIES OF SELLERS.......................... 9
3.1 Organization and Good Standing.................................... 9
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3.2 Authority; No Conflict............................................. 10
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3.3 Capitalization..................................................... 11
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3.4 Financial Statements............................................... 11
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3.5 Books and Records.................................................. 12
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3.6 Title to Properties; Encumbrances.................................. 12
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3.7 Condition and Sufficiency of Assets................................ 13
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3.8 Accounts Receivable................................................ 13
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3.9 Inventory...........................................................13
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3.10 No Undisclosed Liabilities..........................................13
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3.11 Taxes...............................................................14
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3.12 No Material Adverse Change..........................................14
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3.13 Employee Benefits...................................................15
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3.14 Compliance with Legal Requirements; Governmental Authorizations.....18
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3.15 Legal Proceedings; Orders...........................................20
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3.16 Absence of Certain Changes and Events.............................. 20
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3.17 Contracts; No Defaults............................................. 22
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3.18 Insurance.......................................................... 24
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3.19 Environmental Matters.............................................. 25
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3.20 Employees.......................................................... 26
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3.21 Labor Relations; Compliance........................................ 26
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3.22 Intellectual Property.............................................. 27
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3.23 Certain Payments................................................... 29
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3.24 Disclosure......................................................... 29
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3.25 Relationships with Related Persons................................. 30
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3.26 Brokers or Finders................................................. 30
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4. REPRESENTATIONS AND WARRANTIES OF BUYER............................ 30
4.1 Organization and Good Standing............................ 30
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4.2 Authority; No Conflict........................................... 30
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4.3 Investment Intent................................................ 31
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4.4 Certain Proceedings.............................................. 31
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4.5 Disclosure....................................................... 31
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4.6 Capitalization and Shares of Shaw Common Stock................... 31
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4.7 Brokers or Finders............................................... 31
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5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE......................... 32
5.1 Access and Investigation...................................... 32
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5.2 Operation of the Businesses of the Acquired Companies......... 32
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5.3 Negative Covenant............................................. 32
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5.4 Required Approvals............................................ 32
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5.5 Notification.................................................. 33
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5.6 Indebtedness of Related Persons.............................. 33
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5.7 No Negotiation................................................ 33
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5.8 Reasonable Efforts............................................ 33
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5.9 Resale of Shaw Common Stock................................... 33
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5.10 Estoppels......................................................34
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5.11 Minor Shareholders............................................ 34
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6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.......................... 34
6.1 Approvals of Governmental Bodies............................... 34
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6.2 Reasonable Efforts............................................. 35
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6.3 Registration of Shaw Common Stock.............................. 35
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6.4 Repayment of Acquired Companies' Loans From Financial
Institutions...................................... 35
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7. CONDITION PRECEDENT TO BUYER'S OBLIGATION TO CLOSE................ 35
7.1 ............................................................... 35
8. CONDITION PRECEDENT TO SELLERS' OBLIGATION TO CLOSE................ 35
8.1 Governmental Approvals.......................................... 35
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9. TERMINATION......................................................... 35
9.1 Termination Events............................................... 35
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9.2 Effect of Termination............................................ 36
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9.3 Breakup Fee..................................................... 36
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10. INDEMNIFICATION; REMEDIES.......................................... 36
10.1 Survival; Right to Indemnification Not Affected by Knowledge..... 36
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10.2 Indemnification and Payment of Damages by Sellers................ 37
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10.3 Indemnification and Payment of Damages by Sellers -- Environmental
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Matters.................................................... 37
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10.4 Indemnification and Payment of Damages by Buyer................... 38
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10.5 Time Limitations..................................................38
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10.6 Limitations on Amount -- Sellers..................................38
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10.7 Limitations on Amount -- Buyer....................................38
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10.8 Right of Set-Off..................................................39
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10.9 Procedure for Indemnification -- Third Party Claims...............39
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10.10 Procedure for Indemnification -- Other Claims.....................40
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10.11 Arbitration.......................................................41
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11. GENERAL PROVISIONS............................................... 41
11.1 Section 338(h)(10) Election.................................... 41
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11.2 Section 1362(e)(3) Election.................................... 42
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11.3 Expenses....................................................... 42
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11.4 Public Announcements........................................... 42
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11.5 Confidentiality................................................ 42
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11.6 Notices........................................................ 43
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11.7 Jurisdiction; Service of Process............................... 44
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11.8 Further Assurances............................................. 44
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11.9 Waiver......................................................... 44
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11.10 Entire Agreement and Modification.............................. 44
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11.11 Disclosure Schedule............................................ 45
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11.12 Assignments, Successors, and No Third-Party Rights............. 45
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11.13 Severability................................................... 45
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11.14 Section Headings; Construction................................. 45
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11.15 Time of Essence................................................ 46
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11.16 Governing Law.................................................. 46
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11.17 Counterparts................................................... 46
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11.18 Capacity, Authority and Responsibility of Trustees............. 46
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11.19 Leases......................................................... 46
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EXHIBITS
Exhibit 1 - Sellers
Exhibit 2.4(a)(ii) - Earnout Agreement
Exhibit 2.4(a)(iii) - Employment Agreement
Exhibit 2.4(a)(iv) - Noncompetition Agreements
Exhibit 2.4(a)(vi) - Opinion of Seyburn, Kahn, Bess, Deitch and Serlin
Exhibit 2.4(b) - Bonuses by the Acquired Companies
Exhibit 2.4(b)(i) - Allocation
Exhibit 2.4(b)(ii) - Promissory Notes
Exhibit 2.4(b)(vi) - Opinion of Powell, Goldstein, Frazer & Murphy
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of May 23, 1996,
by Shaw Industries, Inc., a Georgia corporation ("Buyer"), and those entities
listed on Exhibit 1 hereto (collectively, "Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, (i) all of the
issued and outstanding shares of capital stock of New York Carpet World, Inc.,
(the "Company"), and (ii) except as owned by the Company, all of the issued and
outstanding shares of capital stock of Askin Carpet Company, New York Carpet
World of Lansing, Inc., New York Carpet World of Monroe, Inc., New York Carpet
World of Mount Clemens, Inc., New York Carpet World of Port Huron, Inc., New Age
Carpet and Upholstery Cleaner, Inc., and K. L. Mack Measuring Company,
(collectively, the "Subsidiaries") and all of issued and outstanding shares of
capital stock of New York Carpet World of Florida, Inc., New York Carpet World
of St. Louis, Inc., New York Carpet World Franchising, Inc., New York Carpet
World of New England, Inc., and New York Commercial Flooring Systems,
(collectively, "Affiliates"), for the consideration and on the terms set forth
in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Acquired Companies" -- the Company, the Affiliates and the Subsidiaries,
collectively.
"Affiliates" -- shall mean those certain corporations under common
control with the Company, each of which is listed in the Recitals hereto.
"Applicable Contract" -- any Contract (a) under which any Acquired
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"Balance Sheet" -- as defined in Section 3.4.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Closing" -- as defined in Section 2.3.
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"Closing Date" -- the date and time as of which the Closing actually
takes place.
"Company" -- as defined in the Recitals of this Agreement.
"Company Plan" -- as defined in Section 3.13.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including: (a) the sale of the Shares by Sellers to Buyer; (b)
the execution, delivery, and performance of the Promissory Note, the Employment
Agreements, the Noncompetition Agreements and the Earnout Agreement; (c) the
performance by Buyer and Sellers of their respective covenants and obligations
under this Agreement; and (d) Buyer's acquisition and ownership of the Shares
and exercise of control over the Acquired Companies.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" -- as defined in Section 10.2.
"Disclosure Schedule" -- the disclosure schedules delivered by Sellers
to Buyer concurrently with the execution and delivery of this Agreement.
"Earnout Agreement" -- as defined in Section 2.4.
"Employment Agreements" -- as defined in Section 2.4(a)(i).
"Encumbrance" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" -- soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law, including fines,
penalties, financial responsibility for cleanup costs, corrective action,
removal, remedial actions and response actions, and any other compliance,
corrective, investigative, or remedial measures required under Environmental Law
or Occupational Safety and Health Law. The terms "removal," "remedial," and
"response
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action," include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq., as amended ("CERCLA").
"Environmental Law" -- any Legal Requirement that requires or relates
to releases of pollutants or hazardous substances or materials or violations of
discharge limits; preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment; reducing
the quantities, preventing the release, or minimizing the hazardous
characteristics of wastes that are generated; reducing to acceptable levels the
risks inherent in the transportation of hazardous substances, pollutants, oil,
or other potentially harmful substances; cleaning up pollutants that have been
released, preventing the threat of release, or paying the costs of such clean up
or prevention; or making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles and
trucks) currently or formerly owned or operated by any Acquired Company.
"GAAP" -- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4(b) were prepared.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any federal, state, local, municipal, foreign,
or other government; or governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal).
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
"HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
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"Intellectual Property Assets" -- as defined in Section 3.22.
"Interim Balance Sheet" -- as defined in Section 3.4.
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service and, to the extent
relevant, the United States Department of the Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) it could be expected that such fact or other matter would come to
the attention of such individual in the course of conducting a reasonable
investigation concerning the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving as an inside
director, officer with operating responsibility, partner, executor, or trustee
of such Person (or in any similar capacity) has Knowledge of such fact or other
matter.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Noncompetition Agreements" -- as defined in Section 2.4(a)(iii).
"Occupational Safety and Health Law" -- any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
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"Organizational Documents" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Promissory Notes" -- as defined in Section 2.4(b)(ii).
"Purchase Price" -- as defined in Section 2.2.
"Reasonable Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved expeditiously but without requiring that payment be made solely for
the willingness of any third party to take or refrain from taking any voluntary
action.
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
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(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse, (iii) any other natural person who
is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Registration Statement" -- as defined in Section 6.3.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Rule 145" -- as defined in Section 5.9.
"SEC" -- the Securities and Exchange Commission.
"Securities Act" -- the Securities Act of 1933 and regulations and
rules issued pursuant to that Act.
"Sellers" -- as defined in the first paragraph of this Agreement.
"Shares" -- shall mean, except as owned by the Company, all of the
issued and outstanding shares of capital stock, of any class or series, or other
ownership (including partnership) interests of the Company, the Subsidiaries and
the Affiliates.
"Shaw Common Stock" -- shall mean the common capital stock of Buyer, no
par value per share.
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"Subsidiary" -- shall mean each of the corporations which are majority
owned by the Company listed in the recitals hereto.
"Tax" -- shall mean all tax (including income tax, capital gains tax,
value added tax, sales tax, property tax, gift tax, intangibles tax or estate
tax), levy, assessment, tariff, duty (including customs duty), deficiency or
other fee and any related charge or amount (including fine, penalty and
interest) imposed, assessed or collected by or under the authority of any
Governmental Body.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
Shares is the sum of (i) Seventy Million Dollars ($70,000,000) plus (ii) amounts
payable under Section 2 of the Earnout Agreement. The Purchase Price shall be
allocated by Sellers for federal income tax purposes in accordance with Exhibit
2.2. Buyer agrees that it will take no action with the IRS, or otherwise, to
contravene or conflict with such allocation.
2.3 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Powell, Goldstein, Frazer & Murphy,
at 10:00 a.m. (local time) on the later of (i) July 1, 1996, (ii) the date that
is five business days following the termination of the applicable waiting period
under the HSR Act, or (iii) at such other time and place as the parties may
agree subject to the satisfaction of conditions precedent to the performance of
the parties as contemplated by Articles 7 and 8 of this Agreement. Subject to
the provisions of Section 9, failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 2.3 will not result in the
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termination of this Agreement and will not relieve any party of any obligation
under this Agreement.
2.4 Closing Obligations. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates (or partnership assignments) representing the Shares, duly
endorsed (or accompanied by duly executed stock powers);
(ii) an Earnout Agreement in the form of Exhibit 2.4(a)(ii) executed by
Sellers (the "Earnout Agreement");
(iii) an employment agreement in the form of Exhibit 2.4(a)(iii), executed
by B (the "Employment Agreements");
(iv) a noncompetition agreement in the form of Exhibit 2.4(a)(iv), executed
by each Seller (collectively, the "Noncompetition Agreements");
(v) a certificate executed by Sellers representing
and warranting to Buyer that except as otherwise stated in
such certificate, each of Sellers' representations and
warranties in this Agreement was accurate in all respects as
of the date of this Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date; and
(vi) an opinion of Seyburn, Kahn, Bess, Deitch & Serlin dated the Closing
Date, in the form of Exhibit 2.4(a)(vi); and
(b) Buyer will deliver to Sellers:
(i) an aggregate of Thirty-Five Million Dollars
($35,000,000) less (A) amounts to be paid as bonuses by the
Acquired Companies as set forth on Exhibit 2.4(b) hereof and
(B) the cash surrender value of any life insurance policies
held by the Acquired Companies and transferred to Sellers or
other third party prior to the Closing, by bank cashier's or
certified check payable to the order of Sellers or by wire
transfer to accounts specified by Sellers in the allocation
set forth in Exhibit 2.4(b)(i) hereof;
(ii) promissory notes payable to Sellers aggregating
the principal amount of Thirty-Five Million Dollars
($35,000,000) allocated among the Sellers as set forth in
Exhibit 2.4(b)(i) in the form of Exhibit 2.4(b)(ii) (the
"Promissory Notes");
(iii) the Earnout Agreement duly executed by Buyer;
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(iv) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made
on the Closing Date;
(v) the Employment Agreement, executed by the Company; and
(vi) the opinion of Powell, Goldstein, Frazer &
Murphy, dated as of the Closing Date, in the form of Exhibit
2.4(b)(vi).
2.5 Stock Election. The Sellers, by written notice to Buyer given no
later than January 5, 1997, may unanimously elect to receive, as payment of the
Promissory Notes, shares of Shaw Common Stock valued for this purpose at $14.00
per share (appropriately adjusted for any subsequent stock split, reverse stock
split or common stock dividend effected or declared by Buyer) (the "Stock
Value"). Each Seller may make this election (i) with respect to the aggregate
payment owed to such Seller or (ii) in a combination of cash and shares of Shaw
Common Stock, provided that any partial exercise of the rights shall be in
increments of 100,000 shares of Shaw Common Stock. In the event of such an
election, Shaw shall deliver to each Seller a stock certificate representing the
number of whole shares of Shaw Common Stock for which the Seller has made an
election and the balance shall be paid to Sellers by check.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to Buyer as
follows:
3.1 Organization and Good Standing.
(a) Part 3.1 of the Disclosure Schedule contains a complete
and accurate list for each Acquired Company of its name, its jurisdiction of
incorporation or organization and other jurisdictions in which it is authorized
to do business. Each Acquired Company is a corporation or partnership duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation or organization, with full corporate (or other)
power and authority to conduct its business as it is now being conducted, to own
or use the properties and assets that it purports to own or use, and to perform
all its obligations under Applicable Contracts. Each Acquired Company is duly
qualified to do business as a foreign corporation or partnership and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) Sellers have delivered to Buyer copies of the Organizational Documents
of each Acquired Company, as currently in effect.
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3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its terms.
Upon the execution and delivery by Sellers of the Earnout Agreement, the
Employment Agreements, and the Noncompetition Agreements (collectively, the
"Sellers' Closing Documents"), the Sellers' Closing Documents will constitute
the legal, valid, and binding obligations of Sellers, enforceable against
Sellers in accordance with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and the Sellers' Closing Documents and to perform their obligations
under this Agreement and the Sellers' Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of the Acquired Companies, or (B) any resolution adopted by
the board of directors or the stockholders of any Acquired
Company;
(ii) contravene, conflict with, or result in a
violation of, or, to Sellers' Knowledge, give any Governmental
Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain
any relief under, any outstanding Legal Requirement or any
outstanding Order to which any Acquired Company or any Seller,
or any of the assets owned or used by any Acquired Company,
are subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or, to
Sellers' Knowledge, give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any Acquired
Company or that otherwise relates to the business of, or any
of the assets owned or used by, any Acquired Company;
(iv) to the Knowledge of the Sellers, cause any Acquired Company to become
subject to, or to become liable for the payment of, any Tax;
(v) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
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(vi) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by any Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Schedule, no Seller
or Acquired Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(c) Sellers are acquiring the Promissory Notes for their own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
3.3 Capitalization. The authorized equity securities of the Company
consist of 2,500 shares of common stock, par value $100 per share, of which 600
shares of Class A (voting) Common Stock and 1,140 shares of Class B (nonvoting)
Common Stock are issued and outstanding and constitute the Shares of the Company
and are held as set forth in Part 3.3 of the Disclosure Schedule. The Shares of
the Subsidiaries and Affiliates constitute all of the issued and outstanding
capital stock of such entities and are held as set forth on Part 3.3 of the
Disclosure Schedule. Sellers are and will be on the Closing Date the record and
beneficial owners and holders of the Shares, free and clear of all Encumbrances.
With the exception of the Shares (which are owned by Sellers), all of the
outstanding equity securities and other securities of each Acquired Company are
owned of record and beneficially by one or more of the Acquired Companies, free
and clear of all Encumbrances. No legend or other reference to any purported
Encumbrance appears upon any certificate representing equity securities of any
Acquired Company. All of the outstanding equity securities of each Acquired
Company have been duly authorized and validly issued and are fully paid and
nonassessable. There are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of any Acquired Company.
None of the outstanding equity securities or other securities of any Acquired
Company was issued in violation of the Securities Act or any other Legal
Requirement. No Acquired Company owns, or has any Contract to acquire, any
equity securities or other securities of any Person (other than Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business.
3.4 Financial Statements. Sellers have delivered to Buyer: (a) audited
consolidated balance sheets of the Acquired Companies (other than K. L. Mack
Measuring Company, New Age Carpet & Upholstery Cleaner, Inc., Askin Carpet Co.,
Inc., and New York Commercial Flooring Systems (f/k/a Leader Carpet)
(collectively the "Minor Companies") as at December 31 in each of the years 1993
through 1994, and the related audited consolidated statements of income, changes
in stockholders' equity, and cash flow for each of the fiscal years then ended,
together with the report thereon of BDO Seidman LLP, independent auditors, (b)
an audited consolidated balance sheet of the Acquired Companies (other than the
Minor Companies) as at December 31, 1995 (including the notes thereto, the
"Balance Sheet"), and the related statements of income, changes in stockholders'
equity, and cash flow for the fiscal year then ended, together with the report
thereon of BDO Seidman LLP, independent certified public accountants, and (c) an
unaudited consolidated balance sheet of the Acquired Companies (other than the
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Minor Companies) as at March 31, 1996 (the "Interim Balance Sheet") and the
related unaudited consolidated statements of income, changes in stockholders'
equity, and cash flow for the three months then ended, certified as correct by
the chief financial officer of the Sellers, including in each case the notes
thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Acquired Companies (other than the Minor Companies) as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to limitations resulting from the preparation of such
statements based on the gross profit method, the lack of a physical inventory
and normal recurring year-end adjustments (the effect of which adjustments will
not, individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Balance Sheet); the financial statements referred to in this Section 3.4
reflect the consistent application of such accounting principles throughout the
periods involved subject to the limitations with respect to interim statements
noted above. No financial statements of any Person other than the Acquired
Companies are required by GAAP to be included in the consolidated financial
statements of the Company. The tax returns of the Minor Companies provided to
Buyer accurately reflect the assets, liabilities and taxable income of the Minor
Companies for the periods indicated in such returns.
3.5 Books and Records. The stock record books are complete and correct.
The other books of account and other records (other than minute books) of the
Acquired Companies are complete and correct in all material respects and all
such records have been maintained in accordance with sound business practices in
the Sellers' reasonable judgment and the material requirements of Section
13(b)(2) of the Securities Exchange Act of 1934, as amended (without regard to
the fact that the Acquired Companies are not subject to that Section), including
the maintenance of an adequate system of internal controls. Except for omissions
which would not result in a material adverse effect on the Acquired Companies,
the minute books of the Acquired Companies contain materially accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Acquired Companies, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books.
3.6 Title to Properties; Encumbrances.
(a) The Acquired Companies do not own, and hold no legal or beneficial title
to, any real property.
(b) Part 3.6 of the Disclosure Schedule contains a list of all
leasehold interests (whether an estate for years, usufruct or other leasehold
interest) held by any Acquired Company which constitutes all the real estate
properties purported to be occupied or held by the Acquired Companies or
reflected in the books and records of the Acquired Companies, including all such
properties reflected in the Balance Sheet and the Interim Balance Sheet (except
for leasehold
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interests sold or disposed of in the Ordinary Course of Business since the date
of the Interim Balance Sheet).
(c) Part 3.6 of the Disclosure Schedule contains a list of all
material items of tangible personal property constituting fixed assets and
leasehold improvements and as set forth on the fixed asset schedule of the
Acquired Companies.
(d) The Acquired Companies have good title to the owned assets
and lessee's interest to the leasehold interests described in paragraphs (a),
(b) and (c) above, except (i) security interests shown on the Balance Sheet or
the Interim Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (ii) security interests incurred in
connection with the purchase of property or assets after the date of the Interim
Balance Sheet (such security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (iii) liens for
current taxes not yet due, which an Acquired Company is obligated to pay, (iv)
nonmaterial Encumbrances which are not substantial in amount, do not materially
detract from the value or do not impair the use of the property subject thereto,
or do not impair the operations of any Acquired Company, and (v) as set forth on
Part 3.6 of the Disclosure Schedule.
3.7 Condition and Sufficiency of Assets. The buildings, facilities,
structures, and equipment of the Acquired Companies are in reasonable operating
condition and repair for the conduct of the business of the Acquired Companies,
consistent with past practice and industry standards, except that no
representation or warranty is made with respect to the condition of any roofs of
the Acquired Companies. To the Knowledge of the Sellers, none of such buildings,
facilities, structures, or equipment is in need of material maintenance or
repairs.
3.8 Accounts Receivable. All accounts receivable of the Acquired
Companies that are reflected on the Balance Sheet or the Interim Balance Sheet
or on the accounting records of the Acquired Companies as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Part 3.8 of the Disclosure Schedule contains a
complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable. Nothing contained herein shall be construed to constitute a guaranty
of collectibility.
3.9 Inventory. All inventories of the Acquired Companies not written off
have been priced at the lower of cost or market.
3.10 No Undisclosed Liabilities. Except as set forth or
cross-referenced in Part 3.10 of the Disclosure Schedule, the Acquired Companies
have no material liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet
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or the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 Taxes.
(a) Part 3.11 of the Disclosure Schedule contains copies of
the letters from the Internal Revenue Service acknowledging receipt and
acceptance of each acquired Company that has elected to be taxed in accordance
with the provisions of Subchapter S of the IRC.
(b) The Acquired Companies have filed or caused to be filed
all Tax Returns that are or were required to be filed by or with respect to any
of them, either separately or as a member of a group of corporations, pursuant
to applicable Legal Requirements. Sellers have delivered or made available to
Buyer copies of, and Part 3.11 of the Disclosure Schedule contains a list of,
all such Tax Returns relating to income or franchise taxes filed since December
31, 1991. The Acquired Companies have paid, or made provision for the payment
of, all Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or any Acquired
Company, except such Taxes, if any, as are listed in Part 3.11 of the Disclosure
Schedule and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Balance Sheet and
the Interim Balance Sheet.
(c) The United States federal and state income Tax Returns of
each Acquired Company subject to such Taxes have been audited by the IRS or
relevant state tax authorities or are closed by the applicable statute of
limitations for all taxable years through 1989. Part 3.11 of the Disclosure
Schedule contains a complete and accurate list of all audits of all such Tax
Returns, including a description of the nature and outcome of each audit. Except
as described in Part 3.11 of the Disclosure Schedule, no Seller or Acquired
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of any Acquired Company.
There exists no proposed tax assessment against any Acquired Company except as
disclosed in the Balance Sheet.
(d) No consent to the application of Section 341(f)(2) of the
IRC has been filed with respect to any property or assets held, acquired, or to
be acquired by any Acquired Company. All Taxes that any Acquired Company is or
was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(e) All Tax Returns filed by (or that include on a
consolidated basis) any Acquired Company are true, correct, and complete. There
is no tax sharing agreement that will require any payment by any Acquired
Company after the date of this Agreement.
3.12 No Material Adverse Change. Since the date of the Balance Sheet, there
has not been any material adverse change in the business, operations,
properties, prospects, assets,
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working capital or condition of any Acquired Company, and no event has occurred
or circumstance exists that may result in such a material adverse change, taking
into consideration the fact that the Interim Balance Sheet and the related
unaudited consolidated statements of income, changes in stockholders equity and
cash flow included therein reflect a loss for the period of January 1, 1996 to
March 31, 1996.
3.13 Employee Benefits.
(a) Except as disclosed on Part 3.13 of the Disclosure
Schedule, no other corporation, trade, business, or other entity, other than the
Acquired Companies, would, together with the Acquired Companies, now or in the
past constitute a single employer within the meaning of Section 414 of the IRC.
The Acquired Companies and any other entities which now or in the past
constitute a single employer within the meaning of IRC Section 414 are
hereinafter collectively referred to as the "Company Group."
(b) Part 3.13(b) of the Disclosure Schedule contains a true
and complete list of all the following agreements or plans which are presently
in effect or which have previously been in effect and which cover employees of
any member of the Company Group ("Employees"), and indicating, with respect to
each, the plans for which the Company or any of its Subsidiaries maintain or
contribute to on behalf of their employees:
(i) Any employee benefit plan as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any trust or other funding agency
created thereunder, or under which any member of the Company
Group, with respect to Employees, has any outstanding,
present, or future obligation or liability, or under which any
Employee or former Employee has any present or future right to
benefits which are covered by ERISA; or
(ii) Any other pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability,
hospitalization, medical, life insurance or other employee
benefit plan, program, policy, or arrangement, whether written
or unwritten, formal or informal, which any member of the
Company Group maintains or to which any member of the Company
Group has any outstanding, present or future obligations to
contribute or make payments under, whether voluntary,
contingent or otherwise.
The plans, programs, policies, or arrangements described in
subparagraph (i) or (ii) above are hereinafter collectively referred to as the
"Company Plans." Sellers have delivered to Buyer true and complete copies of all
written plan documents and contracts evidencing the Company Plans, as they may
have been amended to the date hereof, together with (A) all documents, including
without limitation, Forms 5500, relating to any Company Plans required to have
been filed prior to the date hereof with governmental authorities for each of
the
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three most recently completed plan years; (B) attorney's response to an
auditor's request for information for each of the three most recently completed
plan years; and (C) financial statements and actuarial reports, if any, for each
Company Plan for the three most recently completed plan years.
(c) Except as to those plans identified on Part 3.13(c) of the
Disclosure Schedule as tax-qualified Company Plans (the "Company Qualified
Plans"), no member of the Company Group maintains or to Sellers' Knowledge
previously maintained a Company Plan which meets or was intended to meet the
requirements of IRC Section 401(a). The Internal Revenue Service has issued
favorable determination letters to the effect that each Company Qualified Plan
presently in effect qualifies under IRC Section 401(a) and that any related
trust is exempt from taxation under IRC Section 501(a), and such determination
letters remain in effect and have not been revoked. Copies of the most recent
determination letters and any outstanding requests for a determination letter
with respect to each Company Qualified Plan presently in effect have been
delivered to Purchaser. Except as disclosed on Part 3.13(c) of the Disclosure
Schedule, no Company Qualified Plan presently in effect has been amended since
the issuance of each respective determination letter. The Company Qualified
Plans currently comply in form with the requirements under IRC Section 401(a),
other than changes required by statutes, regulations and rulings for which
amendments are not yet required. No issue concerning qualification of the
Company Qualified Plans is pending before or is threatened by the Internal
Revenue Service. The Company Qualified Plans presently in effect have been
administered according to their terms (except for those terms which are
inconsistent with the changes required by statutes, regulations, and rulings for
which changes are not yet required to be made, in which case the Company
Qualified Plans have been administered in accordance with the provisions of
those statutes, regulations and rulings) and in accordance with the requirements
of IRC Section 401(a). No member of the Company Group or, to Sellers' Knowledge,
any fiduciary of any Company Qualified Plan has done anything that would
adversely affect the qualified status of the Company Qualified Plans or the
related trusts. Any Company Qualified Plan which is required to satisfy IRC
Section 401(k)(3) and 401(m)(2) has been tested for compliance with, and has
satisfied the requirements of, IRC Section 401(k)(3) and 401(m)(2) for each plan
year ending prior to the Closing Date.
(d) To Sellers' Knowledge, each member of the Company Group is
in compliance with the requirements prescribed by any and all statutes, orders,
governmental rules and regulations applicable to the Company Plans and all
reports and disclosures relating to the Company Plans required to be filed with
or furnished to any governmental entity, participants or beneficiaries prior to
the Closing Date have been or will be filed or furnished in a timely manner and
in accordance with applicable law.
(e) Except as expressly identified on Part 3.13(e) of the
Disclosure Schedule, no termination or partial termination of any Company
Qualified Plan has occurred nor has a notice of intent to terminate any Company
Qualified Plan been issued by a member of the Company Group.
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(f) No member of the Company Group maintains or has maintained
an "employee benefit pension plan" within the meaning of ERISA Section 3(2) that
is or was subject to Title IV of ERISA.
(g) Except as listed in Part 3.13(g) of the Disclosure
Schedule, to Sellers' Knowledge, any Company Plan can be terminated on or prior
to the Closing Date without liability to any member of the Company Group or
Purchaser, including without limitation, any additional contributions,
penalties, premiums, fees or any other charges as a result of the termination,
except to the extent of funds set aside for such purpose or reflected as
reserved for such purpose on the Balance Sheet.
(h) To Sellers' Knowledge, each member of the Company Group
has made full and timely payment of, or has accrued pending full and timely
payment, all amounts which are required under the terms of each of the Company
Plans and in accordance with applicable laws to be paid as a contribution to
each Company Plan.
(i) No member of the Company Group has any past, present or
future obligation or liability to contribute or has contributed to any
multiemployer plan as defined in ERISA Section 3(37).
(j) No member of the Company Group nor to Sellers' Knowledge,
any other "disqualified person" or "party in interest" (as defined in IRC
Section 4975 and ERISA Section 3(14), respectively) with respect to the Company
Plans, has engaged in any "prohibited transaction" (as defined in IRC Section
4975 or ERISA Section 406). All members of the Company Group and to Sellers'
Knowledge, all "fiduciaries" (as defined in ERISA Section 3(21)) with respect to
the Company Plans, including any members of the Company Group which are
fiduciaries as to a Company Plan, have complied in all respects with the
requirements of ERISA Section 404. To Sellers' Knowledge, no member of the
Company Group and no party in interest or disqualified person with respect to
the Company Plans has taken or omitted any action which could lead to the
imposition of an excise tax under the IRC or a fine under ERISA.
(k) To Sellers' Knowledge, each member of the Company Group
has complied with the continuation coverage requirements of Section 1001 of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA
Sections 601 through 608.
(l) To Sellers' Knowledge, except as disclosed on Part 3.13(l)
of the Disclosure Schedule, no member of the Company Group has made or is
obligated to make any nondeductible contributions to any Company Plan.
(m) To Sellers' Knowledge, no member of the Company Group is
obligated, contingently or otherwise, under any agreement to pay any amount
which would be treated as a "parachute payment," as defined in IRC Section
280G(b) (determined without regard to IRC Section 280G(b)(2)(A)(ii)).
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(n) Other than routine claims for benefits, there are no
actions, audits, investigations, suits or claims pending, or threatened against
any Company Plan, any trust or other funding agency created thereunder, or to
Sellers' Knowledge against any fiduciary of any Company Plan or against the
assets of any Company Plan.
(o) To Sellers' Knowledge, the consummation of the
transactions contemplated hereby will not accelerate or increase any liability
under any Company Plan because of an acceleration or increase of any of the
rights or benefits to which Employees may be entitled thereunder.
(p) To Sellers' Knowledge, except for deferred compensation
owed to current employees properly accrued on the Balance Sheet and Interim
Balance Sheet, no member of the Company Group has any obligation to any retired
or former employee or any current employee of the Company and Subsidiaries upon
retirement or termination of employment under any Company Plan.
(q) Since December 31, 1995, no member of the Company Group
has (i) increased the rate of compensation payable or to become payable to any
of the employees of the Company and its Subsidiaries, other than in the normal
course of business and consistent with past practice; (ii) made any commitment
or incurred any liability to any labor union; (iii) paid or agreed to pay any
bonuses or severance pay not properly accrued on the Balance Sheet or the
Interim Balance Sheet; (iv) increased any benefits or rights under any Company
Plan; and (v) adopted any new plan, program, policy or arrangement, which if it
existed as of the Closing Date, would constitute a Company Plan.
3.14 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.14 of the Disclosure Schedule:
(i) each Acquired Company is, and at all times since
January 1, 1993 has been, in material compliance with each
Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use
of any of its assets;
(ii) to Sellers' Knowledge, no event has occurred or
circumstance exists that (with or without notice or lapse of
time) (A) may constitute or result in a violation by any
Acquired Company of, or a failure on the part of any Acquired
Company to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any
remedial action of any nature; and
(iii) no Acquired Company has received, at any time
since January 1, 1993, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged,
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possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of any Acquired
Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Part 3.14 of the Disclosure Schedule contains a complete
and accurate list of each Governmental Authorization that is held by any
Acquired Company or that otherwise relates to the business of, or to any of the
assets owned or used by, any Acquired Company. Each Governmental Authorization
listed or required to be listed in Part 3.14 of the Disclosure Schedule is valid
and in full force and effect. Except as set forth in Part 3.14 of the Disclosure
Schedule:
(i) To Sellers' Knowledge, each Acquired Company is,
and at all times since January 1, 1993 has been, in compliance
with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Part
3.14 of the Disclosure Schedule;
(ii) to Sellers' Knowledge, no event has occurred or
circumstance exists that may (with or without notice or lapse
of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Schedule,
or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or
any modification to, any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Schedule;
(iii) no Acquired Company has received, at any time
since January 1, 1993, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) to the Knowledge of the Acquired Companies, all
applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be
listed in Part 3.14 of the Disclosure Schedule have been duly
filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly
made on a timely basis with the appropriate Governmental
Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure
Schedule collectively constitute all of the Governmental Authorizations
necessary to permit the Acquired
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Companies to lawfully conduct and operate their businesses in the manner they
currently conduct and operate such businesses and to permit the Acquired
Companies to own and use their assets in the manner in which they currently own
and use such assets.
3.15 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.15 of the Disclosure
Schedule and except for claims (i) pending in small claims or similar courts
having jurisdiction over disputes involving immaterial amounts, (ii) minor
personal injury or property damage claims fully covered by insurance (except for
any deductible) or (iii) similar items for which the aggregate financial
exposure of the Acquired Companies is less than $10,000 individually and
$100,000 in the aggregate, there is no pending Proceeding:
(i) that has been commenced by or against any Acquired Company or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
To Sellers' Knowledge, (1) no such Proceeding has been Threatened, and
(2) no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any such Proceeding. Sellers have made
available to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.15 of the Disclosure Schedule. The
Proceedings will not have a material adverse effect on the business, operations,
assets, condition, or prospects of any Acquired Company.
(b) Except as set forth in Part 3.15 of the Disclosure Schedule:
(i) there is no Order to which any of the Acquired Companies, or any of the
assets owned or used by any Acquired Company, is subject;
(ii) no Seller is subject to any Order that relates to the business of, or
any of the assets owned or used by, any Acquired Company; and
(iii) to Sellers' Knowledge, no officer, director,
agent, or employee of any Acquired Company is subject to any
Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity,
or practice relating to the business of any Acquired Company.
3.16 Absence of Certain Changes and Events. Except as set forth in Part
3.16 of the Disclosure Schedule, since December 31, 1995, the Acquired Companies
have conducted their businesses only in the Ordinary Course of Business and
there has not been any:
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(a) change in any Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of capital
stock of any Acquired Company; issuance of any security convertible into such
capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any Acquired Company of any shares of any
such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any
bonuses, salaries, or other compensation to any stockholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
any Acquired Company;
(e) damage to or destruction or loss of any asset or property
of any Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to any Acquired Company of at least
$50,000 except as set forth in Schedule 3.17(a);
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any material asset or property of
any Acquired Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of any Acquired Company;
(h) cancellation for less than adequate consideration or waiver of any
material claims or rights;
(i) change in the accounting methods used by any Acquired Company; or
(j) agreement, whether oral or written, by any Acquired Company to do any
of the foregoing.
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3.17 Contracts; No Defaults.
(a) Part 3.17(a) of the Disclosure Schedule contains a
complete and accurate list, and Sellers have delivered to Buyer true and
complete copies, of:
(i) each Applicable Contract that involves
performance of services or delivery of goods or materials by
one or more Acquired Companies of an amount or value in excess
of $50,000;
(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to
one or more Acquired Companies of an amount or value in excess
of $50,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of one or more Acquired Companies in
excess of $50,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $50,000 and with
terms of less than one year);
(v) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current
or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable Contract to
or with any labor union or other employee representative of a group of
employees;
(vii) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by any Acquired Company
with any other Person;
(viii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of
any Acquired Company or any Affiliate of an Acquired Company
or limit the freedom of any Acquired Company or any Affiliate
of an Acquired Company to engage in any line of business or to
compete with any Person;
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(ix) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits,
other than direct payments for goods and bonus arrangement for
employees;
(x) each power of attorney that is currently effective and outstanding;
(xi) each Applicable Contract for capital expenditures in excess of
$50,000; and
(xii) each written guaranty of the performance of
third parties and or other similar undertaking with respect to
contractual performance extended by any Acquired Company other
than in the Ordinary Course of Business.
(b) Except as set forth in Part 3.17(b) of the Disclosure
Schedule, no Seller (and no Related Person of any Seller) has or may acquire any
rights under, or has or may become subject to any obligation or liability under,
any Contract that relates to the business of, or any of the assets owned or used
by, any Acquired Company.
(c) Except as set forth in Part 3.17(c) of the Disclosure
Schedule, each Contract identified or required to be identified in Part 3.17(a)
of the Disclosure Schedule is in full force and effect and, to the Knowledge of
the Acquired Companies is valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Schedule:
(i) each Acquired Company is, and at all times since
December 31, 1994, has been, in compliance with all applicable
terms and requirements of each Contract constituting a lease
of real property and, to Sellers' Knowledge, each other
Contract under which such Acquired Company has or had any
obligation or liability;
(ii) to Sellers' Knowledge, no event has occurred or
circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with, or result in a violation
or breach of, or give any Acquired Company or other Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iii) no Acquired Company has given to or received
from any other Person, at any time since December 31, 1994,
any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
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(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to any
Acquired Company under current or completed Contracts with any Person and to the
Knowledge of Sellers and the Acquired Companies no such Person has made written
demand for such renegotiation.
3.18 Insurance.
(a) Sellers have delivered to Buyer true and complete copies
of all policies of insurance to which any Acquired Company is a party or under
which any Acquired Company, or, with respect to directors or officers liability
insurance, any director of any Acquired Company, is or has been covered at any
time since January, 1993.
(b) Part 3.18(b) of the Disclosure Schedule describes:
(i) any self-insurance arrangement by or affecting any Acquired Company,
including any reserves established thereunder; and
(ii) any contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by any Acquired Company.
(c) Part 3.18(c) of the Disclosure Schedule sets forth, by
year, for the current policy year and each of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for an
amount in excess of $50,000; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure Schedule:
(i) All policies to which any Acquired Company is a
party or that provide coverage to either Seller, any Acquired
Company, or any director or officer of an Acquired Company
(A) are valid, outstanding, and enforceable;
(B) to Sellers' Knowledge, are issued by an insurer that is
financially sound and reputable; and
(C) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of any Acquired Company.
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(ii) No Seller or Acquired Company has received (A)
any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) The Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective
obligations, under each policy to which any Acquired Company
is a party or that provides coverage to any Acquired Company
or director thereof.
(iv) The Acquired Companies have given notice to the insurer of all claims
that may be insured thereby.
3.19 Environmental Matters. Except as set forth in part 3.19 of the
Disclosure Schedule:
(a) Each Acquired Company is, and at all times has been, in
material compliance with, and has not been and is not in material violation of
or liable under, any Environmental Law. No Seller or Acquired Company has
received any actual or Threatened order, notice, or other communication from (i)
any Governmental Body or private citizen acting in the public interest, or (ii)
the current or prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets.
(b) There are no pending or, to the Knowledge of Sellers,
Threatened claims resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with respect
to or affecting any of the Facilities or any other properties and assets in
which any Acquired Company has or had an interest.
(c) No Seller has Knowledge of any basis to expect obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets.
(d) To Sellers' Knowledge, no Acquired Company or any other
Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets in which Sellers or any Acquired
Company (or any predecessor), has or had an interest.
(e) To Sellers' Knowledge, there are no Hazardous Materials
present on or in the Environment at the Facilities except in full compliance
with all applicable Environmental Laws.
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(f) To Sellers' Knowledge, there has been no Release of any
Hazardous Materials at or from the Facilities or at any other locations where
any Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets in which Sellers or any Acquired Company has or
had an interest.
(g) Sellers have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or any Acquired Company pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Sellers, any Acquired Company, or any other Person for whose
conduct they are or may be held responsible, with Environmental Laws.
3.20 Employees.
(a) Part 3.20 of the Disclosure Schedule contains a list of
the following information for each full-time, part-time or temporary employee or
director of the Acquired Companies, including each employee on leave of absence
or layoff status: employer; name; job title; date of birth; current employment
status and current compensation. Part 3.20 of the Disclosure Schedule also
contains a list of all written contracts of employment to which any Acquired
Company is a party, except for contracts which can be terminated without
liability upon not more than thirty (30) days notice.
(b) No Seller or, to Sellers' Knowledge, no key employee or
director of any Acquired Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or director and any other
Person ("Proprietary Rights Agreement") that in any way adversely affects or
will affect (i) the performance of his duties as an employee or director of the
Acquired Companies, or (ii) the ability of any Acquired Company to conduct its
business, including any Proprietary Rights Agreement with Sellers or the
Acquired Companies by any such employee or director. To Sellers' Knowledge, no
director, officer, or other key employee of any Acquired Company intends to
terminate his employment with such Acquired Company.
(c) Part 3.20 of the Disclosure Schedule also contains a
complete and accurate list of the following information for each retired
employee or director of the Acquired Companies, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage, retiree life
insurance coverage, and other benefits.
3.21 Labor Relations; Compliance. No Acquired Company has been or is a
party to any collective bargaining or other labor Contract. There has not been,
there is not presently pending or existing, and to Sellers' Knowledge there is
not threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any proceeding against or affecting any Acquired Company
relating to the alleged violation of any legal requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee
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or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting any of the
Acquired Companies or their premises, or (c) any application for certification
of a collective bargaining agent. No event has occurred or circumstance exists
that could provide the basis for any work stoppage or other labor dispute. There
is no lockout of any employees by any Acquired Company, and no such action is
contemplated by any Acquired Company. Each Acquired Company has complied in all
respects with all legal requirements 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. No Acquired Company is liable for the
payment of any compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for failure to comply with any of the foregoing legal
requirements, or for any other legal requirement relating to the
employer-employee relationship.
Part 3.21 of the Disclosure Schedule contains a complete list
of employment-related lawsuits and/or governmental administrative proceedings to
which any Acquired Company has been or is currently a party. This list includes
any employment-related disputes brought under any applicable federal, state or
local laws, as well as all administrative actions including, but not limited to,
those proceedings before the Equal Employment Opportunity Commission, the
National Labor Relations Board, the Occupational Safety and Health Agency and
the Department of Labor, and any state counterparts to such agencies.
3.22 Intellectual Property.
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
includes:
(i) the Company's name, all fictional business names, trade names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries that
may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by
any Acquired Company as licensee or licensor.
(b) Agreements--Part 3.22(b) of the Disclosure Schedule includes any
royalties paid or received by the Acquired Companies, of all Contracts relating
to the Intellectual Property
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Assets to which any Acquired Company is a party or by which any Acquired Company
is bound, except for licenses for commonly available software programs under
which an Acquired Company is the licensee. There are no outstanding and, to
Sellers' Knowledge, no Threatened disputes or disagreements with respect to any
such agreement.
(c) Know-How Necessary for the Business
To Sellers' Knowledge, the Intellectual Property
Assets are all those necessary and material for the operation
of the Acquired Companies' businesses as they are currently
conducted. To Sellers' Knowledge, one or more of the Acquired
Companies is the owner or licensee of all right, title, and
interest in and to each of the Intellectual Property Assets,
free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and has the
right to use without payment to a third party (except
royalties in commercially reasonable amounts) all of the
Intellectual Property Assets.
(d) Patents
No Acquired Company owns any Patents.
(e) Trademarks
(i) Part 3.22(e) of the Disclosure Schedule contains
a complete and accurate list and summary description of all
Marks. One or more of the Acquired Companies is the owner or
licensee of all right, title, and interest in and to each of
the Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(ii) To Sellers' Knowledge, there is no potentially interfering trademark
or trademark application of any third party.
(iii) No Mark is infringed or, to Sellers' Knowledge,
has been challenged or threatened in any way. None of the
Marks used by any Acquired Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any
third party.
(f) Copyrights
(i) Part 3.22(f) of the Disclosure Schedule contains
a complete and accurate list and summary description of all
Copyrights. One or more of the Acquired Companies is the owner
of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
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(ii) No Copyright is infringed or, to Sellers'
Knowledge, has been challenged or threatened in any way. None
of the subject matter of any of the Copyrights infringes or is
alleged to infringe any copyright of any third party or is a
derivative work based on the work of a third party.
(iii) All works encompassed by the Copyrights have
been marked with the proper copyright notice.
(g) Trade Secrets
(i) Sellers and the Acquired Companies have taken all
reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.
(ii) One or more of the Acquired Companies has good
title and an absolute right to use the Trade Secrets. To
Sellers' Knowledge, the Trade Secrets are not part of the
public knowledge or literature, and, to Sellers' Knowledge,
have not been used, divulged, or appropriated either for the
benefit of any Person (other than one or more of the Acquired
Companies) or to the detriment of the Acquired Companies.
3.23 Certain Payments. No Seller and, to Sellers' Knowledge, no
Acquired Company or other director, officer, agent, or employee of any Acquired
Company, or any other Person associated with or acting for or on behalf of any
Acquired Company, has (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to improperly
obtain favorable treatment in securing business, (ii) to improperly pay for
favorable treatment for business secured, (iii) to improperly obtain special
concessions or for special concessions already obtained, for or in respect of
any Acquired Company, or (iv) in violation of any Legal Requirement in each case
the existence of which would have a material adverse effect on the Acquired
Companies, (b) established or maintained any fund or asset that has not been
recorded in the books and records of the Acquired Companies.
3.24 Disclosure.
(a) To Sellers' Knowledge, no representation or warranty of
Sellers in this Agreement and no statement in the Disclosure Schedule omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
(b) There is no fact known to Sellers that has specific
application to Sellers or any Acquired Company (other than general economic or
industry conditions) and that materially adversely affects the assets, business,
prospects, financial condition, or results of
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operations of the Acquired Companies (on a consolidated basis) that has not been
set forth in this Agreement or the Disclosure Schedule.
3.25 Relationships with Related Persons. Except as set forth in Part
3.25 of the Disclosure Schedule, no Seller or any Related Person of Sellers or
of any Acquired Company has, or since 1993 has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in
or pertaining to the Acquired Companies' businesses. No Seller or any Related
Person of Sellers or of any Acquired Company is, or since 1993 has owned (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with any Acquired Company, or (ii) engaged
in competition with any Acquired Company with respect to any line of the
products or services of such Acquired Company (a "Competing Business") in any
market presently served by such Acquired Company except for less than two
percent of the outstanding capital stock of any Competing Business that is
publicly traded on any recognized exchange or in the over-the-counter market.
Except as set forth in Part 3.25 of the Disclosure Schedule, no Seller or any
Related Person of Sellers or of any Acquired Company is a party to any Contract
with, or has any claim or right against, any Acquired Company.
3.26 Brokers or Finders. Neither Sellers nor any Acquired Company has
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Georgia.
4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Upon the execution and delivery by Buyer of the Earnout Agreement and the
Promissory Notes (collectively, the "Buyer's Closing Documents"), the Buyer's
Closing Documents will constitute the legal, valid, and binding obligations of
Buyer, enforceable against Buyer in accordance with their respective terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and the Buyer's Closing Documents and to perform its
obligations under this Agreement and the Buyer's Closing Documents.
(b) Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will give any
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Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the stockholders
of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject other
than pursuant to the HSR Act; or
(iv) any material Contract to which Buyer is a party or by which Buyer may
be bound.
Except pursuant to the HSR Act, Buyer is not and will not be required
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 Investment Intent. Buyer is acquiring the Shares for its own account
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act.
4.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.5 Disclosure. To Buyer's Knowledge, no representation or warranty of the
Buyer in this Agreement omits to state a material fact necessary to make the
statements herein, in light of the circumstances in which they were made, not
misleading.
4.6 Capitalization and Shares of Shaw Common Stock. The authorized and
issued equity securities of Buyer are as set forth in the 10-K of Buyer with
respect to the period ended December 31, 1995 a copy of which, together with the
annual report of the Buyer, has been delivered to Sellers. The shares of Shaw
Common Stock to be issued to Sellers under this Agreement have been duly
authorized and, when and if issued, will be validly issued and fully paid and
nonassessable.
4.7 Brokers or Finders. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Sellers harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
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5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 Access and Investigation. Subject to the provisions of Articles 7,
8 and 9 of this Agreement which govern the parties' rights and obligations
regarding closing or termination, between the date of this Agreement and the
Closing Date, Sellers will, and will cause each Acquired Company and its
Representatives to, (a) afford Buyer and its Representatives (collectively,
"Buyer's advisors") full and free access to each Acquired Company's personnel,
properties, contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
5.2 Operation of the Businesses of the Acquired Companies. Between the
date of this Agreement and the Closing Date, Sellers will, and will cause each
Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Reasonable Efforts to preserve intact the
current business organization of such Acquired Company, keep available the
services of the current officers, employees, and agents of such Acquired
Company, and maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with such Acquired Company;
(c) confer with Buyer concerning material matters regarding the operation
of the business of the Acquired Company; and
(d) otherwise report as reasonably requested by Buyer
concerning the status of the business, operations, and finances of such Acquired
Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers will
not, and will cause each Acquired Company not to, without the prior consent of
Buyer, take any affirmative action, or fail to take any reasonable action within
their or its control, as a result of which any of the changes or events listed
in Section 3.16 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date of
this Agreement, Sellers will, and will cause each Acquired Company to, make all
filings required by Legal Requirements to be made by them in order to consummate
the Contemplated Transactions (including all filings under the HSR Act). Between
the date of this Agreement and the Closing Date, Sellers will, and will cause
each Acquired Company to, (a) cooperate with Buyer with respect to all filings
that Buyer elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b) cooperate with Buyer in
obtaining all
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consents referenced in Section 4.2 (including taking all actions requested by
Buyer to cause early termination of any applicable waiting period under the HSR
Act).
5.5 Notification. Between the date of this Agreement and the Closing
Date, each party hereto will promptly notify Buyer in writing if such party
becomes aware of any fact or condition that causes or constitutes a breach of
any of such party's representations and warranties as of the date of this
Agreement, or if such party becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, each party will promptly notify Buyer of the occurrence of any breach by
such party of any covenant or of the occurrence of any event that such party is
aware may make the satisfaction of the conditions in Sections 7 or 8 impossible
or unlikely.
5.6 Indebtedness of Related Persons. Except as expressly provided in
this Agreement, Sellers will cause all indebtedness owed to an Acquired Company
by any Seller or any Related Person of a Seller, to be paid in full prior to or
simultaneous with Closing. All indebtedness of any Acquired Company to any
Seller shall be contributed to the capital of such corporation prior to the
Closing. No debt between the Acquired Companies need be paid pursuant to this
Section 5.6.
5.7 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause each Acquired
Company and each of their Representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any Person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the Ordinary Course of Business) of any Acquired Company, or any of the
capital stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
5.8 Reasonable Efforts. Between the date of this Agreement and the Closing
Date, Sellers will use their Reasonable Efforts to cause the conditions in
Sections 7 and 8 to be satisfied.
5.9 Resale of Shaw Common Stock. Each of the Sellers hereby
acknowledges that he or she may be deemed an "affiliate" of the Acquired
Companies within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act (although nothing contained herein should be construed as an
admission of such fact) and that, if in fact such Seller were an affiliate of
the Acquired Companies under the Securities Act, his or her ability to sell,
assign or transfer the shares of Shaw Common Stock received in exchange for any
Shares pursuant to Section 2.5 hereof may be restricted unless such transaction
is registered under the Securities Act or an exemption from such registration,
such as that provided by Rules 144 and 145(d) promulgated under the Securities
Act, is available.
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Each of the Sellers hereby covenants that he or she will not sell,
assign or transfer any of the shares of Shaw Common Stock received in exchange
for Shares pursuant to Section 2.5 hereof except (i) pursuant to an effective
Registration Statement under the Securities Act, (ii) in a transaction which, in
the opinion of independent counsel reasonably satisfactory to Buyer, is not
required to be registered under the Securities Act.
Each of the Sellers understands that Buyer may instruct its transfer
agent to withhold the transfer of any shares of Shaw Common Stock, but that upon
receipt of such opinion, the transfer agent will effect the transfer of the
shares indicated as disposed of in such opinion. Each of the Sellers
acknowledges that appropriate legends will be placed on certificates
representing shares of Shaw Common Stock received pursuant to Section 2.5
hereof, which legends will be removed by delivery of substitute certificates
upon receipt of an opinion in form and substance reasonably satisfactory to
Buyer from independent counsel reasonably satisfactory to Buyer to the effect
that such legends are no longer required for purposes of the Securities Act.
5.10 Estoppels. Sellers shall obtain estoppel certificates from
affiliated landlords and use Reasonable Efforts to obtain estoppel certificates
from other landlords of the properties of the Acquired Companies, in each case
in form reasonably satisfactory to the parties hereto, it being understood,
however, that Sellers shall have no liability to Buyer whatsoever in the event
that they are not able to obtain such estoppels from the Acquired Companies'
unaffiliated Landlords.
5.11 Minor Shareholders. Sellers shall purchase all of the outstanding
Shares of any of the Acquired Companies from the holders thereof (other than
Sellers) prior to the Closing, and such holders shall have no further claim,
right or cause of action against the Acquired Companies with respect to such
Shares. Alternatively, if Seller is prevented from purchasing all of the Shares
in any of the Acquired Companies, then, and in that event, Buyer agrees to
acquire the assets or take such other action of the affected company or
companies provided that the economic and tax effect of the change in structure
is materially equivalent to Buyer. In such event, the parties shall make all
reasonable modifications as they mutually determine to be necessary and
appropriate to facilitate the foregoing.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 Approvals of Governmental Bodies. As promptly as practicable after
the date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made by it to consummate the Contemplated Transactions
(including all filings under the HSR Act). Between the date of this Agreement
and the Closing Date, Buyer will cooperate with Sellers with respect to all
filings that Sellers are required by Legal Requirements to make in connection
with the Contemplated Transactions, and (ii) cooperate with Sellers in obtaining
all consents identified in Part 3.2 of the Disclosure Schedule; provided that
this Agreement will not require Buyer to dispose of or make any change in any
portion of its business or to incur any other burden to obtain a Governmental
Authorization.
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6.2 Reasonable Efforts. Except as set forth in the proviso to Section 6.1,
between the date of this Agreement and the Closing Date, Buyer will use its
Reasonable Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6.3 Registration of Shaw Common Stock. Buyer will prepare and file with
the SEC as promptly as practicable a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act covering the maximum number
of shares of Shaw Common Stock that may be issued to the Sellers pursuant to
Section 2.5 hereof and will use Reasonable Efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable and to
maintain the Registration Statement in effect until the issuance of shares of
Shaw Common Stock to Sellers upon the exercise Stock Elections, if any, pursuant
to Section 2.5 hereof.
6.4 Repayment of Acquired Companies' Loans From Financial Institutions.
At the Closing, Buyer shall cause to be paid all working capital loans from
Michigan National Bank and any other financial institution loaning funds to the
Acquired Companies, which as of the date hereof aggregated less than
$10,000,000.00. Simultaneously, Buyer and the Company (or the Acquired
Companies, as the case may be) shall make and enter into all necessary
agreements in order to establish a credit facility to replace the company
existing Michigan National Bank facility.
7. CONDITION PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject only to the
satisfaction, at or prior to the Closing, of the following condition (which may
be waived by Buyer, in whole or in part):
7.1 Governmental Approvals. The Legal Requirements imposed under the
HSR Act shall have been fulfilled and no Proceeding shall have been instituted
by a Governmental Authority to restrain or enjoin the consummation of the
Contemplated Transactions.
8. CONDITION PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of the following condition (which may be waived by
Sellers, in whole or in part):
8.1 Governmental Approvals. The Legal Requirements imposed under the
HSR Act shall have been fulfilled and no Proceeding shall have been instituted
by a Governmental Authority to restrain or enjoin the consummation of the
Contemplated Transactions.
9. TERMINATION
9.1 Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:
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(a) (i) by Buyer if the condition in Section 7 has not been
satisfied as of the Closing Date and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if the condition in Section 8 has
not been satisfied of the Closing Date and Sellers have not waived such
condition on or before the Closing Date;
(b) by mutual consent of Buyer and Sellers; or
(c) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
September 30, 1996, or such later date as the parties may agree upon.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 11.1 and 11.3 will survive;
provided, however, that if this Agreement is terminated by a party because of
the material breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's material failure to comply with
its obligations under this Agreement, the terminating party's right to pursue
all legal remedies will survive such termination unimpaired.
9.3 Breakup Fee. In the event this Agreement is not closed because of
the breach of an obligation of Sellers or Buyer to close the Contemplated
Transactions then the Sellers, in the case of a breach by Sellers, or Buyer, in
the case of a breach by Buyer, shall pay to the nonbreaching party the sum of
$10 million immediately upon demand therefor.
10. INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by Knowledge. All
representations, warranties, covenants, and obligations in this Agreement, the
Disclosure Schedule, the certificate delivered pursuant to Section 2.4(a)(v),
and any other certificate or document delivered pursuant to this Agreement will
survive the Closing. The right to indemnification, payment of Damages or other
remedy based on such representations, warranties, covenants, and obligations
will not be affected by any investigation conducted with respect to, or any
Knowledge acquired (or capable of being acquired) 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 obligation, or as a result of the closing
of the Contemplated Transactions notwithstanding the breach of such
representation, warranty, covenant or obligation of a party hereunder. In all
cases, the representations and warranties made herein are subject to the
disclosures on the schedules to which such representations and warranties
relate.
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10.2 Indemnification and Payment of Damages by Sellers. Sellers,
jointly and severally, will indemnify and hold harmless Buyer, the Acquired
Companies, and their respective Representatives, stockholders, controlling
persons, and affiliates (collectively, the "Indemnified Persons") for, and will
pay to the Indemnified Persons the amount of, any loss, liability, claim, damage
(excluding incidental or consequential damage), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by
Sellers in this Agreement, the Disclosure Schedule or any other certificate or
document delivered by Sellers pursuant to this Agreement; or
(b) any breach by any Seller of any covenant or obligation of such Seller
in this Agreement;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller or any Acquired
Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any equitable remedies (including, without limitation, specific
performance or injunctive relief) that may be available to Buyer or the other
Indemnified Persons.
10.3 Indemnification and Payment of Damages by Sellers -- Environmental
Matters. In addition to the provisions of Section 10.2, and subject to the
provisions of Section 10.6 hereof, Sellers, jointly and severally, will
indemnify and hold harmless Buyer, the Acquired Companies, and the other
Indemnified Persons for, and will pay to Buyer, the Acquired Companies, and the
other Indemnified Persons an amount equal to fifty (50%) percent of any Damages
(including costs of cleanup, containment, or other remediation) arising,
directly or indirectly, from or in connection with any Environmental, Health,
and Safety Liabilities arising out of or relating to: (i) (A) the ownership,
operation, or condition at any time on or prior to the Closing Date of the
Facilities or any other properties and assets (whether real, personal, or mixed
and whether tangible or intangible) in which Sellers or any Acquired Company has
or had an interest, or (B) any Hazardous Materials or other contaminants that
were present on the Facilities or such other properties and assets at any time
on or prior to the Closing Date; or (ii) (A) any Hazardous Materials or other
contaminants, wherever located, that were, or were allegedly, generated,
transported, stored, treated, Released, or otherwise handled by Sellers or any
Acquired 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, or (B) any
Hazardous Activities that were, or were allegedly, conducted by Sellers or any
Acquired Company or by any other Person for whose conduct they are or may be
held responsible.
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10.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement, (b) any breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.
10.5 Time Limitations. If the Closing occurs, Sellers will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.11, 3.13 (with respect
to matters other than Tax matters) and 3.19, unless on or before two (2) years
from the Closing Date Buyer notifies Sellers of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Buyer; a
claim with respect to 3.11 and 3.13 (with respect to Tax matters) shall be made
within the applicable statute of limitation for Tax matters; and a claim with
respect to Section 3.3 or 3.19, or a claim for indemnification or reimbursement
not based upon any representation or warranty or any covenant or obligation to
be performed and complied with prior to the Closing Date, may be made at any
time. If the Closing occurs, Buyer will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before two (2) years from the Closing Date Sellers notify Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Sellers.
10.6 Limitations on Amount -- Sellers. Sellers will have no liability
(for indemnification or otherwise) with respect to the matters described in
Section 10.2 until the total of all Damages with respect to such matters exceeds
$375,000, and then only for the amount by which such Damages exceed $375,000.
However, this Section 10.6 will not apply to any intentional breach by any
Seller of any covenant or obligation, and Sellers will be jointly and severally
liable for all Damages with respect to such breaches provided that any
information set forth in the due diligence materials delivered by Sellers on or
before the date hereof shall be deemed to be not "intentional" for purposes of
this sentence.
10.7 Limitations on Amount -- Buyer. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
10.4 until the total of all Damages with respect to such matters exceeds
$375,000, and then only for the amount by which such Damages exceed $375,000.
However, this Section 10.7 will not apply any intentional breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such breaches.
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10.8 Right of Set-Off.
(a) Upon notice to Sellers specifying in reasonable detail the
basis for such set-off, Buyer may set off any amount to which it may be entitled
under this Section 10 against amounts otherwise payable under the Promissory
Notes or Earnout Agreement. The exercise of such right of set-off by Buyer in
good faith, whether or not ultimately determined to be justified, will not
constitute an event of default under the Promissory Notes or the Earnout
Agreement. Notwithstanding the foregoing sentence, in the event it is finally
determined that Buyer has exercised its right of set-off in an amount in excess
of that finally determined to be due and owing, Buyer shall reimburse Sellers
for interest on the amount inappropriately withheld or set-off at an annual rate
of 12% per annum. Neither the exercise of nor the failure to exercise such right
of set-off will constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it.
(b) Sellers shall be entitled to notify Buyer of objections to
any set-off made by Buyer, within ten days of notice of set-off, which objection
notice shall specify in reasonable detail the basis for the objection and the
amount of the set-off in dispute. The objection notice will commence the
indemnification claim and dispute resolution procedures set forth in Section
10.10 and 10.11 below. In addition, Buyer shall place into escrow an amount
equal to the set-off amount in dispute, with a clearing house bank having assets
in excess of $1,000,000,000 located in the United States to be held by such bank
as escrow agent pending the resolution of the dispute pursuant to the terms of
an escrow agreement containing customary terms and conditions. Interest on
amounts in the escrow shall be paid to Buyer, subject to Sellers' right to be
paid interest for an inappropriate set-off as contemplated by paragraph (a)
above. In the event that it is finally determined that Sellers have objected to
a set-off, which objection is in an amount in excess of that finally determined
to be due and owing, Sellers shall reimburse Buyer for interest on the amount
inappropriately placed in escrow as a result of such objection at the rate of
twelve (12%) percent per annum.
(c) During the period immediately following the delivery of an
objection notice by Sellers to Buyer with respect to any set-off, the chief
executive officer of Buyer and a representative of Sellers shall meet in an
attempt to mediate such claim without the necessity of instituting an
arbitration.
10.9 Procedure for Indemnification -- Third Party Claims.
(a) Promptly after receipt by an indemnified party under
Section 10.2, 10.3 or 10.4, of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
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(b) If any Proceeding referred to in Section 10.9(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will be
entitled to participate in such Proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such Proceeding and joint
representation would be inappropriate or (ii) the claim involves Taxes and the
Proceeding involves issues beyond or in addition to Tax issues with respect to
the Acquired Companies (in which event positions taken on behalf of the Acquired
Companies will be handled consistently with positions otherwise taken in such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification, unless
the indemnifying party shall, within forty-five days following the assumption of
the defense of such Proceeding, notify the indemnified parties that its defense
is afforded under a reservation of rights and the reasons therefor; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Sellers hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Sellers with respect to such a claim anywhere in the
world.
10.10 Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought. Prior to instituting
any action to collect any such claim for indemnification, the chief executive
officer of Buyer and a representative of Sellers shall meet in an attempt to
mediate such claim without the necessity of instituting an arbitration. Unless
otherwise reasonably necessary to fully protect a party's rights, no arbitration
shall be instituted
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until the earlier of (i) thirty (30) days from the date of notice of the claim
or (ii) the meeting of representatives described above.
10.11 Arbitration.
(a) The dispute under this Article 10, including any dispute
with respect to a setoff undertaken pursuant to Section 10.8 hereof, shall be
settled by arbitration in Atlanta, Georgia, pursuant to the commercial
arbitration rules of the American Arbitration Association. Subject to the
provisions of Section 10.10, arbitration may be commenced at any time by either
Buyer or Sellers giving written notice to the other that such dispute has been
referred to arbitration under this Section 10.11. The arbitrator or arbitrators
shall be selected by the joint agreement of Sellers and Buyer, but if they do
not so agree within fifteen (15) days after the date of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such 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 reasons 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. Either party may demand an expedited hearing for arbitration
hereunder.
(b) Each party shall pay its own expenses of arbitration and
the expenses of the arbitrator shall be equally shared, provided, however, that
in the opinion of the arbitrator the position taken by a party is unreasonable
or clearly erroneous (including any position with respect to the exercise of the
right of setoff under this Agreement) the arbitrator may assess, as part of the
award, all or part of the arbitration expenses of the other party (including
reasonable attorneys' fees) against a party making such unreasonable or clearly
erroneous claim, defense or objection.
11. GENERAL PROVISIONS
11.1 Section 338(h)(10) Election. Buyer, the Sellers, and each of the
Acquired Companies eligible to make such an election shall make an election in
accordance with the provisions of Section 338(h)(10) of the IRC, and with any
applicable provisions of state or local law, to treat the purchase of stock by
Buyer as a purchase of assets for tax purposes. Buyer, Sellers, and each
applicable Acquired Company shall execute at Closing the Corporate Qualified
Stock Purchases forms (Internal Revenue Service Forms 8023-A), and any other
such forms or documents required to effect the election under federal, state, or
local tax law. Sellers will timely file each of the Forms 8023-A with the
appropriate Internal Revenue Service Center(s) via certified mail, return
receipt requested, and will provide Buyer with copies of the Forms as filed and
the stamped certified mail receipts establishing proof of timely filing, and
shall file any such other forms or documents in accordance with any instructions
thereto. Buyer, Sellers, and each applicable Acquired Company shall execute and
timely file any other forms, statements, or other documentation required to
effect the election in the appropriate manner under federal, state, or local
law. Buyer, Sellers, and each applicable Acquired Company shall provide each
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of the other parties hereto with evidence that such other form, statement, or
other documentation has been timely filed in the appropriate manner.
11.2 Section 1362(e)(3) Election. Buyer, Sellers, and each eligible
Acquired Company agree to elect to have all items necessary in the determination
of any income, expense, deduction, credit or other amount utilized in
preparation of the federal (and, if applicable, state) tax returns of the
Sellers, and any applicable Acquired Company for the "S Termination Year" (as
that term is defined in IRC Section 1362(e)(4)) to be assigned to each such
short taxable year in the "S Termination Year" under normal tax accounting rules
in accordance with the provisions of IRC Section 1362(e)(3) and any applicable
regulations thereunder. Buyer, Sellers, and each Acquired Company shall execute
and timely file any forms, statements, or other documentation required to effect
the election in the appropriate manner. Buyer, Sellers, and each Acquired
Company shall provide each of the other parties hereto with evidence that such
form, statement, or other documentation has been timely filed in the appropriate
manner.
11.3 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Buyer will pay the HSR Act
filing fee. Sellers will cause the Acquired Companies not to incur any
out-of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.4 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer and Sellers may agree,
provided that Buyer may make any public announcement which it reasonably
believes is necessary to comply with any Legal Requirement. The parties will
consult with and seek the consent of the others to the extent reasonably
feasible under the circumstances with respect to any public announcement. Unless
consented to by Buyer in advance or required by Legal Requirements, prior to the
Closing Sellers shall, and shall cause the Acquired Companies to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person. Sellers and Buyer will consult with each other
concerning the means by which the Acquired Companies' employees, customers, and
suppliers and others having dealings with the Acquired Companies will be
informed of the Contemplated Transactions, and Buyer will have the right to be
present for any such communication.
11.5 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Acquired
Companies to maintain in confidence, any written information stamped
"confidential" when originally furnished by another party or an Acquired Company
in connection with this Agreement or the Contemplated Transactions, unless (a)
such information is already known to such party or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of such party, (b) the use of
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such information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
11.6 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to Sellers:
c/o Marvin Berlin
23840 W. Eight Mile Road
Southfield, Michigan 48034
Facsimile No.: (810) 353-0180
with a copy to:
Seyburn, Kahn, Ginn, Bess, Deitch and Serlin
2000 Town Center, Suite 1500
Southfield, Michigan 48075-1195
Attention: Bruce H. Seyburn, Esq.
Facsimile No.: (810) 353-3727
If to Shaw, to:
Shaw Industries, Inc.
P.O. Drawer 2128
Dalton, Georgia 30322-2128
Attention: Bennie M. Laughter, Esq.
Telephone: (706) 278-3812
Telecopier: (706) 275-1442
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with a copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Gabriel Dumitrescu, Esq.
Telephone: (404) 572-6600
Telecopier: (404) 572-6999
11.7 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce an arbitration award rendered pursuant to Section 10.11 of this
Agreement may be brought against any of the parties in the United States
District Court for the Northern District of Georgia, or the United States
District Court for the Eastern District of Michigan or, if jurisdiction and
venue is not proper in federal court, then the Superior Court of Fulton County,
Georgia, or the Circuit Court of Oakland County, Michigan, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
11.8 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.9 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.10 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the
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agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
11.11 Disclosure Schedule.
(a) The disclosures in the Disclosure Schedule relate only to
the representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement.
(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Schedule (other than
an exception expressly set forth as such in the Disclosure Schedule with respect
to a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
(c) No due diligence conducted by Buyer shall limit or be used
as a defense by Sellers with respect to any claim of breach of a representation,
warranty or covenant by Sellers under this Agreement.
11.12 Assignments, Successors, and No Third-Party Rights. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties except that Buyer may assign any of its rights under this
Agreement to any subsidiary of Buyer provided that such assignment shall not
relieve Buyer of any of its obligations under this Agreement. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
11.13 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.14 Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
-45-
<PAGE>
11.15 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
11.16 Governing Law. This Agreement will be governed by the laws of the
State of Georgia without regard to conflicts of laws principles.
11.17 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
11.18 Capacity, Authority and Responsibility of Trustees. Each individual
trustee of a trust constituting a "Seller" hereunder hereby:
(a) represents and warrants that such trust is duly
authorized, existing and in good standing under the laws of its jurisdiction,
has full power and authority under the terms of the trust instrument and
otherwise to execute this Agreement on behalf of the trust and to fully bind the
trust hereunder; and
(b) such individual trustee, by executing this Agreement in
the space indicated in his individual capacity, hereby covenants and agrees that
such individual is bound by this Agreement as a "Seller" hereunder to the
fullest extent as if he was a "Seller" hereunder, and that such individual
unconditionally guarantees the full and prompt payment and performance of any
and all obligations and liabilities of the trust for which such individual
serves as trustee.
11.19 Leases. Following the expiration of the Earnout Period (as
defined in the Earnout Agreement), with respect to each lease for which the
Sellers are then affiliated with the landlord thereof, Buyer shall, at its
option, provide for a four (4) year period (i) covenants to the landlord which
are commercially reasonable and consistent with industry standards to ensure the
continued viability of the Acquired Company as a tenant under such lease with
respect to rental payments and obligations, or (ii) a guaranty by Buyer of such
payments and obligations.
-46-
<PAGE>
IN WITNESS WHEREOF, the parties have executed, sealed and delivered
this Agreement as of the date first written above.
Buyer:
SHAW INDUSTRIES, INC.
By: /s/ William C. Lusk, Jr.
Title:
Sellers:
IRVING NUSBAUM REVOCABLE
TRUST UAD, MAY 4, 1977,
AMENDED AND RESTATED APRIL
30, 1984
By:/s/ Irving Nusbaum (SEAL)
IRVING NUSBAUM, as Trustee and
individually
Name (SEAL)
Trustee
FRANCIS FETTER REVOCABLE
TRUST UAD, AUGUST 16, 1990
By:/s/ Francis Fetter (SEAL)
FRANCIS FETTER, as Trustee and
individually
Name (SEAL)
Trustee
MARVIN BERLIN REVOCABLE
TRUST UAD, MAY 22, 1990
By:/s/ Marvin Berlin (SEAL)
MARVIN BERLIN, as Trustee and
individually
Name (SEAL)
Trustee
ROBERT C. NUSBAUM REVOCABLE
TRUST UAD, JANUARY 30, 1990
By:/s/ Francis Fetter (SEAL)
ROBERT C. NUSBAUM, as Trustee and
individually
Name (SEAL)
Trustee
ARTHUR S. NUSBAUM REVOCABLE
TRUST UAD, JUNE 1, 1993,
AMENDED AND RESTATED APRIL
26, 1994
By:/s/ Arthur S. Nusbaum (SEAL)
ARTHUR S. NUSBAUM, as Trustee and
individually
Name (SEAL)
Trustee
S:\N007852\SHAW\STO-PUR.CLN
-47-
<PAGE>
EXHIBIT 1
SELLERS
1. Irving Nusbaum Revocable Trust UAD, May 4, 1977, amended and restated
April 30, 1984
2. Francis Fetter Revocable Trust UAD, August 16, 1990
3. Marvin Berlin Revocable Trust UAD, May 22, 1990
4. Robert C. Nusbaum Revocable Trust UAD, January 30, 1990
5. Arthur S. Nusbaum Revocable Trust UAD, June 1, 1993, amended and
restated April 26, 1994
<PAGE>
EXHIBIT 1
DISCLOSURE SCHEDULES
[Date]
Shaw Industries, Inc.
Dalton, GA
Gentlemen:
We refer to the Stock Purchase Agreement (the "Agreement") to be entered into
today between the undersigned individuals ("Sellers") and Shaw Industries, Inc.
("Buyer") pursuant to which Sellers are to sell and Buyer is to purchase all of
the issued and outstanding capital stock of __________________ (the "Company")
as provided in the Agreement.
This letter constitutes the Disclosure Schedules referred to in Section 3 of the
Agreement. The representations and warranties of Sellers in Section 3 of the
Agreement are made and given subject to the disclosures in this Disclosure
Schedules. The disclosures in this Disclosure Schedules are to be taken as
relating to the representations and warranties in the section of the Agreement
to which they expressly relate and to no other representation or warranty in the
Agreement.
Terms defined in the Agreement are used with the same meaning in this Disclosure
Schedules. References to Appendices are to the Appendices to this Disclosure
Schedule.
By reference to Section 3 of the Agreement (using the numbering in such
Section), the following matters are disclosed:
. . . . .
<PAGE>
[NAME]
[DATE]
Page 2
[describe particularly any exceptions]
Very truly yours,
------------------------------
------------------------------
Sellers
Buyer acknowledges receipt of the Disclosure Schedule of which this is a
duplicate (including the Appendices referred to therein).
Dated:__________________________
BUYER:
By:____________________________
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(In Thousands, Except Per Share Data)
<TABLE>
EXHIBIT 11.0
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
PRIMARY: ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding ............................ 135,793 135,732 135,971 135,882
Additional shares assuming exercise of stock options .................. 0 496 87 506
------- ------- ------- -------
Weighted average common and common equivalent shares outstanding ...... 135,793 136,228 136,058 136,388
======= ======= ======= =======
Income before accounting change ....................................... $28,099 $18,673 $12,515 $23,150
Cumulative effect of accounting change, net of tax benefit ............ 0 0 0 (12,077)
------- ------- ------- -------
Net income ............................................................ $28,099 $18,673 $12,515 $11,073
======= ======= ======= =======
Earnings per common share before accounting change .................... $0.21 $0.14 $0.09 $0.17
Cumulative effect of accounting change ................................ 0.00 0.00 0.00 (0.09)
------- ------- ------- -------
Net income ............................................................ $0.21 $0.14 $0.09 $0.08
======= ======= ======= =======
FULLY DILUTED:
Weighted average common shares outstanding ............................ 135,793 135,732 135,971 135,882
Additional shares assuming exercise of stock options (2) ............. 174 731 174 741
------- ------- ------- -------
Weighted average common and common equivalent shares outstanding ...... 135,967 136,463 136,145 136,623
======= ======= ======= =======
Income before accounting change ....................................... $28,099 $18,673 $12,515 $23,150
Cumulative effect of accounting change, net of tax benefit ............ 0 0 0 (12,077)
------- ------- ------- -------
Net income ............................................................ $28,099 $18,673 $12,515 $11,073
======= ======= ======= =======
Earnings per common share before accounting change .................... $0.21 $0.14 $0.09 $0.17
Cumulative effect of accounting change ................................ 0.00 0.00 0.00 (0.09)
------- ------- ------- -------
Net income ............................................................ $0.21 $0.14 $0.09 $0.08
======= ======= ======= =======
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding during
each period.
(2) Based on the treasury stock method using the higher of the average or
period-end market price.
-13-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES
AS OF JUNE 29, 1996 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 84,272,000
<SECURITIES> 0
<RECEIVABLES> 424,830,000
<ALLOWANCES> 18,643,000
<INVENTORY> 501,405,000
<CURRENT-ASSETS> 1,029,719,000
<PP&E> 1,282,705,000
<DEPRECIATION> 652,315,000
<TOTAL-ASSETS> 1,818,359,000
<CURRENT-LIABILITIES> 365,222,000
<BONDS> 0
<COMMON> 151,223,000
0
0
<OTHER-SE> 555,645,000
<TOTAL-LIABILITY-AND-EQUITY> 1,818,359,000
<SALES> 1,443,477,000
<TOTAL-REVENUES> 1,443,477,000
<CGS> 1,143,024,000
<TOTAL-COSTS> 1,143,024,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,654,000
<INTEREST-EXPENSE> 19,699,000
<INCOME-PRETAX> 35,001,000
<INCOME-TAX> 23,972,000
<INCOME-CONTINUING> 11,029,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,515,000
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
