SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 33-63044
VALCOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2678674
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ FREEWAY, SUITE 1700, DALLAS, TEXAS 75240-2697
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 233-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES X NO
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF VALHI, INC. (FILE NO. 1-5467) AND
MEETS THE CONDITIONS SET FORTH IN THE GENERAL INSTRUCTIONS OF FORM 10-K FOR
REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
[INSIDE FRONT COVER]
Chart showing (i) Valhi's 100% ownership of Valcor, 56% ownership of NL
Industries, Inc. and 50% ownership of Waste Control Specialists LLC and (ii)
Valcor's 100% ownership of CompX International Inc. and Sybra. Inc.
PART I
ITEM 1. BUSINESS
GENERAL
Valcor, Inc. is based in Dallas, Texas with continuing operations in the
component products and fast food industries. Information regarding the
Company's business segments and the wholly-owned operating subsidiaries
conducting such businesses is set forth below. Business and geographic segment
financial information is included in Note 3 to the Consolidated Financial
Statements, which information is incorporated herein by reference.
Component Products CompX International is a leading North
CompX International Inc. American manufacturer of ergonomic office
(formerly National Cabinet workstation components, mechanical locks and
Lock, Inc.) precision ball bearing drawer slides for
furniture and other markets.
Fast Food Sybra is the third-largest franchisee of
Sybra, Inc. Arby's restaurants with 150 stores clustered
principally in Texas, Michigan, Pennsylvania
and Florida.
Valcor, a Delaware corporation formed in 1993, is a wholly-owned subsidiary
of Valhi, Inc. (NYSE: VHI). Contran Corporation holds, directly or through
subsidiaries, approximately 91% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons is Chairman of
the Board and Chief Executive Officer of the Company, Valhi and Contran, and may
be deemed to control each of such companies.
In September 1996, Medite Corporation, the Company's wholly-owned building
products subsidiary, signed three separate letters of intent involving the sale
of substantially all of its assets. The first transaction, involving the sale
of Medite's timber and timberlands, closed in October 1996 for approximately
$118 million cash consideration, of which approximately $53 million of the cash
proceeds were used to pay off and terminate Medite's U.S. bank credit
facilities. The second transaction, involving the sale of Medite's Irish medium
density fiberboard ("MDF") subsidiary, closed in November 1996 for approximately
$61.5 million cash consideration plus the assumption of approximately $21
million of Irish bank debt. The third transaction, involving the sale of
Medite's Oregon MDF facility, closed in February 1997 for approximately $36
million cash consideration plus the assumption of approximately $3.7 million of
Medite indebtedness. These three transactions generated total consideration to
Medite of approximately $240 million. Medite has also determined to permanently
close its two small Oregon timber conversion facilities. The stud lumber
facility, closed in December 1996, is being dismantled and Medite will sell the
salvageable machinery and equipment. Medite continues to operate the veneer
facility on a short-term basis and expects to either sell or close this facility
in 1997. See Note 14 to the Consolidated Financial Statements.
The Company has executed agreements involving the sale of its fast food
operations conducted by Sybra. The proposed sale would be accomplished in
simultaneous transactions that would include the sale of certain restaurant real
estate owned by Sybra to one party for $45 million cash consideration, and
Valcor's sale of 100% of the stock of Sybra to another party for approximately
$39.7 million cash consideration, of which approximately $23.7 million would be
used to repay Sybra bank indebtedness. These transactions are subject to, among
other things, completion of customary due diligence procedures, the purchaser of
Sybra's stock obtaining necessary financing for the transaction and certain
consents from third parties. If completed, the transactions are expected to
close in the second quarter of 1997, at which time the Company estimates it
would report a pre-tax gain on disposal in excess of $24 million. There can be
no assurance that any such transactions will be completed.
COMPONENT PRODUCTS - COMPX INTERNATIONAL INC.
Products, operations and properties. CompX International Inc. (formerly
National Cabinet Lock, Inc.) manufactures ergonomic office workstation
components, precision ball bearing drawer slides and low and medium-security
mechanical locks for furniture and a variety of other applications. In 1996,
ergonomic workstation products accounted for 34% of the Company's total
component products sales, with drawer slides at 38% and locks at 28%. Drawer
slides and office workstation components are produced in two separate facilities
in Kitchener, Ontario under the Waterloo Furniture Components, Limited name.
Locks are produced in Mauldin, South Carolina under the National Cabinet Lock
name. The Company believes its component products compete in relatively well-
defined niche markets and believes that it is (i) the largest supplier of
ergonomic office workstation components to the North American office furniture
manufacturing market, (ii) the largest Canadian producer of drawer slides and
(iii) the largest U.S. cabinet lock producer.
Strip steel is the major raw material used in the manufacture of drawer
slides and office workstation products. Purchased components, including zinc
castings, are the principal raw materials used in the manufacture of latching
and security products. These raw materials, purchased from several suppliers
and readily available, are machined, electroplated, assembled and packaged for
shipment to customers. One of the Kitchener facilities and the Mauldin facility
are ISO 9001-registered.
Strategy. CompX's strategy is to continue to improve manufacturing
efficiency and cost control, to develop specialty, patented products focused on
niche markets and to capitalize on future opportunities which may emerge with
targeted original equipment manufacturers. The Company will also search for
synergistic acquisitions or product licensing to expand its product base and
seek to expand its established market positions by emphasizing customer service,
promoting its distribution programs and seeking greater penetration of current
markets.
Competition and customer base. CompX competes primarily on the basis of
product features, customer service, quality, distribution channels, consumer
brand preferences and price. The primary market for drawer slides and
workstation products is office furniture manufacturers in the United States and
Canada. Approximately 30% of lock sales are made through the Company's STOCK
LOCKS distribution program, a program believed to offer a competitive advantage
because delivery generally is made within 48 hours. Most remaining lock sales
are to original equipment manufacturers' specifications. Component products are
marketed primarily through the Company's own sales organization as well as
select manufacturers' representatives.
Major competitors include Weber Knapp (workstations), Accuride and Knape &
Vogt (drawer slides) and Chicago Lock, Hudson Lock and Fort Lock (locks). CompX
also competes with a large number of other manufacturers, and the variety of
relatively small competitors generally makes significant price increases
difficult. The Company does not believe it is dependent upon one or a few
customers, the loss of which would have a material adverse effect on its
component products operations. The ten largest customers accounted for about
one-third of component products sales in each of the past three years, with the
largest customer less than 10% in each year. In 1996, six of the ten largest
customers were located in the U.S. with four located in Canada. Of such
customers, all were primarily purchasers of Waterloo Furniture Components'
products.
Patents and trademarks. CompX holds a number of patents relating to its
component products operations, none of which by itself is considered
significant, and owns a number of trademarks, including National Cabinet Lock,
STOCK LOCKS and Waterloo Furniture Components, Limited, which the Company
believes are well recognized in the component products industry.
Employees. As of December 31, 1996, CompX employed approximately 820
persons, of which 260 were in the United States and 560 were in Canada.
Approximately two-thirds of Canadian employees are covered by a new three-year
collective bargaining agreement expiring February 2000. CompX believes that its
labor relations are satisfactory.
Regulatory and environmental matters. CompX's operations are subject to
various federal, state, provincial and local provisions regulating, among other
things, worker and product safety and protection, the discharge of materials
into the environment and other environmental protection matters. CompX believes
it is in substantial compliance with existing permits and regulations and does
not believe future expenditures to comply with these regulations will be
material.
FAST FOOD - SYBRA, INC.
Products and operations. Sybra (Arby's spelled backwards) operated 150
Arby's restaurants at December 31, 1996 clustered in four regions, principally
in Michigan (46 stores), Texas (57), Pennsylvania (27) and Florida (20),
pursuant to licenses with Arby's, Inc. According to information provided by
Arby's, Sybra is the third-largest franchisee in the Arby's restaurant system
based upon the number of restaurants operated and gross sales. Arby's is a
well-established fast food restaurant chain and features a menu that highlights
roast beef sandwiches along with a variety of chicken sandwiches and products,
deli sandwiches, potato products and soft drinks. Sybra's menu selections have
expanded over the past few years whereby roast beef accounts for approximately
two-thirds of sandwich sales compared to 80% five years ago.
Sybra's 150 Arby's restaurants at the end of 1996 represent a net decrease
of ten stores in the past three years (17 opened; 27 closed), during which
period Sybra also remodeled several of its older stores. The stores closed in
the past three years all represented underperforming leased units which
generally were closed at the end of their respective lease terms. Sybra
currently expects a net increase of about three stores in 1997, as it plans to
open six new restaurants and close at least three more underperforming stores.
The Company has executed agreements involving the sale of Sybra's fast food
operations. See "Business-General" and Note 13 to the Consolidated Financial
Statements.
Strategy. Given the extremely competitive environment in which Sybra
operates, Sybra will continue its strong emphasis on operational details and
routinely review the profit contribution of each restaurant with a view toward
closing those stores which do not meet expectations.
Properties. At the end of 1996, approximately 80% of Sybra's 150 Arby's
restaurants were free-standing stores with the remainder located within shopping
malls or strip shopping centers. Approximately 60% of total locations are
leased, with most leases being on a long-term basis and providing for base
monthly rents plus contingent rents based on sales. In most cases, Sybra
expects that leases could be renewed or replaced by other leases, although
rental rates may increase. Contingent rentals based upon various percentages of
gross sales of individual restaurants were less than 10% of Sybra's total rent
expense in each of the past three years. Sybra also leases corporate or
regional office space in five states.
Under the terms of Sybra's current Development Agreement with Arby's, Sybra
has been given the exclusive right to open new Arby's units within certain
counties in Pennsylvania, in return for which Sybra has agreed to open a minimum
of 25 new stores during 1997 through 2001 in its existing regions (four in 1997,
six in 1998 and five each in 1999, 2000 and 2001), of which ten must be located
in Pennsylvania. Sybra currently plans to open six new units in 1997, or two
more than the minimum required. Sybra does not have any other exclusive
territorial or development agreements which would prohibit others from operating
an Arby's restaurant in the general geographic markets in which Sybra now
operates, although each store is given certain narrow geographical protection
(generally a one to four mile radius) from other Arby's units.
Food products and supplies. Sybra and other Arby's franchisees are members
of ARCOP, Inc., a non-profit cooperative purchasing organization which
facilitates negotiations of national contracts for food and distribution, taking
advantage of the larger purchasing requirements of the member franchisees.
Since Arby's franchisees are not required to purchase any food products or
supplies from Arby's, Inc., ARCOP facilitates control over food supply costs and
avoids franchisor conflicts of interest.
License terms and royalty fees. Generally, franchise agreements relating
to each restaurant location require that Sybra comply with certain requirements
as to business operations and facility maintenance. Currently, Sybra pays an
initial franchise fee of $25,000 and a royalty rate equal to 4% of sales for a
standard 20-year license. Because some of Sybra's licenses were issued at times
when license terms were perpetual and lower royalty rates were in effect, 43% of
Sybra's franchise agreements have no fixed termination date and royalties for
all locations aggregated 2.8% to 2.9% of sales in each of the past three years.
Sybra's average royalty rate would be expected to increase over time if new
stores are opened, older stores are closed and existing 20-year licenses are
renewed at then-prevailing higher royalty rates. The first of Sybra's 20-year
licenses expires in 2003.
Advertising and marketing. Sybra directs about 8% of sales towards
marketing. All franchisees of Arby's, Inc. must belong to AFA Service
Corporation ("AFA"), a non-profit association of Arby's restaurant operators,
and must contribute a specified portion (currently .7%) of their gross revenues
as dues to AFA. In return, AFA provides franchisees with creative materials
such as television and radio commercials, ad mats for newspapers, point-of-
purchase graphics and other advertising materials. Sybra also devotes
approximately 3% of sales to coupon sales promotions, including the direct cost
of discounted food, and newspaper and direct mail inserts, and approximately 4%
of its restaurant sales to local advertising.
Competition and seasonality. The fast food industry is extremely
competitive and subject to pressures from major business cycles and competition
from many established and new restaurant concepts. According to industry data,
there is a significant disparity in the revenues and number of restaurants
operated by the largest restaurant systems and the Arby's system. As a result,
some organizations and franchised restaurant systems have significantly greater
resources for advertising and marketing than the Arby's restaurant system or
Sybra, which is an important competitive factor. Sybra's response to these
competitive factors has been to cluster its stores in certain geographic areas
where it can achieve economies of scale in advertising and other activities.
Operating results of Sybra's restaurants have been affected by both retail
shopping patterns and weather conditions. Accordingly, Sybra has experienced
its most favorable results during the fourth calendar quarter (which includes
the holiday shopping season) and its least favorable results during the first
calendar quarter (which includes winter weather that can be adverse in certain
markets).
Employees. As of December 31, 1996, Sybra had approximately 3,700
employees, of which 3,100 were part-time employees. Approximately 3,600
employees work in Sybra's restaurants with the remainder in its corporate or
regional offices. Employees are not covered by collective bargaining agreements
and Sybra believes that its employee relations are satisfactory.
Governmental regulation. A significant portion of Sybra's restaurant
employees work on a part-time basis and are paid at rates related to the minimum
wage rate. Restaurant labor costs currently approximate 29% of sales. The two-
step, 90-cent increase in the minimum wage rate which became effective October
1, 1996 increased Sybra's labor costs. Sybra concurrently implemented certain
price increases to offset the impact of the first step of the October 1, 1996
wage rate increase. Any further increase in the minimum wage rate or
legislation requiring mandatory medical insurance benefits to part-time
employees would further increase Sybra's labor costs. Although Sybra's
competitors would likely experience similar increases, there can be no assurance
that further increases in sales prices can be implemented to offset future
increases in these costs.
Various federal, state and local laws affect Sybra's restaurant business,
including laws and regulations relating to minimum wages, overtime and other
working conditions, health, sanitation, employment and safety standards and
local zoning ordinances. Sybra has not experienced and does not anticipate
unusual difficulties in complying with such laws and regulations.
DISCONTINUED OPERATIONS - MEDITE CORPORATION
In September 1996, Medite determined to dispose of substantially all of its
assets in three separate transactions. Medite sold its U.S. timber and
timberlands in October 1996, its Irish MDF subsidiary in November 1996 and its
Oregon MDF facility in February 1997. Medite has also determined to permanently
close its two small Oregon timber conversion facilities. The stud lumber
facility, closed in December 1996, is being dismantled and Medite will sell the
salvageable machinery and equipment. Medite continues to operate the veneer
facility on a short-term basis and expects to either sell or close this facility
in 1997. After the sale of the Oregon MDF facility and the sale or closure of
the two Oregon timber conversion facilities, Medite will have no remaining
operating assets. See Note 14 to the Consolidated Financial Statements.
At December 31, 1996, Medite employed approximately 270 persons in the U.S.
Following the sale of the Oregon MDF facility and the sale or closure of the
veneer facility, Medite will have a nominal number of employees remaining.
FOREIGN OPERATIONS:
CompX currently has certain operations and assets located in Canada. Prior
to November 1996, Medite had certain operations and assets located in Ireland.
See Note 3 to the Consolidated Financial Statements. Foreign operations are
subject to, among other things, currency exchange rate fluctuations and the
Company's results of operations have in the past been both favorably and
unfavorably affected by fluctuations in currency exchange rates. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CompX's Canadian subsidiary has, from time-to-time, entered into short-term
forward currency contracts to mitigate exchange rate fluctuation risk for a
portion of its sales denominated in various currencies. No such contracts were
outstanding during 1996.
ITEM 2. PROPERTIES
The principal properties used in the operations of the Company are
described in the applicable business sections of Item 1 - "Business." The
Company believes that its facilities are adequate and suitable for their
respective uses.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is contained in Note 13 to the
Consolidated Financial Statements ("Commitments and contingencies -- Legal
proceedings and -- Environmental matters,"), which information is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to the General Instructions of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Valcor's common stock is held by Valhi. The Indenture governing
Valcor's 9 5/8% Senior Notes Due 2003 generally limits dividends or other
distributions to Valhi to 50% of the Company's consolidated net income, as
defined. Valcor currently expects to continue to pay the dividends as permitted
by the Indenture, however declaration and payment of future dividends and the
amount thereof is dependent upon the Company's results of operations, financial
condition, cash requirements for its businesses and other factors deemed
relevant by the Company's Board of Directors. See Note 5 to the Consolidated
Financial Statements. At December 31, 1996, no amounts were available for
dividends to Valhi.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Discontinued operations represent the results of operations of
Medite Corporation. See Note 14 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Component products $ 54.0 $ 64.4 $ 70.0 $ 80.2 $ 88.7
Fast food 103.8 111.6 115.5 115.4 116.0
$157.8 $176.0 $185.5 $195.6 $204.7
Operating income:
Component products $ 10.7 $ 17.5 $ 20.9 $ 19.9 $ 22.1
Fast food 8.5 9.7 9.0 7.5 8.9
19.2 27.2 29.9 27.4 31.0
Other, net .1 (.1) (.1) (.3) 1.2
Interest expense (2.0) (3.3) (11.1) (11.8) (11.7)
Income before income taxes 17.3 23.8 18.7 15.3 20.5
Income taxes 6.8 10.4 5.9 6.4 8.5
Income from continuing operations 10.5 13.4 12.8 8.9 12.0
Discontinued operations 14.6 14.9 18.3 10.6 39.0
Accounting changes .9 - - - -
Net income $ 26.0 $ 28.3 $ 31.1 $ 19.5 $ 51.0
Cash dividends (1) $ 21.1 $148.9 $ 9.6 $ 8.3 $ .4
BALANCE SHEET DATA (AT YEAR END):
Current assets $ 69.0 $ 70.6 $ 90.6 $ 94.0 $177.8
Total assets 256.0 272.5 320.7 327.6 289.0
Current liabilities 50.4 46.7 54.8 56.1 73.1
Long-term debt 45.1 185.7 201.8 198.6 108.5
Stockholder's equity 134.7 13.9 34.9 44.2 94.4
</TABLE>
[FN]
(1) Dividends in 1993 include $135 million paid from proceeds of new long-term
borrowings.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company reported income from continuing operations of $12.7 million in
1994, $8.9 million in 1995 and $12 million in 1996. Discontinued operations
represent the results of operations of Medite Corporation, and in 1996 includes
(i) an aggregate fourth quarter $49 million after-tax gain on disposal ($75
million pre-tax) related principally to the sale of Medite's U.S. timber and
timberland assets and its Irish MDF subsidiary and (ii) a $15 million first
quarter after-tax charge ($24 million pre-tax) related to closure of its New
Mexico MDF operations. See Note 14 to the Consolidated Financial Statements.
The statements in this Annual Report on Form 10-K relating to matters that
are not historical facts including, but not limited to, matters found in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that involve risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to, future supply and demand for the Company's products
(including cyclicality thereof), general economic conditions, competitive
products, customer and competitor strategies, the impact of pricing and
production decisions, environmental matters, government regulations and possible
changes therein, the ultimate resolution of pending litigation and possible
future litigation, completion of pending asset/business unit dispositions and
other risks and uncertainties discussed elsewhere herein.
COMPONENT PRODUCTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
1994 1995 1996 1994-95 1995-96
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales $70.0 $80.2 $88.7 +15% +11%
Operating income 20.9 19.9 22.1 - 5% +11%
Operating income margin 30% 25% 25%
</TABLE>
Sales increased in both 1995 and 1996 compared to the respective prior year
due primarily to higher volumes in the office workstation component and drawer
slide lines. Drawer slide sales increased 18% in 1996 compared to 1995 and
workstation component products were up 14%. Both office workstation components
and drawer slide lines reported new highs in sales in each of the past three
years. Lock volumes from a government contract completed in early 1995 have
only been partially replaced, and consequently lock sales declined about 5% in
1996 compared to 1995. The Company signed a new $650,000 contract with the same
government agency in December 1996, with shipments scheduled to be delivered in
the first nine months of 1997. Operating income margins in 1995 were impacted
by higher raw material costs, as competitive pressures prevented full recovery
through higher selling prices, as well as costs associated with integrating the
operations of a Canadian competitor acquired in August 1995.
The new three-year collective bargaining agreement effective February 1997
covering CompX's Canadian employees provides for, among other things, wage rate
increases of 2.5% to 3% per year.
About 60% of the Company's component products sales are generated by its
Canadian operations. About two-thirds of these Canadian-produced sales are
denominated in U.S. dollars while substantially all of the related costs are
incurred in Canadian dollars. Consequently, relative changes in the U.S.
dollar/Canadian dollar exchange rate impact operating results. Fluctuations in
the value of the U.S. dollar relative to the Canadian dollar favorably impacted
operating results in 1995 compared with 1994 and unfavorably impacted 1996
operating results compared with 1995.
FAST FOOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
1994 1995 1996 1994-95 1995-96
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales $115.5 $115.4 $116.0 - 0% + 1%
Operating income 9.0 7.5 8.9 -17% +18%
Operating income margin 8% 7% 8%
Arby's units operated:
At end of year 162 158 150 - 2% - 5%
Average during the year 159 158 152 - 1% - 4%
</TABLE>
Comparable store sales increased 2% in 1996 compared to 1995. Operating
income and margins improved due to successful marketing promotions, reduced
training and recruiting costs associated with the slower rate of opening new
stores in 1996 and closure of certain under-performing units. Excluding the
effect of a 53rd week in 1994, comparable store sales were relatively flat in
1995 compared to 1994, and margins in 1995 were adversely impacted by higher
labor costs and discounts associated with competitive promotions.
A significant portion of Sybra's restaurant employees work on a part-time
basis and are paid at rates related to the minimum wage rate. Restaurant labor
costs currently approximate 29% of sales. The two-step, 90-cent increase in the
minimum wage rate which became effective October 1, 1996 increased Sybra's labor
costs. Sybra concurrently implemented certain price increases to offset the
impact of the first step of the October 1, 1996 wage rate increase. Any further
increase in the minimum wage rate or legislation requiring mandatory medical
insurance benefits to part-time employees would further increase Sybra's labor
costs. Although Sybra's competitors would likely experience similar increases,
there can be no assurance that further increases in sales prices can be
implemented to offset future increases in these costs.
Sybra opened 17 new stores during the past three years (one in 1996).
Sybra continually evaluates the profitability of its individual restaurants,
closed 27 stores during the past three years (9 in 1996) and intends to continue
to close unprofitable stores when appropriate. Costs associated with store
closings were $1.4 million in 1994, $.9 million in 1995 and $1.2 million in
1996. Sybra currently expects a net increase of about three stores in 1997 as
it plans to open six new stores and close at least three underperforming units.
The first new unit for 1997 is currently under construction and is scheduled to
open by the end of the first quarter.
The Company has executed agreements involving the sale of its fast food
operations conducted by Sybra. See Note 13 to the Consolidated Financial
Statements. If completed, the transactions are expected to close in the second
quarter of 1997, at which time the Company estimates it would report a pre-tax
gain on disposal in excess of $24 million. There can be no assurance that any
such transactions will be completed.
OTHER
Interest expense charged to continuing operations was $11.1 million in
1994, $11.8 million in 1995 and $11.7 million in 1996. At December 31, 1996,
approximately $109 million of the Company's indebtedness (principally the Valcor
Senior Notes) bears interest at fixed rates averaging 9.6%. The average
interest rate on approximately $1 million of floating rate subsidiary borrowings
outstanding at December 31, 1996 was 6.9%, compared to average variable interest
rates of 7.5% at December 31, 1995 and 7.8% at December 31, 1994.
Income tax rates vary by jurisdiction (country and/or state), and relative
changes in the geographic source of the Company's pre-tax earnings, and in the
related availability and usage of foreign tax credits, can result in
fluctuations in the Company's consolidated effective income tax rate. In
addition, in 1995 the effective income tax rate was favorably impacted by a $1
million reduction in accumulated deferred income taxes resulting from enactment
of a new U.S./Canadian tax treaty. See Note 11 to the Consolidated Financial
Statements.
Discontinued operations represent the results of operations of Medite
Corporation. See Note 14 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flows from operating activities. Cash flow from operating activities
attributable to continuing operations before changes in assets and liabilities
was $21 million in 1994, $18 million in 1995 and $21 million in 1996. Changes
in assets and liabilities used cash in each of the past three years and resulted
primarily from the timing of production, sales and purchases.
Cash flows from investing activities. Capital expenditures during the past
three years aggregated $36.6 million. Capital expenditures in 1996 were lower
than in 1995 and 1994 due primarily to lower spending by Sybra for new stores.
Capital expenditures for CompX and Sybra are estimated to increase to
approximately $14 million in 1997 due primarily to higher spending by Sybra for
new stores, and are expected to be financed primarily from the respective
subsidiary's operations or credit facilities.
CompX acquired the assets of a Canadian workstation and drawer slide
competitor for approximately $6 million in 1995. The Company continues to
explore additional expansion and/or acquisition opportunities for its component
products business.
Cash flows from financing activities. Net borrowings (repayments) of
indebtedness in each of the past three years relate primarily to changes in the
outstanding balance of Sybra's revolving bank credit facilities, primarily in
relation to Valcor's overall cash management activities. At December 31, 1996,
unused credit available under existing CompX and Sybra credit facilities
approximated $5 million and $28 million, respectively.
Cash flows from discontinued operations. Condensed cash flow data for
Medite is presented in Note 14 to the Consolidated Financial Statements. Under
the terms of the Internal Revenue Code and similar state regulations regarding
the timing of estimated tax payments, the Company is not required to pay income
taxes related to Medite's 1996 sales of its timber and timberlands and Irish MDF
subsidiary to such authorities until 1997. At that time, the payment of such
income taxes (approximately $38 million) will be shown as a reduction in cash
flows from operating activities even though the pre-tax proceeds from
dispositions of such assets are shown as part of cash flows from investing
activities.
Medite has made certain representations and warranties to the purchasers of
its timber and timberlands, Irish MDF subsidiary and Oregon MDF facility
concerning, among other things, the assets sold. Such representations are
customary in transactions of these types. Medite has agreed to indemnify the
three purchasers for up to an aggregate of $6.5 million for certain breaches of
these representations and warranties. As part of the transactions, Valhi has
agreed to guarantee Medite's indemnification obligations. The Company does not
currently expect to be required to perform under any of these indemnification
obligations.
Other. At December 31, 1996, assets held for sale consist principally of
the land, property and equipment from Medite's stud lumber facility closed in
December 1996 and land from another former Medite facility. The stud lumber
facility is being dismantled, and Medite will sell the salvageable machinery and
equipment in 1997. Medite also currently expects to dispose of the land from
the other former facility in 1997 for cash consideration approximating its net
carrying value.
Valcor's continuing operations are conducted through its subsidiaries
(CompX and Sybra). Accordingly, Valcor's long-term ability to meet its parent
company level obligations (principally debt service on the Senior Notes) is
largely dependent on the receipt of dividends or other distributions from its
subsidiaries. Various subsidiary credit agreements contain customary
limitations on the payment of dividends, typically a percentage of net income or
cash flow. Valcor has not guaranteed any indebtedness of its subsidiaries. See
Note 5 to the Consolidated Financial Statements. The Company believes that
future distributions from its subsidiaries, together with the after-tax proceeds
of the Medite asset sales, will be sufficient to enable Valcor to meet its
obligations. Valcor dividends to Valhi are generally limited to 50% of
consolidated net income, as defined in the Senior Notes Indenture. At December
31, 1996, no amounts were available for dividends to Valhi.
The Company routinely compares its liquidity requirements and alternative
uses of capital against the estimated future cash flows to be received from its
subsidiaries and the estimated sales value of those units. As a result of this
process, the Company may in the future seek to raise additional capital,
refinance or restructure indebtedness, repurchase indebtedness in the market or
otherwise, modify its dividend policy, consider the sale of interests in
subsidiaries, business units or other assets, or take a combination of such
steps or other steps, to increase liquidity, reduce indebtedness and fund future
activities. The Company may also evaluate acquisitions of interests in, or
combinations with, companies related to its current businesses. The Company and
its subsidiaries intend to consider such acquisition activities in the future
and, in connection with this activity, may consider issuing additional equity
securities and increasing the indebtedness of the Company and its subsidiaries.
In this regard, the Valcor Senior Notes Indenture contains limitations on the
ability of the Company and its subsidiaries to incur indebtedness or hold
noncontrolling interests in business units. See Note 5 to the Consolidated
Financial Statements.
The after-tax proceeds from the disposition of Medite (including amounts to
be received in 1997 following the disposition of Medite's remaining operating
assets), net of repayments of Medite's debt, is available for Valcor's general
corporate purposes, subject to compliance with certain covenants contained in
the Valcor Senior Note Indenture. At December 31, 1996, Valcor had cash, cash
equivalents and demand loans to subsidiaries of approximately $140 million, a
portion of which will be used to pay cash income taxes in 1997 related to
Medite's 1996 asset disposals as discussed above. Also under the terms of the
Indenture, Valcor is required to tender for a portion of the Valcor Notes, at
par, to the extent that a specified amount of these proceeds is not used to
either permanently paydown senior indebtedness of Valcor or its subsidiaries or
invest in related businesses, both as defined in the Indenture, within one year
of disposition. While Valcor is not yet required to execute a tender offer
related to Medite's asset dispositions, on March 20, 1997, Valcor announced it
had initiated a tender offer whereby Valcor would purchase up to $86.7 million
principal amount of Valcor Notes on a pro-rata basis, at par value, in
satisfaction of the covenant contained in the Indenture. Pursuant to its terms,
the tender offer will expire on April 24, 1997, unless extended by Valcor. The
amount of Valcor Notes which will ultimately be purchased by Valcor pursuant to
the tender offer is dependent upon the amount of Valcor Notes properly tendered.
Consequently, there can be no assurance as to the amount of Valcor Notes which
will ultimately be purchased by Valcor. The net proceeds from any disposition
of the Company's fast food operations, net of repayments of Sybra's bank
indebtedness, would similarly be available for Valcor's general corporate
purposes. If the disposition of the Company's fast food operations is completed
and none of those net proceeds are used as provided by the Indenture, a portion
of the Notes would be subject to a subsequent tender offer.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to the General Instructions of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to the General Instructions of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to the General Instructions of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to the General Instructions of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d)Financial Statements and Schedules
The consolidated financial statements and schedules listed on the
accompanying Index of Financial Statements and Schedules (see
page F-1) are filed as part of this Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K filed for the quarter ended December 31,
1996.
October 25, 1996 - Reported Items 5 and 7.
October 31, 1996 - Reported Items 5 and 7.
November 20, 1996 - Reported Items 5 and 7.
December 31, 1996 - Reported Items 2 and 7.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit Index.
Valcor will furnish a copy of any of the exhibits listed below
upon payment of $4.00 per exhibit to cover the costs to Valcor of
furnishing the exhibits. Instruments defining the rights of
holders of long-term debt issues which do not exceed 10% of
consolidated total assets will be furnished to the Commission
upon request.
ITEM NO. EXHIBIT INDEX
3.1 Certificate of Incorporation of the Registrant -
incorporated by reference to Exhibit 3.1 to a
Registration Statement on Form S-1 (No. 33-63044)
filed by the Registrant.
3.2 By-Laws of the Registrant - incorporated by reference
to Exhibit 3.2 to a Registration Statement on Form S-1
(No. 33-63044) filed by the Registrant.
4.1 Indenture dated November 1, 1993 governing the Valcor,
Inc. 9 5/8% Senior Notes Due 2003, including form of
Note - incorporated by reference to Exhibit 4.1 of a
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 filed by the Registrant (File No.
33-63044).
10.1 Form of Intercorporate Services Agreement between the
Registrant and Valhi - incorporated by reference to
Exhibit 10.1 to a Registration Statement on Form S-1
(No. 33-63044) filed by the Registrant.
10.2 Form of License Agreement between Arby's, Inc. and
Sybra, Inc. - incorporated by reference to Exhibit
10.5 to a Registration Statement on Form S-1 (No. 33-
63044) filed by the Registrant.
10.3 Development Agreement dated November 13, 1996 between
Arby's, Inc. and Sybra, Inc.
10.4 Asset Purchase Agreement between Medite Corporation
and Rogue Resources LLC dated October 7, 1996 -
incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q (File No.
33-63044) for the quarter ended September 30, 1996.
10.5 Share Subscription and Redemption Agreement among
Medite Corporation, Willamette Industries, Inc. and
Medford International Holdings dated November 4, 1996
- incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q (File No.
33-63044) for the quarter ended September 30, 1996.
10.6 Asset Purchase Agreement between Medite Corporation
and SierraPine, a California limited partnership,
dated January 31, 1997.
10.7 Asset Purchase Agreement between Sybra, Inc., Valcor,
Inc. and U.S. Restaurant Properties Master L.P. dated
December 23, 1996.
10.8 Stock Purchase Agreement between Valcor, Inc. and
I.C.H. Corporation dated February 7, 1997.
27.1 Financial Data Schedule for the year ended December
31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VALCOR, INC.
(Registrant)
By: /s/ Harold C. Simmons
Harold C. Simmons, March 20, 1997
(President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Harold C. Simmons /s/ Glenn R. Simmons
Harold C. Simmons, March 20, 1997 Glenn R. Simmons, March 20, 1997
(Chairman of the Board, President and (Vice Chairman of the Board)
Chief Executive Officer)
/s/ Robert W. Singer /s/ Bobby D. O'Brien
Robert W. Singer, March 20, 1997 Bobby D. O'Brien, March 20, 1997
(Vice President and Director) (Vice President,
Principal Financial Officer)
/s/ Gregory M. Swalwell
Gregory M. Swalwell, March 20, 1997
(Controller,
Principal Accounting Officer)
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS PAGE
Reports of Independent Accountants F-2/F-3
Consolidated Balance Sheets - December 31, 1995 and 1996 F-4/F-5
Consolidated Statements of Income -
Years ended December 31, 1994, 1995 and 1996 F-6
Consolidated Statements of Stockholder's Equity -
Years ended December 31, 1994, 1995 and 1996 F-7
Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1995 and 1996 F-8/F-9
Notes to Consolidated Financial Statements F-10/F-27
FINANCIAL STATEMENT SCHEDULES
Reports of Independent Accountants S-1/S-2
Schedule I - Condensed financial information of Registrant S-3/S-7
Schedule II - Valuation and qualifying accounts S-8
Schedules III and IV are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of Valcor, Inc.:
We have audited the accompanying consolidated balance sheets of Valcor,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Medite Corporation as
of December 31, 1995 and for each of the two years in the period ended December
31, 1995, which constituted approximately three-fifths of consolidated assets as
of December 31, 1995, and whose results of operations are reported as
discontinued operations in the accompanying consolidated statements of income.
These statements were audited by another auditor whose report thereon has been
furnished to us, and our opinion, insofar as it relates to such amounts included
for Medite, is based solely upon their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of another auditor provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of another auditor,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Valcor, Inc. as of December 31,
1995 and 1996, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 7, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Medite Corporation:
We have audited the consolidated balance sheet of Medite Corporation as of
December 31, 1995, and the related consolidated statements of income, redeemable
preferred stock and common stockholder's equity and cash flows for each of the
two years in the period ended December 31, 1995 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements (not presented
separately herein) referred to above present fairly, in all material respects,
the consolidated financial position of Medite Corporation as of December 31,
1995, and the consolidated results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 27, 1996
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,618 $136,054
Accounts receivable, net of allowance of $800
and $274 30,949 15,535
Receivable from affiliates 3,538 178
Inventories 36,385 18,222
Prepaid expenses 3,105 2,667
Deferred income taxes 2,409 5,160
Total current assets 94,004 177,816
Other assets:
Timber and timberlands 53,099 -
Intangible assets 18,145 16,272
Other 8,630 7,006
Total other assets 79,874 23,278
Property and equipment:
Land 22,290 19,537
Buildings 50,007 38,572
Equipment 184,240 103,005
Construction in progress 8,393 2,492
264,930 163,606
Less accumulated depreciation 111,216 75,684
Net property and equipment 153,714 87,922
$327,592 $289,016
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
1995 1996
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 12,383 $ 1,224
Accounts payable 19,933 14,248
Accrued liabilities 21,470 25,566
Payable to affiliates 17 30,967
Income taxes 2,275 1,070
Total current liabilities 56,078 73,075
Noncurrent liabilities:
Long-term debt 198,584 108,458
Deferred income taxes 24,461 8,717
Other 4,245 4,376
Total noncurrent liabilities 227,290 121,551
Stockholder's equity:
Preferred stock, $1 par value; 1,000 shares
authorized; none issued - -
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 520 520
Retained earnings 45,871 96,524
Adjustments:
Pension liabilities (2,198) (2,533)
Currency translation 30 (122)
Total stockholder's equity 44,224 94,390
$327,592 $289,016
</TABLE>
[FN]
Commitments and contingencies (Notes 13 and 14)
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994* 1995* 1996
<S> <C> <C> <C>
Revenues and other income:
Net sales $185,522 $195,608 $204,717
Other income, net 1,279 1,045 2,237
186,801 196,653 206,954
Costs and expenses:
Cost of sales 142,807 153,755 159,334
Selling, general and administrative 14,159 15,741 15,482
Interest 11,124 11,802 11,680
168,090 181,298 186,496
Income before income taxes 18,711 15,355 20,458
Provision for income taxes 5,960 6,416 8,443
Income from continuing operations 12,751 8,939 12,015
Discontinued operations 18,347 10,607 39,021
Net income $ 31,098 $ 19,546 $ 51,036
</TABLE>
[FN]
* Reclassified.
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
<S> <C> <C> <C>
Balance at December 31, 1993 $1 $520 $13,095
Net income - - 31,098
Dividends - - (9,570)
Other, net - - -
Balance at December 31, 1994 1 520 34,623
Net income - - 19,546
Dividends - - (8,298)
Other, net - - -
Balance at December 31, 1995 1 520 45,871
Net income - - 51,036
Dividends - - (383)
Other, net - - -
Balance at December 31, 1996 $1 $520 $96,524
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS
TOTAL
PENSION CURRENCY STOCKHOLDER'S
LIABILITIES TRANSLATION EQUITY
<S> <C> <C> <C>
Balance at December 31, 1993 $ - $ 235 $13,851
Net income - - 31,098
Dividends - - (9,570)
Other, net - (529) (529)
Balance at December 31, 1994 - (294) 34,850
Net income - - 19,546
Dividends - - (8,298)
Other, net (2,198) 324 (1,874)
Balance at December 31, 1995 (2,198) 30 44,224
Net income - - 51,036
Dividends - - (383)
Other, net (335) (152) (487)
Balance at December 31, 1996 $(2,533) $(122) $94,390
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994* 1995* 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,098 $ 19,546 $ 51,036
Depreciation, depletion and amortization 7,681 8,234 8,456
Deferred income taxes (599) (714) (1,270)
Discontinued operations (18,347) (10,607) (39,021)
Other, net 1,570 1,481 1,610
21,403 17,940 20,811
Medite, net 33,096 18,464 24,882
Change in assets and liabilities:
Accounts receivable (1,198) (1,898) (1,551)
Inventories (2,244) (125) (1,678)
Accounts payable and accrued liabilities 1,915 (269) 1,209
Accounts with affiliates (3,014) 1,238 (755)
Other, net (1,659) (129) (1,074)
Net cash provided by operating
activities 48,299 35,221 41,844
Cash flows from investing activities:
Capital expenditures (14,244) (13,989) (8,382)
Purchase of business unit - (5,982) -
Medite, net (32,728) (12,527) 165,935
Other, net 563 215 169
Net cash provided (used) by investing
activities
(46,409) (32,283) 157,722
Cash flows from financing activities:
Indebtedness:
Borrowings 37,203 43,677 28,758
Principal payments (45,982) (33,388) (45,359)
Dividends (9,570) (8,298) (383)
Medite, net 29,772 (10,940) (64,018)
Net cash provided (used) by financing
activities 11,423 (8,949) (81,002)
Net cash provided (used) $ 13,313 $ (6,011) $118,564
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994* 1995* 1996
<S> <C> <C> <C>
Cash and cash equivalents:
Net increase (decrease) from operating,
investing and financing activities $13,313 $(6,011) $118,564
Currency translation (420) 373 (128)
12,893 (5,638) 118,436
Balance at beginning of year 10,363 23,256 17,618
Balance at end of year $23,256 $17,618 $136,054
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized:
Continuing operations $10,612 $11,406 $ 11,363
Discontinued operations 5,824 8,010 8,014
Eliminations (117) (303) (239)
$16,319 $19,113 $ 19,138
Income taxes:
Continuing operations, net $ 9,836 $ 5,777 $ 10,734
Discontinued operations, net 9,135 6,461 (100)
$18,971 $12,238 $ 10,634
</TABLE>
* Reclassified.
VALCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Valcor, Inc., a Delaware corporation, is a wholly-owned subsidiary of
Valhi, Inc. (NYSE: VHI). Valcor was formed in 1993 at which time Valhi
contributed to Valcor the stock of the Company's subsidiaries; CompX
International Inc., formerly National Cabinet Lock, Inc. (component products);
Sybra, Inc. (fast food); and Medite Corporation (building products). All of
Valcor's outstanding common stock is held by Valhi. Contran Corporation holds,
directly or through subsidiaries, approximately 91% of Valhi's outstanding
common stock. Substantially all of Contran's outstanding voting stock is held
by trusts established for the benefit of the children and grandchildren of
Harold C. Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons, the
Chairman of the Board and Chief Executive Officer of Valcor, Valhi and Contran,
may be deemed to control each of such companies.
Prior period statements of income and cash flows have been reclassified to
present Medite Corporation as discontinued operations. See Note 14.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation and management's estimates. The consolidated
financial statements include the accounts of Valcor and its wholly-owned
subsidiaries (collectively, the "Company"). All material intercompany accounts
and balances have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reporting period. Ultimate actual results may, in some instances,
differ from previously estimated amounts.
Translation of foreign currencies. Assets and liabilities of subsidiaries
whose functional currency is deemed to be other than the U.S. dollar are
translated at year-end rates of exchange and revenues and expenses are
translated at average exchange rates prevailing during the year. Resulting
translation adjustments, net of related deferred income tax effects, are
accumulated in the currency translation adjustments component of stockholder's
equity. Currency transaction gains and losses are recognized in income
currently.
Cash and cash equivalents. Cash equivalents include bank time deposits and
government and commercial notes and bills with original maturities of three
months or less.
Inventories and cost of sales. Inventories are stated at the lower of cost
or market. The last-in, first-out method is used to determine the cost of
approximately 40% of total inventories at December 31, 1995 and 1996. Other
inventory costs are generally based on average cost or the first-in, first-out
method.
Timber and timberlands and depletion. Timber and timberlands were stated
at cost less accumulated depletion. Fertilization and other forest management
costs were expensed; costs of reforestation and road improvements were
capitalized. Depletion was computed by the unit-of-production method.
Intangible assets and amortization. Goodwill, representing the excess of
cost over fair value of individual net assets acquired in business combinations
accounted for by the purchase method, is amortized by the straight-line method
over 40 years. Fast food restaurant franchise fees and other intangible assets
are amortized by the straight-line method over the periods (10 to 20 years)
expected to be benefited.
Property, equipment and depreciation. Property and equipment are stated at
cost. Maintenance, repairs and minor renewals are expensed; major improvements
are capitalized. Interest costs related to major long-term capital projects are
capitalized as a component of construction costs. Interest costs capitalized
related to continuing operations were nil in each of the past three years.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of 15 to 40 years for buildings and three to 10 years for
equipment.
Income taxes. Valcor, its qualifying subsidiaries and Valhi are members of
Contran's consolidated United States federal income tax group (the "Contran Tax
Group"). The policy for intercompany allocation of federal income taxes provides
that subsidiaries included in the Contran Tax Group compute the provision for
income taxes on a separate company basis. Subsidiaries of Valhi make payments
to or receive payments from Valhi in the amounts they would have paid to or
received from the Internal Revenue Service had they not been members of the
Contran Tax Group. The separate company provisions and payments are computed
using the tax elections made by Contran.
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in the Company's non-U.S. subsidiaries (which are not members of the
Contran Tax Group).
Other. Sales are recorded when products are shipped (fast food sales at
the time of retail sale).
Accounting and funding policies for retirement and benefits plans are
described in Note 10.
Advertising costs charged to continuing operations, expensed as incurred,
were $9.1 million in 1994, $9.6 million in 1995 and $9.8 million in 1996.
Research and development costs charged to continuing operations, expensed as
incurred, were $400,000 in each of 1994 and 1995 and $460,000 in 1996.
NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:
<TABLE>
<CAPTION>
Business segments YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Component products - CompX International $ 70.0 $ 80.2 $ 88.7
Fast food - Sybra 115.5 115.4 116.0
$185.5 $195.6 $204.7
Operating income:
Component products $ 20.9 $ 19.9 $ 22.1
Fast food 9.0 7.5 8.9
29.9 27.4 31.0
General corporate, net (.1) (.3) 1.2
Interest expense (11.1) (11.8) (11.7)
Income before income taxes $ 18.7 $ 15.3 $ 20.5
Depreciation, depletion and amortization:
Component products $ 1.8 $ 2.2 $ 2.5
Fast food 5.9 6.0 6.0
$ 7.7 $ 8.2 $ 8.5
Capital expenditures:
Component products $ 3.4 $ 2.0 $ 2.3
Fast food 10.8 12.0 6.1
$ 14.2 $ 14.0 $ 8.4
</TABLE>
Capital expenditures exclude amounts attributable to business units
acquired in business combinations accounted for by the purchase method. In
1995, the Company's Canadian component products subsidiary purchased certain
assets of a competitor for approximately $6 million cash.
<TABLE>
<CAPTION>
Geographic segments YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Net sales - point of origin:
United States $139.4 $137.5 $138.9
Canada 46.1 58.1 65.8
$185.5 $195.6 $204.7
Net sales - point of destination:
United States $166.4 $170.8 $174.1
Canada 17.2 22.8 27.8
Pacific Rim and other 1.9 2.0 2.8
$185.5 $195.6 $204.7
Operating income:
United States $ 16.8 $ 14.0 $ 14.6
Canada 13.1 13.4 16.4
$ 29.9 $ 27.4 $ 31.0
</TABLE>
<TABLE>
<CAPTION>
Identifiable assets DECEMBER 31,
1995 1996
(IN MILLIONS)
<S> <C> <C>
Business segments:
Building products $200.4 $ 44.2
Component products 44.4 48.4
Fast food 74.3 75.6
Corporate 22.9 143.6
Eliminations (14.4) (22.8)
$327.6 $289.0
Geographic segments:
United States $227.7 $257.6
Republic of Ireland 70.1 -
Canada 29.8 31.4
$327.6 $289.0
</TABLE>
Corporate assets consist principally of cash, cash equivalents and loans
to subsidiaries. Eliminations consist principally of intercompany receivables,
including loans to subsidiaries. At December 31, 1996, the net assets of CompX
International's Canadian subsidiary included in consolidated net assets were
approximately $25 million.
NOTE 4 - OTHER INCOME:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income $ 543 $ 840 $1,742
Currency transaction gains (losses), net 476 23 136
Disposal of property and equipment 7 18 11
Other, net 253 164 348
$1,279 $1,045 $2,237
</TABLE>
NOTE 5 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Valcor - Senior Notes $100,000 $100,000
Medite:
U.S. and Irish bank term loans 73,770 -
U.S. and Irish bank working capital facilities 10,830 -
Other 4,117 3,895
88,717 3,895
Other:
Sybra bank credit agreements 16,770 1,081
Sybra capital lease obligations 5,382 4,540
Other 98 166
22,250 5,787
210,967 109,682
Less current maturities 12,383 1,224
$198,584 $108,458
</TABLE>
Valcor. Valcor's unsecured 9 5/8% Senior Notes Due November 2003 are
redeemable at the Company's option beginning November 1998, initially at
104.813% of principal amount declining to 100% after November 2000. In the
event of a change of control of Valcor or certain asset dispositions, as
defined, Valcor would be required to make an offer to purchase the Senior Notes
at 101% and 100%, respectively, of principal amount. At both December 31, 1995
and 1996, the quoted market price of the Senior Notes was $99.00 per $100
principal amount.
The Indenture governing the Senior Notes limits, among other things, the
incurrence of additional indebtedness by Valcor and its subsidiaries, the
creation of liens and transactions and co-investing with affiliates. The
Indenture generally limits the ability of the Company to pay dividends or make
other distributions to Valhi to 50% of consolidated net income, as defined,
subsequent to 1993. At December 31, 1996, no amounts were available for
dividends.
The after-tax proceeds from the disposition of Medite, net of repayments of
debt, will be available for Valcor's general corporate purposes, subject to
compliance with certain covenants contained in the Valcor Senior Note Indenture.
Also under the terms of the Indenture, Valcor is required to tender for a
portion of the Valcor Notes, at par, to the extent that a specified amount of
these proceeds is not used to either permanently paydown senior indebtedness of
Valcor or its subsidiaries or invest in related businesses, both as defined in
the Indenture, within one year of disposition. While Valcor is not yet required
to execute a tender offer related to Medite's asset dispositions, on March 20,
1997, Valcor announced it had initiated a tender offer whereby Valcor would
purchase up to $86.7 million principal amount of Valcor Notes on a pro-rata
basis, at par value, in satisfaction of the covenant contained in the Indenture.
Pursuant to its terms, the tender offer will expire on April 24, 1997, unless
extended by Valcor. The amount of Valcor Notes which will ultimately be
purchased by Valcor pursuant to the tender offer is dependent upon the amount of
Valcor Notes properly tendered. Consequently, there can be no assurance as to
the amount of Valcor Notes which will ultimately be purchased by Valcor. The
net proceeds from any disposition of the Company's fast food operations, net of
repayment of Sybra's bank indebtedness, would similarly be available for Valor's
general corporate purposes. If the disposition of the Company's fast food
operations is completed and none of those net proceeds are used as provided by
the Indenture, a portion of the Notes would be subject to a subsequent tender
offer. See Notes 13 and 14.
Medite. Medite's U.S. bank term and working capital facilities were repaid
and terminated in October 1996 following the sale of its timber and timberlands,
and the Irish bank term and working capital facilities were assumed by the
purchaser upon the sale of Medite's Irish subsidiary in November 1996. See Note
14.
Other Medite indebtedness consists principally of a State of Oregon term
loan that was assumed by the purchaser of Medite's Oregon MDF facility in
February 1997. See Note 14.
Other. Sybra's revolving bank credit agreements provide for unsecured
credit facilities aggregating $29 million with interest generally at LIBOR plus
1.5%. Borrowings under these agreements mature through July 1998. At December
31, 1996, the weighted average interest rate on outstanding revolving borrowings
was 6.9% (1995 - 7.5%), and $28 million was available for borrowing.
Capital lease obligations are stated net of imputed interest. Future
minimum payments under capital lease obligations at December 31, 1996, including
amounts representing interest, are approximately $1.4 million in each of the
next two years, $.6 million in each of the following three years and an
aggregate of $2.6 million thereafter. The gross amount of assets recorded under
capital leases, included in property and equipment, was $6.2 million and $6.0
million at December 31, 1995 and 1996, respectively. Accumulated amortization
of assets recorded under capital leases was $4.3 million and $4.7 million at
December 31, 1995 and 1996, respectively.
CompX International has a Canadian bank credit agreement which currently
provides for approximately $5 million of U.S. or the equivalent Canadian dollar
borrowings, with interest generally at LIBOR plus .5% and collateralized by
substantially all of CompX International's Canadian assets. At December 31,
1996, the full amount of this facility was available for borrowing.
Credit agreements of subsidiaries typically require the respective
subsidiary to maintain minimum levels of equity, require the maintenance of
certain financial ratios, limit dividends and additional indebtedness, and
contain other provisions and restrictive covenants customary in lending
transactions of this type. At December 31, 1996, the restricted net assets of
the Company's subsidiaries approximated $53 million.
Aggregate maturities of long-term debt at December 31, 1996
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
(IN THOUSANDS)
<S> <C>
1997 $ 1,749
1998 2,735
1999 976
2000 866
2001 866
2002 and thereafter 105,140
112,332
Less amounts representing interest on capital leases 2,650
$109,682
</TABLE>
NOTE 6 - ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Current accrued liabilities:
Employee benefits $ 7,894 $ 7,880
Plant closure costs - 7,669
Interest 3,636 1,648
Insurance claims and expenses 2,357 3,037
Other 7,583 5,332
$21,470 $25,566
Other noncurrent liabilities:
Insurance claims and expenses $ 1,066 $ 445
Environmental cost 750 1,000
Accrued pension and other employee benefits 957 1,510
Other 1,472 1,421
$ 4,245 $ 4,376
</TABLE>
NOTE 7 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Raw materials:
Building products $12,404 $ 4,306
Component products 1,927 2,556
Fast food 1,379 1,406
15,710 8,268
In process products:
Building products 2,187 83
Component products 4,320 4,974
6,507 5,057
Finished products:
Building products 6,131 1,096
Component products 2,921 3,300
9,052 4,396
Supplies 5,116 501
$36,385 $18,222
</TABLE>
The current cost of LIFO inventories (all of which relate to Medite)
exceeded the net carrying value of such inventories by approximately $4 million
and $3 million at December 31, 1995 and 1996, respectively.
NOTE 8 - INTANGIBLE AND OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Intangible assets, net of accumulated
amortization of $9,572 and $10,661:
Goodwill $ 5,162 $ 4,996
Franchise fees 5,605 4,872
Intangible pension asset 403 193
Other 6,975 6,211
$18,145 $16,272
Other assets:
Property held for sale $ 3,920 $ 4,638
Deferred financing costs 3,003 2,317
Prepaid pension cost 1,501 -
Other 206 51
$ 8,630 $ 7,006
</TABLE>
Property held for sale, all of which relates to Medite, is carried at the
lower of cost or estimated net realizable value under current market conditions.
NOTE 9 - FINANCIAL INSTRUMENTS:
<TABLE>
<CAPTION>
December
31,
1995 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 17.6 $ 17.6 $136.1 $136.1
Long-term debt (excluding capitalized leases):
Valcor Senior Notes $100.0 $ 99.0 $100.0 $ 99.0
Medite debt with rates fixed via interest rate swaps 26.0 26.0 - -
Other fixed-rate debt 18.9 19.2 3.9 4.0
Variable rate debt 60.6 60.6 1.1 1.1
</TABLE>
Fair value of the Valcor Senior Notes is based upon quoted market prices
(per $100 principal amount) of $99.00 at both December 31, 1995 and 1996. See
Note 5.
Medite had entered into interest rate swaps to mitigate the impact of
changes in interest rates for $26 million of its U.S. bank term loan. The
interest rate swaps were terminated in October 1996 when the related loans were
repaid. See Note 14. The fair value of Medite debt on which interest rates had
been effectively fixed through the use of interest rate swaps was deemed to
approximate the book value of the debt plus or minus the fair value of the
related swaps. See Note 5. The fair value of Medite's interest rate swaps was
estimated to approximate the contract amount at December 31, 1995. Such fair
values represented the estimated amounts Medite would have received if it
terminated the swap agreements at that date, and were based upon quotes obtained
from the counter party financial institution.
Fair values of other fixed rate debt have been estimated based upon
relative changes in the Company's variable borrowing rates since the dates the
interest rates were fixed. Fair values of variable interest rate debt are
deemed to approximate book value.
NOTE 10 - EMPLOYEE BENEFIT PLANS:
Company-sponsored pension plans
Defined contribution plans. Substantially all of the Company's full-time
U.S. employees are eligible to participate in contributory savings plans with
Company contributions based on matching or other formulas. Defined contribution
plan expense charged to continuing operations aggregated $1.1 million in each of
1994 and 1995 and $1.2 million in 1996.
Defined benefit plans. Medite maintained a defined benefit pension plan
covering substantially all of its full-time Irish employees, which plan was
assumed by the purchaser upon sale of Medite's Irish subsidiary in November
1996. Medite maintains a plan covering its U.S. employees, and substantially
all remaining employees will cease to accrue benefits in 1997 upon the sale of
Medite's Oregon MDF and timber conversion facilities. See Note 14. Defined
pension benefits are generally based on years of service and compensation under
fixed dollar, final pay or career average formulas, and the related expenses are
based on independent actuarial valuations. The funding policy for U.S. defined
benefit plans is to contribute amounts satisfying funding requirements of the
Employee Retirement Income Security Act of 1974, as amended. Non-U.S. defined
benefit plans were funded in accordance with applicable statutory requirements.
The plans' assets are comprised primarily of mutual funds.
The rates used in determining the actuarial present value of benefit
obligations are presented in the table below.
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Discount rate 8.5% 7.5% 7.5%
Rate of increase in future
compensation levels 4% 4% 4%
Long-term rate of return on assets 7.5%-10% 7.5%-10% 10%
</TABLE>
<TABLE>
<CAPTION>
PLAN ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED PLAN ASSETS
December 31, December 31,
1995 1996 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $1,217 $ - $20,290 $21,495
Nonvested benefits 1,163 - 470 494
Accumulated benefit obligations 2,380 - 20,760 21,989
Effect of projected salary increases 1,456 - 386 245
Projected benefit obligations ("PBO") 3,836 - 21,146 22,234
Plan assets at fair value 4,315 - 19,776 20,453
Plan assets over (under) PBO 479 - (1,370) (1,781)
Unrecognized net loss from experience different from
actuarial assumptions 1,044 - 4,331 4,484
Unrecognized prior service cost - - 403 193
Unrecognized net assets being amortized over periods of
9 to 11 years (22) - (342) (86)
Adjustment to recognize minimum liability - - (4,006) (4,345)
Total prepaid (accrued) pension cost 1,501 - (984) (1,535)
Current portion and reclassification, net - - (349) (347)
Noncurrent prepaid (accrued) pension cost $1,501 $ - $ (635) $(1,188)
</TABLE>
The adjustment required to recognize minimum pension liability
(accumulated pension benefit obligation in excess of plan assets) relates to
Medite's U.S. defined benefit plan. Variances from actuarially assumed rates
will result in increases or decreases in accrued pension liabilities, pension
expense and funding requirements in future periods. A one percentage point
decrease in the discount rate would increase the aggregate actuarial present
value of accumulated benefit obligations at December 31, 1996 by approximately
$3 million. Net periodic pension cost related to Medite's plans, included in
discontinued operations, was not material in any of the past three years.
Other. Certain Medite retirees are eligible to participate in a group
health program until age 65, and contribute to the cost of such benefits. The
actuarially-computed present value of the accumulated postretirement group
health program, and the related annual expense, are not material.
NOTE 11 - INCOME TAXES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Components of pre-tax income attributable to
continuing operations:
United States $ 5.6 $ 1.9 $ 4.1
Canada 13.1 13.4 16.4
$18.7 $15.3 $20.5
Expected tax expense, at U.S. federal statutory
income tax rate of 35% $ 6.5 $ 5.4 $ 7.2
Non-U.S. tax rates .1 .1 .1
Incremental U.S. tax on non-U.S. earnings (.7) .3 1.0
U.S. state income taxes, net .1 .8 -
Rate change adjustment of deferred taxes - (1.0) -
Other, net - .8 .1
$ 6.0 $ 6.4 $ 8.4
Components of income tax expense:
Currently payable:
U.S. federal and state $ 1.8 $ 1.2 $ 2.0
Non-U.S. 4.8 5.9 7.7
6.6 7.1 9.7
Deferred income taxes:
U.S. federal and state (.5) (.8) (1.5)
Non-U.S. (.1) .1 .2
(.6) (.7) (1.3)
$ 6.0 $ 6.4 $ 8.4
Comprehensive provision for income tax expense
allocable to:
Continuing operations $ 6.0 $ 6.4 $ 8.4
Discontinued operations 11.1 6.4 21.5
Stockholder's equity - deferred taxes allocable
to adjustments components (.3) (1.2) (.3)
$16.8 $11.6 $29.6
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN MILLIONS)
<S> <C> <C>
Tax effect of temporary differences relating to:
Inventories $ (.8) $ (.8)
Timber and timberlands (10.8) -
Property and equipment (9.1) (4.8)
Capital lease assets and obligations 1.3 1.2
Accrued liabilities and other deductible differences 4.6 12.8
Other taxable differences (6.2) (12.1)
Investments in non-U.S. subsidiaries (1.1) .1
Net deferred tax liabilities $(22.1) $ (3.6)
Current deferred tax assets $ 2.4 $ 5.1
Noncurrent deferred tax liabilities (24.5) (8.7)
$(22.1) $ (3.6)
</TABLE>
NOTE 12 - RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons. See
Note 1. The Indenture governing the Valcor Senior Notes prohibits co-investment
with affiliates and contains restrictions on other transactions with affiliates.
It is the policy of the Company to engage in transactions with related parties
on terms, in the opinion of the Company, no less favorable to the Company than
could be obtained from unrelated parties.
Payables to affiliates at December 31, 1996 include $30.8 million for
income taxes (1995 - $3.5 million receivable for refundable income taxes).
Under the terms of Intercorporate Services Agreements with Valhi, Valhi
provides certain management and administrative services to the Company on a fee
basis. Such fees are based upon estimates of time devoted to affairs of the
Company by individual Valhi employees and the salaries of such persons. Fees
charged to the Company's continuing operations approximated $600,000 in each of
1994 and 1995 and $640,000 in 1996. Net charges from related parties for
services provided in the ordinary course of business charged to continuing
operations, principally charges for insuring property and other risks,
aggregated $.9 million in 1994, $1.3 million in 1995 and $1.1 million in 1996.
Such charges are principally pass-through in nature and, in the Company's
opinion, are not materially different from those that would have been incurred
on a stand-alone basis.
Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. The Company will pay Valhi the
aggregate difference between the option price and the market value of Valhi's
common stock on the exercise date of the options, and the Company accounts for
the related option expense (credit) in a manner similar to accounting for stock
appreciation rights. The Company pays Valhi the market value of restricted
shares on the dates the restrictions expire, and accrues the related expense
over the restriction period. Compensation expense related to these stock
option/restricted stock grants was not material in any of the past three years.
At December 31, 1996, employees of the Company held options to purchase 680,000
Valhi shares at prices ranging from $4.76 to $14.66 per share (329,000 shares at
prices lower than the December 31, 1996 quoted market price of $6.38 per share).
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
Environmental matters. The Company's operations are governed by various
federal, state, local and foreign environmental laws and regulations. The
Company's policy is to comply with environmental laws and regulations at all of
its plants and to continually strive to improve environmental performance in
association with applicable industry initiatives. The Company believes that its
operations are in substantial compliance with applicable requirements of
environmental laws. From time to time, the Company may be subject to
environmental regulatory enforcement under various statutes, resolution of which
typically involves the establishment of compliance programs. The imposition of
more strict standards or requirements under environmental laws and resolutions
could result in expenditures in excess of amounts currently estimated to be
required for such matters.
At December 31, 1996, Medite has accrued approximately $4.6 million for the
estimated cost to complete environmental remediation efforts at certain of its
current and former facilities, including amounts included in accrued plant
closure costs. Costs for future environmental remediation efforts are not
discounted to their present value, and no recoveries for remediation costs from
third parties have been recognized. Such accruals will be adjusted, if
necessary, as further information becomes available or as circumstances change.
No assurance can be given that the actual costs will not exceed accrued amounts.
None of these facilities are the subject of any litigation, administrative
proceeding or investigation.
Legal proceedings. In July 1996, Medite filed a complaint in U.S. District
Court in New Mexico (Medite Corporation v. Public Service Company of New Mexico,
CIV 96-0929LH) regarding termination of the electricity supply contract for its
New Mexico MDF facility permanently closed in May 1996. The complaint seeks,
among other things, to declare the contract terminated under New Mexico common
law and/or the force majeure provisions of the agreement. Defendant filed a
motion to dismiss, and also filed a counterclaim demanding that Medite pay an
approximately $5 million termination penalty contained in the contract. Medite
does not believe the termination penalty clause applies due to, among other
things, the force majeure provisions of the contract. Discovery is proceeding.
The Company does not expect the resolution of this matter to have a material
adverse impact on its consolidated results of operations, financial position or
liquidity.
In November 1995, a complaint was filed against Medite in the U.S. District
Court for the Western District of Oklahoma (Midgard Corporation v. Medite of New
Mexico, Inc., et al., CIV 95-1807-A) alleging, among other things, that Medite
breached Midgard's purportedly exclusive territorial supply contract by
purchasing certain raw materials from a third party located in Oklahoma City.
The complaint seeks, among other things, $4 million in compensatory damages and
$100 million in punitive damages. Medite has answered the complaint denying
liability. Discovery is proceeding. The Company believes the complaint is
without merit, intends to defend the action vigorously and does not expect the
resolution of this matter to have a material adverse impact on its consolidated
results of operations, financial position or liquidity.
In addition to the litigation described above, the Company is involved in
various environmental, contractual, product liability and other claims and
disputes incidental to its business. The Company currently believes that the
disposition of all claims and disputes, individually or in the aggregate, should
not have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity.
Income taxes. The Company is undergoing examinations of certain of its
income tax returns, and tax authorities have or may propose tax deficiencies.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from such
examinations and believes that the ultimate disposition of all such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
Royalties. Royalty expense, which relates principally to fast food
operations, approximated $4 million in each of the past three years. Fast food
royalties are paid to the franchiser based upon a percentage of gross sales, as
specified in the franchise agreement related to each individual restaurant.
Concentrations of credit risk. Component products are sold primarily to
original equipment manufacturers in the U.S. and Canada. In each of the past
three years, the ten largest customers accounted for approximately one-third of
component products sales with at least five of such customers in each year
located in the U.S.
Sybra's restaurants are clustered in four regions, principally Texas,
Michigan, Pennsylvania and Florida. All fast food sales are for cash.
At December 31, 1996, about 90% of the Company's consolidated cash and cash
equivalents was invested in A1 or P1-grade commercial paper issued by various
third parties having a maturity of three months or less (1995 - 25% on deposit
with a single Canadian bank and 10% on deposit with a single Irish bank).
Development agreement. Under the terms of Sybra's Market Development
Agreement with Arby's, Sybra has the exclusive right to open new Arby's units
within certain counties in Pennsylvania. The Agreement requires Sybra to open
an aggregate of 25 new stores in its existing regions during 1997 through 2001
(four in 1997, six in 1998 and five each in 1999, 2000 and 2001), with at least
ten of the stores in the Pennsylvania region.
Operating leases. The Company leases various fast food retail and other
facilities and equipment. Most of the leases contain purchase and/or various
term renewal options at fair market and fair rental values, respectively. In
most cases the Company expects that, in the normal course of business, leases
will be renewed or replaced by other leases. Net rent expense charged to
continuing operations approximated $5 million in each of 1994, 1995 and 1996.
Contingent rentals based upon gross sales of individual fast food restaurants
were less than 10% of total rent expense in each of the past three years.
At December 31, 1996, substantially all future minimum payments under
noncancellable operating leases having an initial or remaining term of more than
one year relate to fast food restaurant facilities.
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
(IN THOUSANDS)
<S> <C>
1997 $ 4,327
1998 3,568
1999 3,101
2000 2,664
2001 2,239
2002 and thereafter 7,370
23,269
Less minimum rentals due under noncancellable subleases 646
Net minimum commitments $22,623
</TABLE>
Disposal of fast food operations. The Company has executed agreements
involving the sale of its fast food operations conducted by Sybra. The proposed
sale would be accomplished in simultaneous transactions that would include the
sale of certain restaurant real estate owned by Sybra to one party for $45
million cash consideration, and Valcor's sale of 100% of the stock of Sybra to
another party for approximately $39.7 million cash consideration, of which
approximately $23.7 million would be used to repay Sybra bank indebtedness.
These transactions are subject to, among other things, completion of customary
due diligence procedures, the purchaser of Sybra's stock obtaining necessary
financing for the transaction and certain consents from third parties. If
completed, the transactions are expected to close in the second quarter of 1997,
at which time the Company estimates it would report a pre-tax gain on disposal
in excess of $24 million. There can be no assurance that any such transactions
will be completed.
NOTE 14 - DISCONTINUED OPERATIONS:
In September 1996, Medite Corporation signed three separate letters of
intent involving the sale of substantially all of its assets. The first
transaction, involving the sale of Medite's timber and timberlands, closed in
October 1996 for approximately $118 million cash consideration, of which
approximately $53 million of the cash proceeds were used to pay off and
terminate Medite's U.S. bank credit facilities. The second transaction,
involving the sale of Medite's Irish MDF subsidiary, closed in November 1996 for
approximately $61.5 million cash consideration plus the assumption of
approximately $21 million of Irish bank debt. The third transaction, involving
the sale of Medite's Oregon MDF facility, closed in February 1997 for
approximately $36 million cash consideration plus the assumption of
approximately $3.7 million of Medite indebtedness. The letter of intent with
the purchaser of the Oregon MDF facility originally contemplated the purchase of
Medite's two small Oregon timber conversion facilities, but in December 1996
negotiations regarding a definitive agreement for such timber conversion
facilities were terminated, and Medite determined to permanently close these
facilities. The stud lumber facility, closed in December 1996, is being
dismantled and Medite will sell the salvageable machinery and equipment. Medite
continues to operate the veneer facility on a short-term basis and expects to
either sell or close this facility in 1997. Accordingly, the accompanying
financial statements present the results of operations of Medite's building
products business segment as discontinued operations for all periods presented.
As is customary in transactions of these types, Medite has made certain
representations and warranties to the respective purchasers concerning, among
other things, the assets sold. Medite has agreed to indemnify the three
purchasers for up to an aggregate of $6.5 million for certain breaches of these
representations and warranties. As part of the transactions, Valhi has agreed
to guarantee Medite's indemnification obligations. The Company does not
currently expect to be required to perform under any of these indemnification
obligations.
Medite's 1996 results include a first quarter pre-tax charge of $24 million
for the estimated costs of permanently closing its New Mexico MDF plant, and a
$13 million fourth-quarter pre-tax charge for the estimated costs of permanently
closing its two Oregon timber conversion facilities. Approximately $26 million
of such charges represented non-cash costs, most of which related to the net
carrying value of property and equipment in excess of estimated net realizable
value. These non-cash costs were deemed utilized upon adoption of the
respective closure plans. Approximately $11 million of the charge represents
workforce, environmental and other estimated cash costs associated with the
closure of the facilities, of which approximately $3 million had been paid at
December 31, 1996. In August 1996, Medite completed the sale of substantially
all of the building and equipment of the New Mexico facility for $5.5 million
cash consideration, which approximated the previously-estimated net realizable
value.
Condensed income statement data for Medite is presented below. The $24
million pre-tax New Mexico MDF plant closure charge is included in Medite's
operating income for 1996 because the decision to close the New Mexico MDF
facility occurred prior to the decision to permanently dispose of the entire
business segment. The aggregate net gain on disposal in 1996 includes the $13
million charge associated with the closure of the two Oregon timber conversion
facilities, and a nominal charge associated with a curtailment of its U.S.
defined benefit pension plan. Medite expects to report a pre-tax gain on
disposal of approximately $20 million in the first quarter of 1997 related to
the sale of its Oregon MDF facility. Interest expense included in discontinued
operations represents interest on indebtedness of Medite and its subsidiaries.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Operations of Medite:
Net sales $189.9 $200.0 $171.7
Operating income (loss) $ 36.4 $ 25.2 $(7.9)
Interest expense and other, net (6.9) (8.2) (6.7)
Pre-tax income (loss) 29.5 17.0 (14.6)
Income tax expense (benefit) 11.2 6.4 (4.1)
18.3 10.6 (10.5)
Net gain on disposal:
Pre-tax gain - - 75.1
Income tax expense - - 25.6
- - 49.5
$ 18.3 $ 10.6 $ 39.0
</TABLE>
Condensed balance sheets for Medite, included in the Company's consolidated
balance sheets, are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN MILLIONS)
<S> <C> <C>
Current assets $ 56.1 $21.2
Timber and timberlands 53.1 -
Property and equipment, net 84.8 18.2
Other assets 6.4 4.8
$200.4 $44.2
Current liabilities $ 33.9 $17.6
Long-term debt 77.2 3.7
Deferred income taxes 22.1 1.6
Loan from Valcor (*) 5.0 -
Other liabilities 2.9 3.0
Stockholder's equity (*) 59.3 18.3
$200.4 $44.2
</TABLE>
[FN]
* Eliminated in consolidation.
Condensed cash flow data for Medite (excluding dividends paid to and
intercompany loans with Valcor) is presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities $ 33.1 $ 18.5 $ 24.9
Cash flows from investing activities:
Capital expenditures (32.0) (12.3) (13.3)
Proceeds from disposal of assets - - 179.1
Other, net (.7) (.2) .1
(32.7) (12.5) 165.9
Cash flows from financing activities:
Indebtedness, net 28.6 (13.8) (64.0)
Other, net 1.2 2.9 -
29.8 (10.9) (64.0)
$ 30.2 $ (4.9) $126.8
</TABLE>
NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Net sales $ 46,926 $48,044 $48,907 $51,731
Operating income 6,548 6,944 6,511 7,397
Income from continuing
operations $ 1,796 $ 2,492 $ 2,065 $ 2,586
Discontinued operations 4,957 4,238 1,518 (106)
Net income $ 6,753 $ 6,730 $ 3,583 $ 2,480
Year ended December 31, 1996
Net sales $ 48,763 $51,039 $50,815 $54,100
Operating income 5,946 7,511 7,368 10,210
Income from continuing
operations $ 1,716 $ 2,422 $ 2,669 $ 5,208
Discontinued operations (14,884) 2,150 2,060 49,695
Net income (loss) $(13,168) $ 4,572 $ 4,729 $54,903
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholder and Board of Directors of Valcor, Inc.:
Our report on the consolidated financial statements of Valcor, Inc. as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, which report is based in part upon the report of another
auditor, is herein included in this Annual Report on Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedules listed in the index on page F-1 of this Annual
Report on Form 10-K. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statement schedules based on our audits.
In our opinion, based upon our audits and the report of another auditor,
the financial statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 7, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholder and Board of Directors of Medite Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements (not presented separately herein) of
Medite Corporation as of December 31, 1995 and for each of the two years in the
period ended December 31, 1995, and have issued our report thereon dated January
27, 1996. Our audits of the financial statements were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
financial statement schedule II (not presented separately herein) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 27, 1996
VALCOR, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,332 $120,085
Demand loans to subsidiaries 14,000 20,000
Income taxes and other receivables from
affiliates, net 936 225
Deferred income taxes - 393
Other 10 553
Total current assets 20,278 141,256
Other assets:
Investment in subsidiaries 122,941 92,697
Deferred financing costs 2,656 2,317
Total other assets 125,597 95,014
$145,875 $236,270
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest $ 1,604 $ 1,604
Income taxes payable to affiliates, net - 33,078
Other 47 1,198
Total current liabilities 1,651 35,880
Long-term debt - Senior Notes Due 2003 100,000 100,000
Noncurrent deferred income taxes - 6,000
Stockholder's equity 44,224 94,390
$145,875 $236,270
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Interest income $ 1,099 $ 1,195 $ 1,975
General and administrative expenses (172) (633) (197)
Interest expense (9,968) (9,994) (9,964)
Loss before income taxes (9,041) (9,432) (8,186)
Income tax benefit 5,523 3,255 3,010
(3,518) (6,177) (5,176)
Equity in earnings of subsidiaries 16,269 15,116 17,191
Income from continuing operations 12,751 8,939 12,015
Discontinued operations 18,347 10,607 39,021
Net income $31,098 $19,546 $51,036
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 31,098 $ 19,546 $ 51,036
Earnings of subsidiaries:
Continuing operations (16,269) (15,116) (17,191)
Discontinued operations (18,347) (10,607) (39,021)
Dividends from subsidiaries 12,380 10,000 84,101
Other, net 343 369 339
Change in assets and liabilities, net (1,549) 1,266 41,872
Net cash provided by operating
activities 7,656 5,458 121,136
Cash flows from investing activities -
loans to subsidiaries, net 750 7,250 (6,000)
Cash flows from financing activities -
dividends to Valhi (9,570) (8,298) (383)
Net increase (decrease) in cash (1,164) 4,410 114,753
Balance at beginning of year 2,086 922 5,332
Cash and cash equivalents at end of year $ 922 $ 5,332 $120,085
Supplemental disclosures - cash paid
(received) for:
Interest expense $ 9,438 $ 9,625 $ 9,625
Income taxes, net (3,811) (4,476) (45,925)
</TABLE>
VALCOR, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1 - GENERAL:
The Company's Consolidated Financial Statements are incorporated herein by
reference. Certain prior year amounts have been reclassified.
NOTE 2 - INVESTMENT IN SUBSIDIARIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Medite $ 59,349 $18,313
CompX International 32,612 39,242
Sybra 30,980 35,142
$122,941 $92,697
</TABLE>
NOTE 3 - EQUITY IN EARNINGS OF SUBSIDIARIES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations
CompX International $11,919 $12,101 $13,029
Sybra 4,350 3,015 4,162
$16,269 $15,116 $17,191
Discontinued operations - Medite $18,347 $10,607 $39,021
</TABLE>
NOTE 4 - CASH DIVIDENDS FROM SUBSIDIARIES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Medite $ 2,800 $ 4,000 $77,854
CompX International 4,580 6,000 6,247
Sybra 5,000 - -
$12,380 $10,000 $84,101
</TABLE>
Dividends from Medite in 1996 represent the proceeds from the dispositions
of its Oregon timber and timberlands and Irish MDF subsidiary, net of income
taxes and debt repayments.
NOTE 5 - CASH PAID FOR INCOME TAXES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Paid to Valhi $11,300 $ 5,812 $ 991
Received from subsidiaries:
Medite (8,140) (6,389) (42,021)
CompX International (3,506) (2,350) (1,800)
Sybra (3,465) (1,549) (3,095)
Cash received for income taxes, net $(3,811) $(4,476) $(45,925)
</TABLE>
Foreign subsidiaries are not members of the consolidated federal income
tax group of which Valcor, Medite, Sybra and CompX International are members.
Cash paid for income taxes by Medite to Valcor includes amounts
attributable to the dispositions of its Oregon timber and timberlands and Irish
MDF subsidiary. Under the terms of the Internal Revenue Code and similar state
regulations regarding the timing of estimated tax payments, Valcor and the
Contran Tax Group are not required to pay such cash income taxes to the
applicable tax authorities until 1997.
NOTE 6 - LONG-TERM DEBT:
The after-tax proceeds from the disposition of Medite, net of repayments of
Medite's U.S. bank debt, will be available for Valcor's general corporate
purposes, subject to compliance with certain covenants contained in the Valcor
Senior Note Indenture. Also under the terms of the Indenture, Valcor is
required to tender for a portion of the Valcor Notes, at par, to the extent that
a specified amount of these proceeds is not used to either permanently paydown
senior indebtedness of Valcor or its subsidiaries or invest in related
businesses, both as defined in the Indenture, within one year of disposition.
While Valcor is not yet required to execute a tender offer related to Medite's
asset dispositions, on March 20, 1997, Valcor announced it had initiated a
tender offer whereby Valcor would purchase up to $86.7 million principal amount
of Valcor Notes on a pro-rata basis, at par value, in satisfaction of the
covenant contained in the Indenture. Pursuant to its terms, the tender offer
will expire on April 24, 1997, unless extended by Valcor. The amount of Valcor
Notes which will ultimately be purchased by Valcor pursuant to the tender offer
is dependent upon the amount of Valcor Notes properly tendered. Consequently,
there can be no assurance as to the amount of Valcor Notes which will ultimately
be purchased by Valcor. The net proceeds from any disposition of the Company's
fast food operations, net of repayment of Sybra's bank indebtedness, would
similarly be available for Valor's general corporate purposes. If the
disposition of the Company's fast food operations is completed and none of those
net proceeds are used as provided by the Indenture, a portion of the Notes would
be subject to a subsequent tender offer.
VALCOR, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND
DESCRIPTION OF YEAR EXPENSES
<S> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 888 $ 184
Amortization of intangible assets:
Goodwill $1,008 $ 172
Franchise fees and other 6,848 1,423
$7,856 $1,595
Year ended December 31, 1995:
Allowance for doubtful accounts $ 570 $ 313
Amortization of intangible assets:
Goodwill $1,180 $ 166
Franchise fees and other 7,371 1,308
$8,551 $1,474
Year ended December 31, 1996:
Allowance for doubtful accounts $ 800 $ 295
Amortization of intangible assets:
Goodwill $1,346 $ 166
Franchise fees and other 8,226 1,295
$9,572 $1,461
</TABLE>
<TABLE>
<CAPTION>
BALANCE
DEDUCTIONS AT END
DESCRIPTION AND OTHER OF YEAR
<S> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ (502) $ 570
Amortization of intangible assets:
Goodwill $ - $ 1,180
Franchise fees and other (900) 7,371
$ (900) $ 8,551
Year ended December 31, 1995:
Allowance for doubtful accounts $ (83) $ 800
Amortization of intangible assets:
Goodwill $ - $ 1,346
Franchise fees and other (453) 8,226
$ (453) $ 9,572
Year ended December 31, 1996:
Allowance for doubtful accounts $ (821) $ 274
Amortization of intangible assets:
Goodwill $ - $ 1,512
Franchise fees and other (372) 9,149
$ (372) $10,661
</TABLE>
DEVELOPMENT AGREEMENT
This is a Development Agreement (`Agreement'') made in Fort Lauderdale,
Florida, by and between ARBY'S, INC., a Delaware corporation with its principal
office at 1000 Corporate Drive, Fort Laud., Florida 33334 (`Arby's), and Sybra,
Inc., a Michigan corporation with its principal office located at 8300 Dunwoody
Place, Suite 3000, Atlanta, Georgia, 30350 (`Developer'').
WHEREAS, Arby's owns a number of trademarks and service marks, including
the trademark `ARBY'S,'' and is a franchisor of Arby's Restaurants, which serve
roast beef sandwiches and other food items; and
WHEREAS, Developer desires the exclusive rights to develop Arby's
Restaurants within the geographic area specified in this Development Agreement
for the limited term of this Agreement; and
WHEREAS, Arby's is willing to grant such rights in accordance with the
terms and conditions of this Agreement.
NOW, THEREFORE, it is mutually agreed as follows:
1 . GRANT. Arby's hereby grants to Developer during the term of this
Development Agreement and subject to the conditions hereof the exclusive right
to develop Arby's Restaurants in the limited geographical area identified and
set forth in Exhibit A hereto, exclusive of any Unit Trading Area or Protected
Area located therein as defined in any License or Franchise Agreements currently
issued to other parties; this geographical area shall be referred to as the
`Territory.'' The operation of the restaurants developed pursuant to this
Agreement will be governed by individual License Agreements issued by Arby's in
accordance with Section 11 below. So long as Developer is in compliance with
the terms and conditions of this Agreement, Arby's will not license others to
operate, nor will it itself operate, any new or additional Arby's Restaurants in
the Territory during the term of this Agreement
2. TERM. Unless earlier terminated pursuant to Section 13, this
Development Agreement shall expire five (5) years from the date of execution of
this Agreement by Arby's or upon the execution by Arby's of the License
Agreement for the last of the restaurants specified in Exhibit B (the
`Development Schedule''), whichever first occurs.
3. DEVELOPMENT FEE. Upon execution of this Development Agreement,
Developer shall pay to Arby's a fee of $250,000 (the `Development Fee''). This
fee represents $140,000 payable upon execution of this Development Agreement and
$110,000 credit applied from the Consolidation of Development Agreement letter
dated August 20, 1992. This Development Fee shall be fully earned by Arby's in
consideration of its execution of this Agreement and shall be non-refundable.
However, Arby's shall credit $10,000 of the Development Fee toward payment of
the License Fee for each of the first twenty five (25) License Agreements issued
to Developer pursuant to this Development Agreement provided that the applicable
restaurants are constructed and opened in accordance with the Development
Schedule.
4. DEVELOPMENT SCHEDULE. Developer shall open and continuously operate
properly licensed Arby's Restaurants in accordance with the Development Schedule
set forth in Exhibit B. In the event that Developer opens and continuously
operates a greater number of Arby's Restaurants than required during any interim
period of the Development Schedule, the requirements of the succeeding period(s)
shall be deemed satisfied to the extent of such excess number of restaurants, up
to the total number of restaurants specified in the Development Schedule.
5. LOCATION OF RESTAURANTS. Developer is responsible for locating
proposed sites within the Territory for each of the restaurants contemplated in
the Development Schedule; during the term of this Agreement, Developer shall use
its best efforts to locate suitable sites. Arby's may in its discretion offer
counseling and advice in site selection. In no event, however, shall Arby's be
obligated to loan money, guarantee leases, provide financing or otherwise become
directly involved and/or obligated to Developer or to any third party in respect
of such site selection or development; these activities and undertakings shall
be the exclusive responsibility of Developer, financially and otherwise.
6. SITE ACCEPTANCE. Upon selection by Developer of a proposed site for a
restaurant, Developer promptly shall submit to Arby's such specific site data
and demographic and other information concerning the site as may be reasonably
required by Arby's, utilizing such forms as may be required by Arby's. Arby's
shall either accept or reject such site in accordance with Arby's then-current
site selection policies and procedures. To be effective, any acceptance must be
in writing. Developer understands and acknowledges that Arby's may reject any
proposed site, in which event Developer will not proceed at the rejected site,
but will seek to locate an acceptable site. The acquisition in any manner of
any proposed site prior to acceptance by Arby's shall be at the sole risk and
responsibility of Developer and shall not obligate Arby's in any way to accept
same.
7. DISCLAIMER. In executing this Development Agreement, accepting a
proposed site, giving approvals or advice or providing services or assistance in
connection with this Development Agreement, Arby's does not guarantee the
suitability of an accepted site or the success of any Arby's restaurant
established at such site. Arby's expressly disclaims any warranties, express or
implied, with respect to the suitability of any site or the success of any
restaurant. Developer understands and acknowledges that the suitability of a
site and the success of any restaurant depend on many factors outside the
control of either Arby's or Developer (such as interest rates, unemployment
rates, demographic trends and the general economic climate), but principally
depend on Developer's efforts in the operation of the restaurant.
8. LOCATION REQUIREMENTS. As a condition for accepting a proposed site,
Arby's may require Developer to negotiate a lease or sales contract that
includes certain terms regarding duration or other specified matters. Developer
understands and acknowledges that a site acceptance may be conditioned on such
matters and that if Developer does not wish to, or cannot, satisfy the pertinent
conditions within a reasonable time, the site will be deemed rejected.
9. CONSTRUCTION. Upon receiving acceptance for a proposed site,
Developer shall proceed promptly to secure control of the accepted site and to
obtain necessary zoning and building approvals and permits. Arby's will provide
generic plans for the Arby's-approved building, including specifications for
fixtures, furnishings, signs and equipment. Developer must hire an architect
and general contractor to adapt these generic plans to the accepted site and
must submit proposed final working plans to Arby's for approval within the time
limits set by Arby's. Developer shall not proceed with construction or
remodeling until Developer has received Arby's written approval of the final
working plans. Developer shall ensure that the building is constructed or
remodeled in accordance with the final working plans and specifications
designated and approved by Arby's. Developer will allow Arby's to make periodic
inspections and will provide such periodic progress reports as may be requested
by Arby's.
10. TRAINING. Unless Developer already is operating at least one Arby's
restaurant, Developer, a partner of Developer if Developer is a partnership, or
the majority shareholder of Developer if Developer is a corporation, must
complete Arby's New Owner's Training Program prior to issuance of the License
Agreement for the first restaurant set forth in the Development Schedule. In
addition, if Developer is not operating any Arby's restaurants prior to issuance
of the License Agreement for the first restaurant set forth in the Development
Schedule, two representatives of Developer must attend and be certified at
Arby's Restaurant Management Training Program prior to issuance of the License
Agreement for the first restaurant under the Development Schedule, another
representative of Developer must attend and be certified prior to issuance of
the License Agreement for the second restaurant under the Development Schedule,
and Arby's in its sole discretion and prior to issuance of any further License
Agreements for additional restaurants may require additional representatives of
Developer to attend and be certified at the Restaurant Management Training
Program or complete another comparable program approved in advance by Arby's.
If Developer is an individual who intends to participate in the daily operation
of the restaurant, or if Developer includes a partner or shareholder who intends
to participate in the daily operation of the restaurant, that person must attend
and be certified at the Restaurant Management Training Program as one of
Developer's first two representatives. If Developer already is operating one,
but only one, Arby's restaurant prior to issuance of the License Agreement for
the first restaurant under the Development Schedule, one additional
representative of Developer must attend and be certified at the Restaurant
Management Training Program prior to issuance of the License Agreement for the
first restaurant under the Development Schedule, and Arby's in its sole
discretion and prior to issuance of any further License Agreements for
additional restaurants may require additional representatives of Developer to
attend and be certified at the Restaurant Management Training Program or
complete another comparable program approved in advance by Arby's. If Developer
already is operating two or more Arby's restaurants prior to issuance of the
License Agreement for the first restaurant under the Development Schedule,
Arby's in its sole discretion and prior to issuance of any License Agreement
under the Development Schedule, may require an additional representative to
attend and be certified at the Restaurant Management Training Program or
complete another comparable training program approved in advance by Arby's.
Arby's will pay tuition for training at the New Owner's Training Program and the
Restaurant Management Training Program; all other expenses shall be the sole
responsibility of Developer.
11. LICENSE AGREEMENT. No Arby's Restaurant may be opened or operated by
Developer under any circumstances until the required License Fee has been paid
and the License Agreement for such location has been executed by Arby's. The
License Fee shall be thirty-seven thousand and five hundred dollars ($37,500)
for Developer's first License Agreement, and twenty-five thousand dollars
($25,000) for each subsequent License Agreement. The License Fee for each
License Agreement must be paid at least thirty (30) days prior to scheduled
execution of the Agreement. All License Agreements issued pursuant to this
Development Agreement will contain generally the same terms and conditions as
are being offered to other licensees similarly situated at time of issuance,
including without limitation those terms and conditions pertaining to royalties
and other fees and duration of the Agreement; as a condition of Arby's
execution of such License Agreement, Arby's may require Optionee or its
principles to execute a personal guarantee, letter of credit or corporate
guarantee to secure payment of royalties and other fees required to be paid
under the License Agreement. Developer shall comply with Arby's then-current
franchising policies and procedures for issuance of the License Agreements.
Arby's shall be under no obligation to execute and issue a License Agreement if
Developer is in breach or default of any other License or Franchise Agreement
between Arby's and Developer, or if Developer is not eligible for expansion
pursuant to Arby's then-current criteria for expansion. In addition, Arby's
shall be under no obligation to execute and issue a License Agreement unless
Developer has complied in a timely manner with all terms and conditions of this
Development Agreement and has satisfied all requirements set forth herein
(including construction and training requirements) with respect to the
pertinent accepted site. If and when a License Agreement is executed by
Arby's, it shall govern the relations between the parties with respect to the
pertinent restaurant.
12. NO RIGHT TO OPERATE OR USE TRADEMARKS. Developer acknowledges that
until a License Agreement has been issued for a specified site, Developer shall
not have or be entitled to exercise any of the rights, powers and privileges
granted by the License Agreement, including without limitation the right to use
Arby's trademarks, service marks and trade names; that the execution of this
Development Agreement shall not be deemed to grant any such rights, powers or
privileges to Developer, and that Developer may not under any circumstances
commence operation of any Arby's restaurant prior to execution by Arby's of a
License Agreement for the pertinent location.
13. TERMINATION. This Agreement shall terminate immediately and without
notice to either party upon:
(a) the death of Developer, if Developer is an individual; or
(b) the commencement of any proceedings by or against Developer under
the Bankruptcy Act, under any Chapter thereof or amendment
thereto, or under any other insolvency act, whether federal or
state; the appointment of any trustee or receiver for the business
or property of Developer, or any assignment by Developer for the
benefit of creditors.
Arby's shall have the right at its election to terminate this Agreement
immediately upon notice to Developer, upon the occurrence of any of the
following
(a) failure to comply with the Development Schedule;
(b) the attempted assignment of this Agreement without the prior
written approval of Arby's;
(c) if Developer is a corporation or a partnership, the transfer of
any of the capital stock or partnership interest involving 25% or
more of such corporation or partnership during the term of this
Agreement without the prior written approval of Arby's, which
approval will not be unreasonably withheld, subject to the
transfer provisions under the current form License Agreement;
(d) the discovery by Arby's of any material misrepresentation in any
of the information or documents submitted to Arby's by or on
behalf of Developer,
(e) any violation by Developer of any of the provisions of this
Agreement or
(f) the termination by Arby's of any License or Franchise Agreement or
other agreement between Arby's and Developer or Developer's
failure to cure a default under any other agreement between Arby's
and Developer within the time specified by Arby's.
For purposes of Sections 11 and 13 herein, any License or Franchise
Agreements issued to Developer, any affiliated company of Developer or any
corporation, partnership or joint venture (or their affiliates) in which
Developer or any stockholder, partner or joint venture of Developer, direct or
indirect, has any interest of ownership or participation, regardless of
location, shall be deemed an Agreement between Arby's and Developer.
14. EFFECT OF EXPIRATION OR TERMINATION. Upon expiration or completion of
this Development Agreement, or upon termination for any reason, the rights
granted to Developer pursuant to Section 1 of this Development Agreement shall
be extinguished immediately. Unless the parties have executed a new development
agreement, Arby's thereafter shall have the right to operate or permit others to
operate Arby's Restaurants within the Territory, except as limited by the Unit
Trading Area or Protected Area provisions of any then-effective License or
Franchise Agreements.
15. CONFIDENTIALITY. At all times during the term of this Agreement and
after termination of this Agreement for any reason, Developer (and if a
corporation or partnership, its shareholders, directors, and officers or
partners, as individuals) shall not divulge, disclose or communicate, directly
or indirectly, to any other person or entity any confidential or proprietary
information or knowledge obtained from Arby's.
16. ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon Arby's, its successors and assigns. However, neither this
Agreement nor any of Developer's rights hereunder shall be assignable or
transferable by Developer, directly or indirectly, by operation of law or
otherwise. without prior written approval from Arby's.
17. NEW DEVELOPMENT AGREEMENT. If Developer wishes to negotiate a new
development agreement with Arby's with respect to further development of Arby's
Restaurants in the Territory, Developer must so advise Arby's in writing sixty
(60) days before the expiration date of this Development Agreement or sixty (60)
days before the anticipated date of execution of the License Agreement for the
final restaurant under the Development Schedule in Exhibit B. Subject to receipt
of such notice and so long as this Development Agreement is in effect and
Developer is not and has not been in default under this Development Agreement or
any License or Franchise Agreement or other agreement with Arby's, Arby's then
will negotiate in good faith with Developer with respect to a new development
agreement during the remainder of the term of this Development Agreement
18. GOVERNING LAW -AND FORUM SELECTION. This Agreement shall be governed,
construed and interpreted in accordance with the laws of the State of Florida.
In the event of any dispute concerning the parties' rights or obligations under
this Agreement, Developer agrees to file any suit against Arby's only in the
federal or state court having jurisdiction where Arby's principal office is then
located.
19. DEVELOPER'S ACKNOWLEDGMENTS Developer understands and acknowledges
that there are significant risks in any business venture and that the primary
factor in Developers success or failure under this agreement will be Developer's
own efforts. In addition, Developer acknowledges that Arby's and its
representatives have made no representations to Developer other than or
inconsistent with the matters set forth in the Franchise Offering Circular
provided to Developer and that Developer has undertaken this venture solely in
reliance upon the matters set forth in the Franchise Offering Circular and
Developer's own independent investigation of the merits of this venture.
20. ENTIRE AGREEMENT. This Development Agreement contains the entire
agreement between the parties and shall not be modified except by a written
document executed by both parties.
WITNESS: DEVELOPER: SYBRA, INC.
/S/ Carolyn Berkowitz /s/ Charles N. Hyslop
Charles N. Hyslop
President
Date: 11/11/96
WITNESS: ARBY'S, INC.
/s/ Charlotte Kozeal /s/ Kenneth N. Fischer
Kenneth N. Fischer
Vice President, Finance
Controller
Date: 11/13/96
EXHIBIT A
TERRITORY
The following Pennsylvania Counties:
ADAMS COUNTY
DAUPHIN COUNTY
Excluding the Unit Trade Areas of the following units:
Unit # 5140 located at 4310 Union Deposit Road, Harrisburg, PA
Unit #5350 located at 244 Strawberry Square, Harrisburg, PA
CUMBERLAND COUNTY
JUNIATA COUNTY
LANCASTER COUNTY
LEBANON COUNTY
MIFFLIN COUNTY
PERRY COUNTY
YORK COUNTY
Excluding the following Unit Trade Area of the following unit:
Unit # 5889 located at 2899 Whiteford Road, York PA
(Harrisburg - Lancaster - Lebanon - York DMA)
Arby's will grant to SYBRA the NON-EXCLUSIVE right to develop
15 new restaurants in the following DMA's subject to Arby's accepting the
proposed sites:
Dallas-Ft Worth DMA
Detroit
Flint-Saginaw-Bay City
Grand Rapids-Kalamazoo-Battle Creek
Lansing
Philadelphia
ACKNOWLEDGED AND APPROVED
/s/ Charles H. Hyslop (Developer)
/s/ Kenneth C. Fischer (Arby's)
EXHIBIT B
DEVELOPMENT SCHEDULE
1. Four (4) licensed, open and operating Arby's Restaurant(s) on or before
December 31, 1997 to be opened in the following Territories:
*Harrisburg DMA Other DMA TOTAL
2 3 5
2. Six (6) additional licensed, open and operating Arby's Restaurant(s) on or
before December 31, 1998 for a cumulative total of ten (10) Restaurants in
the Territory.
*Harrisburg DMA Other DMA TOTAL
2 3 5
3. Five (5) additional licensed, open and operating Arby's Restaurant(s) on or
before December 31,1999 for a cumulative total of fifteen (15) Restaurants
in the Territory.
*Harrisburg DMA Other DMA TOTAL
2 3 5
4. Five (5) additional licensed, open and operating Arby's Restaurant(s) on or
before December 31, 2000 for a cumulative total of twenty (20) Restaurants
in the Territory.
*Harrisburg DMA Other DMA TOTAL
2 3 5
5. Five (5) additional licensed, open and operating Arby's Restaurant(s) on or
before December 31, 2001 for a cumulative total of twenty-five (25)
Restaurants in the Territory.
*Harrisburg DMA Other DMA TOTAL
2 3 5
*Harrisburg-Lancaster-Lebanon-York DMA as defined on Exhibit `A''.
ACKNOWLEDGED AND APPROVED
/s/ Charles H. Hyslop (Developer)
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BETWEEN
MEDITE CORPORATION
AND
SIERRA PINE, a California limited partnership
January 31, 1997
TABLE OF CONTENTS
1. Definitions. 1
2. Basic Transaction. 7
(a) Purchase and Sale of Assets. 7
(b) Assumption of Liabilities. 7
(c) Purchase Price. 7
(d) The Closing. 7
(e) Deliveries at the Closing. 8
(f) Adjustments to Purchase Price;
Final Net Working Capital Amount 8
(g) Allocation. 9
(h) Inventory Value 9
(i) Transfer 9
3. Representations and Warranties of the Seller. 9
(a) Organization of the Seller. 10
(b) Authorization of Transaction. 10
(c) Noncontravention. 10
(d) Brokers' Fees. 11
(e) Legal Compliance 11
(f) Real Property 11
(g) Contracts 12
(h) Litigation. 12
(i) Financial 12
(j) Permits and Licenses 13
(k) Scope of the Acquired Assets 13
(l) Environmental Matters 13
(m) Intellectual Property Rights 14
(n) Taxes 14
4. Representations and Warranties of the Buyer. 14
(a) Organization of the Buyer. 15
(b) Authorization of Transaction. 15
(c) Noncontravention. 15
(d) Brokers' Fees. 15
(e) Financing 16
5. Pre-Closing Covenants. 16
(a) General. 16
(b) Notices and Consents. 16
(c) Operation of Business. 16
(d) Access. 17
(e) Notice of Developments. 17
(f) Employee Matters 18
(g) Corporate Documentation and Authorization/Opinion 18
(h) Title/Survey 18
6. Post-Closing Covenants 20
(a) General 20
(b) Litigation Support 20
(c) Covenant not to Compete 20
(d) Confidential Information 21
(e) Employee Matters 21
(f) Access 21
(g) Air Permit 21
(h) Purchase Price Adjustments 22
(i) Refiner Conversion 22
7. Tax Matters 22
(a) Tax Cooperation 22
(b) Allocation of Taxes 22
(c) Transfer Taxes 23
8. Conditions to Obligation to Close. 23
(a) Conditions to Obligation of the Buyer. 23
(b) Conditions to Obligation of the Seller. 24
9. Survival of Representations and Warranties 25
10. Indemnification Provisions for Benefit of the Buyer 26
11. Indemnification Provisions for Benefit of the Seller 26
12. Matters Involving Third Parties 27
13. Miscellaneous Indemnity Provisions 28
(a) Determination of Adverse Consequences 28
(b) Other Indemnification Provisions 28
14. Termination. 28
(a) Termination of Agreement. 28
(b) Effect of Termination. 29
15. Remediation Obligations for Hazardous Materials 29
16. Employee Severance. 30
17. Miscellaneous. 31
(a) Press Releases and Public Announcements 31
(b) No Third Party Beneficiaries. 32
(c) Entire Agreement. 32
(d) Succession and Assignment. 32
(e) Counterparts. 32
(f) Headings. 32
(g) Notices. 32
(h) Governing Law. 33
(i) Amendments and Waivers. 34
(j) Severability. 34
(k) Dispute Resolution; Expenses 34
(l) Construction. 35
(m) Incorporation of Exhibits. 35
(n) Allocation of Purchase Price 35
(o) Bulk Transfer Laws. 35
EXHIBITS
EXHIBIT A-1 Form of Deed
EXHIBIT A-2 Form of Bill of Sale and Assignment
EXHIBIT B Form of Assumption
EXHIBIT C Allocation Schedule
EXHIBIT D Disclosure Schedule
EXHIBIT E License Agreement
EXHIBIT F Form of Valhi, Inc. Guaranty
EXHIBIT G Form of Assignment of License Agreement
EXHIBIT H Environmental Report
EXHIBIT I [Reserved]
EXHIBIT J Form of ODOE Estoppel Certificate
EXHIBIT K Form of Licensor Estoppel Certificate
SCHEDULES
SCHEDULE 1 Acquired Assets Listing
SCHEDULE 1.1 Real Property
SCHEDULE 1.2 Fixed Assets
SCHEDULE 1.4 Certain Agreements
SCHEDULE 1.5 Intellectual Property
SCHEDULE 1.6 Accounts Payable Listing
SCHEDULE 1.7 Accounts Receivable Listing
SCHEDULE 2 Assumed Liabilities Listing
SCHEDULE 3 Specified Persons for Determining Knowledge of Seller
SCHEDULE 4 Specified Persons for Determining Knowledge of Buyer
SCHEDULE 5 Maximum Employee Severance Obligations - MDF Facility
SCHEDULE 5.1 Maximum Employee Severance Obligations - Corporate
Headquarters
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
January 31, 1997, by and between SIERRA PINE, a California limited partnership
(the "Buyer"), and MEDITE CORPORATION, a Delaware corporation (the "Seller").
The Buyer and the Seller are referred to individually as a "Party" and
collectively as the "Parties."
This Agreement contemplates a transaction in which the Buyer will purchase
the Acquired Assets (as defined below) and assume the Assumed Liabilities (as
defined below) of the Seller in return for cash and the assumption of debt.
Excluded Liabilities shall remain the obligation of the Seller.
Now, therefore, in consideration of the premises and the mutual promises,
representations, warranties, and covenants set forth below, the Parties agree as
follows.
1. Definitions.
"Accounting Report" has the meaning set forth in Section2(f) below.
"Acquired Assets" means all of the right, title, and interest of Seller in
and to all of the assets described on Schedule 1 attached to this Agreement and
incorporated herein by this reference.
"Additional Endorsements" has the meaning set forth in Section5(h) below.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
settlements, liabilities (absolute, accrued, contingent or otherwise),
obligations, taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Ancillary Agreements" has the meaning set forth in Section2(e) below.
"Annual Financial Statements" has the meaning set forth in Section3(i)
below.
"Applicable Rate" means the "Prime Rate" as identified in the Wall Street
Journal Money Rates section from time to time as the base rate of interest for
corporate loans.
`Applicable Severance Obligations'' has the meaning set forth in
Section16(c).
"Assumed Liabilities" means all liabilities and obligations of the Seller
as described on Schedule 2 attached to this Agreement and incorporated herein by
this reference.
"Business" means the Seller's business operations relating to the MDF
Facility.
"Buyer" has the meaning set forth in the preface above.
"Buyer Confidential Information" means any information known to Seller as
of the Closing Date concerning the Business that as of the Closing Date (i) is
not, and does not become as a result of any action by Seller, its officers,
directors, employees, agents or attorneys, generally available to the public,
and (ii) is not, and does not become, available to the Seller from any source
other than the Buyer or its affiliates or Seller and its affiliates.
"Cause" means theft or other acts of dishonesty, commission of a felony or
a crime involving moral turpitude, violation of substance abuse policy,
continuous unexplained absence from work or violation of express employer
policies by an employee.
"Closing" has the meaning set forth in Section2(d) below.
"Closing Balance Sheet" has the meaning set forth in Section2(f) below.
"Closing Date" has the meaning set forth in Section2(d) below.
"Confidential Information" means any information concerning the Business
and any other businesses and affairs of the Seller and its Subsidiaries that (i)
is not already, and does not become as a result of any action by Buyer, its
officers, directors, employees, agents or attorneys, generally available to the
public, and (ii) is not, and does not become, available to the Buyer from any
source other than the Seller or its Subsidiaries.
"Disclosure Schedule" means the disclosure schedule attached hereto as
Exhibit D and incorporated in this Agreement by this reference. For the
convenience of the parties, each exception noted in the Disclosure Schedule
shall be numbered to correspond to the applicable subsection to which it refers.
"Environmental Report" shall mean the reports setting forth the results of
the phase I and phase II investigation performed by Kennedy & Jenks at the MDF
Facility more particularly described in Exhibit H.
"Estimated Net Working Capital Amount" means the estimated net book value
as of the Closing Date determined by the Seller as provided herein in accordance
with GAAP and consistent with the Seller's past practices, of all Working
Capital related to the Business.
"Excluded Liabilities" means any and all liabilities, obligations, losses,
damages, claims, demands, remedies, actions and causes of action of every kind
and nature whatsoever, known or unknown, asserted or unasserted, absolute or
contingent, liquidated or unknown, due or to become due, whether at law or in
equity, in contract or tort or arising under or by virtue of any statute,
regulation, or common law theory of liability, now recognized by law or that may
be created or recognized in the future in any manner, including without
limitation by statute, regulation, or judicial decision, including but not
limited to actual damages, exemplary and punitive damages, all penalties of any
kind, and prejudgment and postjudgment interest, of the Seller that are not
Assumed Liabilities, including: (i) workers' compensation claims or liabilities
or claims regarding injury to or death of persons or damage to or destruction of
property with respect to incidents occurring on or prior to the Closing Date
regardless of when said claims or liabilities are asserted and liabilities
arising out of or in connection with any of Seller's employee health, welfare
and pension (including defined benefit pension and profit sharing) plans; (ii)
except to the extent provided in Section16, severance obligations, if any,
arising out of termination of Seller's employees at the MDF Facility prior to
the Closing or other employee obligations arising, or based on events occurring,
or resulting from, the termination of such employees before the Closing,
including all liabilities relating to or arising out of any collective
bargaining agreement including the arbitration of any such claim, or arising out
of any collective bargaining obligation or relationship of Seller; (iii) Taxes
owed by or imposed upon Seller related to the Acquired Assets incurred in or
attributable to any Pre-Closing Tax Period; (iv) product liability, product
warranty liability and tort liabilities of Seller, in each case with respect to
products sold prior to the Closing Date; (v) contract claims or liabilities of
Seller existing as of or relating to performance prior to the Closing Date; (vi)
except to the extent provided in Section15, liabilities for (A) the disposal
prior to the Closing Date by Seller of Hazardous Materials other than on the
real properties that are part of the Acquired Assets, or (B) the migration prior
to the Closing Date of Hazardous Materials off the real properties that are part
of the Acquired Assets while Seller owned such real properties; (vii) all
employee severance payments and obligations with respect to employees of the
Business located outside of Oregon; (viii) any liability for legal, investment
banking and other expenses and fees incurred by Seller in connection with the
negotiation and preparation of this Agreement and the sale of the Acquired
Assets to Buyer; (ix) any liability or obligation of the Seller under this
Agreement (or under any side agreement between the Seller on the one hand and
the Buyer on the other hand entered into on or after the date of this
Agreement); (x) any liability or obligation of Seller (whether for the payment
of money or otherwise) under either (A) that certain agreement dated August 31,
1995 between Seller and Convey/Keystone concerning the purchase of an ammonia
treatment system or (B) that certain agreement dated August 23, 1995 between
Medite Corporation and Sunds Defibrator concerning the conversion of five L-42
refiners to five L-46 refiners; or (xi) any cost or expense related to the
environmental reports prepared pursuant to the Kennedy/Jenks agreement
identified in Section 3(g) of the Disclosure Schedule.
"Final Net Working Capital Amount" means the net book value as of the
Closing Date, determined by the Buyer and the Seller after the Closing in
accordance with GAAP and consistent with the Seller's past practices, of all
Working Capital related to the Business.
`GAAP'' means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Materials" means any hazardous substance defined or listed as a
hazardous substance within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, or other hazardous
substances regulated under any federal, state or local environmental law,
statute, regulation, ordinance, permit or other legal requirement.
"Indemnified Party" has the meaning set forth in Section12(a) below.
"Indemnifying Party" has the meaning set forth in Section12(a) below.
"Intellectual Property Rights" means intellectual property rights,
including, without limitation, patents, patent applications, registered and
unregistered trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications and registered
publications rights, computer programs, computer software, inventions, know-how,
trade secrets, technology, proprietary processes and formulae that are part of
the conduct of the Business.
"Inventory" means raw materials, work-in-process and finished goods related
to the Business but shall not include supplies or parts.
"Inventory Value" means the value of all Inventory as determined in
accordance with Section2(h) below.
"Knowledge" means, with respect to the Seller, the actual knowledge without
independent investigation of any one or more of the persons listed on attached
Schedule 3 and, with respect to the Buyer, the actual knowledge without
independent investigation of any one or more of the persons listed on attached
Schedule 4 .
"License Agreement" means the License Agreement attached hereto as Exhibit
E.
"MDF" means medium density fibreboard.
"MDF Facility" means the Seller's MDF facility in Medford, Oregon as more
particularly described in Schedule 1.
"Offer of Employment" means an offer by Buyer or Timber Products Company to
employ, in Medford, Oregon, an employee of Seller on substantially similar terms
and conditions to the terms and conditions of such employee's existing
employment with Seller (including without limitation, salary, position and
responsibilities) which employment will commence not later than one (1) week
after the Closing, subject to satisfactory completion of drug testing applicable
to all of Buyer's employees; provided however, that an offer by Buyer shall be
deemed an Offer of Employment notwithstanding that the terms and conditions
under which employees of Seller who are represented by a collective bargaining
representative shall be subject to, and may be modified pursuant to, collective
bargaining between Buyer and such collective bargaining representative.
"Ordinary Course of Business" with respect to a Person means the ordinary
course of business consistent with that Person's past custom and practice
(including, without limitation, with respect to quantity and frequency).
`ODEQ'' has the meaning set forth in Section6(g).
"ODOE Loan" means that certain loan between the Seller and the State of
Oregon Department of Energy and evidenced by the ODOE Loan Documents.
"ODOE Loan Documents" means the Loan Agreement dated as of October 8, 1992
and the Deed of Trust, Security Agreement, Promissory Note and Hazardous
Substance Agreement dated March 1, 1993 between the Seller and the State of
Oregon Department of Energy.
"Party" has the meaning set forth in the preface above.
"Permitted Exceptions" has the meaning set forth in Section5(h).
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Post-Closing Tax Period" means any tax period (or portion thereof)
beginning after the Closing Date.
"Pre-Closing Tax Period" means any tax period (or portion thereof) ending
on or before the Closing Date.
"Purchase Price" has the meaning set forth in Section2(c) below.
"Real Property" has the meaning set forth in Section5(h) below.
"Required Endorsements" has the meaning set forth in Section5(h) below.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, and (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings.
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any Person with respect to which a specified Person (or
a Subsidiary thereof) owns a majority of the common stock or other equity
interests, or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors or other persons performing
similar functions with respect to such entity.
"Survey" has the meaning set forth in Section5(h) below.
"Taxes" means all taxes, however denominated, including any interest,
penalties, or other additions that may become payable in respect thereof,
imposed by any Federal, territorial, state, local, or foreign government or any
agency or political subdivision of any such government, which shall include,
without limitation, all income or real or personal property taxes, payroll and
employee withholding taxes, unemployment insurance, social security taxes, sales
and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, stamp taxes, environmental
taxes, transfer taxes and other governmental charges of a similar nature to any
of the foregoing.
"Third Party Claim" has the meaning set forth in Section12(a) below.
"Title Commitment" means the Preliminary Report, Order No. 54500mdf issued
by Jackson County Title Division of Continental Lawyers Title Company dated as
of 5:00 p.m. on December 9, 1996.
"Title Company" means Jackson County Title Division, Continental Lawyers
Title Company.
"WARN Act" means the Worker Adjustment and Retraining Notification Act.
"Working Capital" means petty cash at the MDF Facility, accounts receivable
(excluding reserves for bad debts), accounts payable, accrued current
liabilities, prepaid items and Inventory Value.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On the terms and subject to the
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section2.
(b) Assumption of Liabilities. On the terms and subject to the conditions
of this Agreement, the Buyer agrees to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligations or liabilities of
the Seller that are not Assumed Liabilities. Without limiting the generality of
the foregoing, Excluded Liabilities remain the obligation of the Seller.
(c) Purchase Price. The Buyer agrees to pay to the Seller at the Closing
$37,541,000 for the MDF Facility plus or minus the Estimated Net Working Capital
Amount (as adjusted as provided in Section2(f) below, the "Purchase Price") by
(i) assumption by Buyer, in a manner and pursuant to assumption documents
reasonably satisfactory to Seller and the Buyer, of the ODOE Loan (which
assumption shall be deemed to have a value equal to (1) the outstanding
principal amount of the ODOE Loan as of the Closing Date, plus (2) the amount of
interest accrued and unpaid with respect to the ODOE Loan as of the Closing
Date), and (ii) payment of the remainder of the Purchase Price in cash by wire
transfer or delivery of other immediately available funds.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the main offices of U.S. National
Bank of Oregon in Portland, Oregon or any other mutually agreed upon location in
Portland, Oregon commencing at 9:00 a.m. local time on the fourteenth day after
the date of this Agreement (the "Closing Date") unless (i) such day is not a
business day, in which case the Closing shall occur at 9:00 a.m. local time on
the next succeeding business day, or (ii) as of such day all of the conditions
to the obligations of the Parties to consummate the transactions contemplated by
this Agreement (other than conditions with respect to actions the respective
Parties will take at the Closing itself) have not been satisfied or waived, in
which case the Closing shall occur on the second business day following the
satisfaction or waiver of all such conditions; provided, however, that by notice
by the Buyer to the Seller not later than twelve (12) days after the date of
this Agreement, the Buyer may extend the Closing Date to date not later than
twenty-one (21) days after the date of this Agreement. Either the Buyer or the
Seller may terminate this Agreement in accordance with Section14 if the Closing
Date shall not have occurred by the twenty-first day after the date of this
Agreement. The Closing shall be structured as a so-called "New York Style"
closing with the simultaneous issuance of the Title Policy by the Title Company
to Buyer and disbursement of the cash portion of the Purchase Price to Seller.
In connection therewith Buyer and Seller shall provide such gap indemnities and
undertakings as the Title Company may reasonable require. If the Title Company
is unable to facilitate a New York Style closing, the Closing shall be
consummated through a customary deed and money escrow arrangement with such
modifications thereto as are necessary to conform with the provisions of this
Agreement.
(e) Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section8(a) below; (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in Section8(b)
below; (iii) each of the Seller and the Buyer will execute, acknowledge (if
appropriate), and deliver to the other (A) assignments, including a deed in the
form attached hereto as Exhibit A-1 and bill of sale and assignment in the form
attached hereto as Exhibit A-2, the assumption in the form attached hereto as
Exhibit B and an assignment and assumption of Seller's rights and obligations
under the License Agreement in the form attached hereto as Exhibit G (such real
property transfer documents, assumption and assignments, together with the
documents delivered under Subsections (ii) above and (iii)(B) below, are
referred to collectively as the "Ancillary Agreements"), and (B) such other
instruments of sale, transfer, conveyance, assignment and assumption as the
other reasonably may request; (iv) Seller will deliver to Buyer such detail
concerning the calculation of the Estimated Net Working Capital Amount as Buyer
may reasonably request; and (v) the Buyer will deliver to the Seller the
consideration specified in Section2(c) above.
(f) Adjustments to Purchase Price; Final Net Working Capital Amount.
(i) As promptly as practicable, but not before ninety (90) and not
later than one hundred twenty (120) days following the Closing Date, (i)
the Seller shall cause to be prepared, in accordance with GAAP and
consistent with its past practices, a balance sheet of the Business as of
the close of business on the Closing Date (the "Closing Balance Sheet");
and (ii) the Seller shall prepare a schedule setting forth the calculation
of the Final Net Working Capital Amount based on the Closing Balance Sheet
and (iii) the accounts receivable amount included in the Closing Balance
Sheet shall be determined as set forth in Section2(f)(ii). Promptly after
completion, the Seller shall deliver to the Buyer copies of the Closing
Balance Sheet and the schedule setting forth the calculation of the Final
Net Working Capital Amount (collectively, the "Accounting Report"). Within
ten (10) days after receipt of the Accounting Report, unless Buyer provides
notice to Seller of objection to the Accounting Report, (i) if the Final
Net Working Capital Amount exceeds the Estimated Net Working Capital
Amount, the Buyer shall make a cash payment to the Seller in an amount
equal to such excess; and (ii) if the Estimated Net Working Capital Amount
exceeds the Final Net Working Capital Amount, the Seller shall make a cash
payment to the Buyer in an amount equal to such excess. Any payments
pursuant to the foregoing provisions shall be adjustments to the Purchase
Price. In the event of any disputes with respect to the Purchase Price
adjustments pursuant to this Section2(f), the parties shall use their
respective best efforts to resolve such matters as provided in
Section17(k).
(ii) In preparing the Accounting Report, only those accounts
receivable actually collected as of ninety (90) days after the Closing Date
(determined with respect to the accounts receivable invoice referenced on
each respective payment), shall be considered in the calculation of the
Final Net Working Capital Amount and the Purchase Price shall be adjusted
accordingly. Accounts receivable which remain uncollected as of ninety
(90) days after the Closing Date shall not be counted in the Final Net
Working Capital Amount. Buyer promptly shall reassign all such uncollected
accounts receivable to the Seller.
(g) Allocation. The Parties agree to allocate the Purchase Price (and all
other capitalizable costs) among the Acquired Assets for all purposes (including
financial accounting and tax purposes) in accordance with the allocation
schedule attached hereto as Exhibit C. The Buyer and the Seller will cooperate
in the preparation and filing of Internal Revenue Service Form 8594 in a manner
consistent with this Section2(g); provided however, neither Party shall be
liable to the other in the event that such allocation is challenged by the
Internal Revenue Service.
(h) Inventory Value. Inventory shall be valued at average cost (excluding
LIFO reserves) in accordance with GAAP consistent with Seller's past practices,
including application of GAAP with respect to the lower of cost or market
valuation adjustments and valuation adjustments with respect to excess and slow
moving inventories.
(i) Transfer. Seller shall transfer possession of the Acquired Assets to
Buyer simultaneously with Closing.
3. Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section3 are
true, correct and complete, except to the extent qualified or supplemented by
the matters set forth in the Disclosure Schedule, as of the date of this
Agreement and will be true, correct and complete, except to the extent qualified
or supplemented by the matters set forth in the Disclosure Schedule, as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section3).
(a) Organization of the Seller. The Seller is a corporation validly
existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. The Seller has the corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform its obligations under this Agreement and the Ancillary Agreements,
and the execution and delivery of this Agreement and the Ancillary Agreements
has been duly authorized and approved by all necessary corporate action of the
Seller. This Agreement constitutes, and the Ancillary Agreements when executed
by the Seller will constitute, valid and legally binding obligations of the
Seller, enforceable in accordance with their respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated by this Agreement or the Ancillary Agreements, will (i) violate any
valid constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which any of the Seller and the Acquired Assets is subject
or any provision of the charter or bylaws of the Seller; or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice or consent under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice or obtain consent, or Security Interest
would not have a material adverse effect on the financial condition of the
Seller taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements. To the
Knowledge of the Seller, and other than in connection with the provisions of the
Hart-Scott-Rodino Act, the Seller does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement or the Ancillary Agreements, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the financial condition of
the Seller taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements.
(d) Brokers' Fees. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement or the Ancillary Agreements to which
the Acquired Assets could be subjected for which the Buyer could become liable
or obligated.
(e) Legal Compliance. The Seller has complied with all applicable and
valid laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), except where the failure to
comply would not have a material adverse effect upon the financial condition of
the Acquired Assets and Assumed Liabilities taken as a whole.
(f) Real Property.
(i) Section3(f)(i) of the Disclosure Schedule lists all Real
Property that is part of the Acquired Assets. With respect to each such
parcel of Real Property, and except as may be disclosed in any title
commitments issued with respect thereto:
(A) the Seller has good title to the Real Property, free and
clear of any Security Interest and other easements or covenants,
except as set forth in the Title Commitment and documents referenced
therein and except for building restrictions, zoning restrictions, and
similar matters arising from governmental action applicable generally
to properties of a similar character;
(B) there are no leases, subleases, licenses, concessions, or
other agreements granting to any party or parties the right of use or
occupancy of any portion of the parcel of real property; and
(C) there are no outstanding options or rights of first refusal
to purchase or lease the parcel of real property, or any portion
thereof or interest therein.
(ii) Section3(f)(ii) of the Disclosure Schedule lists all real
property leased or subleased that is part of the Acquired Assets. The
Seller has delivered to the Buyer correct and complete copies of the leases
and subleases listed in Section3(f)(ii) of the Disclosure Schedule (as
amended to date). To the Knowledge of the Seller, each lease and sublease
listed in Section3(f)(ii) of the Disclosure Schedule is legal, valid,
binding, enforceable in accordance with its terms, and in full force and
effect, except where the illegality, invalidity, nonbinding nature,
unenforceability, or ineffectiveness would not have a material adverse
effect on the Acquired Assets as a whole.
(g) Contracts. Section3(g) of the Disclosure Schedule lists all written
contracts and other written agreements relating to the Acquired Assets and
Assumed Liabilities the performance of which will involve consideration in
excess of $10,000, other than the Real Property leases and subleases listed in
Section3(f)(ii). The Seller has delivered to the Buyer a correct and complete
copy of each contract or other agreement listed in Section3(g) of the
Disclosure Schedule (as amended to date). To the Knowledge of Seller, all
contracts and other written agreements relating to the Acquired Assets and
Assumed Liabilities and listed on the Disclosure Schedule are in full force and
effect and are binding upon and enforceable in all material respects against the
parties thereto. To the Knowledge of Seller, Seller has not received any
written communications from any other party to the contracts required to be
disclosed under this Section3(g) which asserts a material breach to such
contract or which claims such contract is not valid or enforceable in any
material respect.
(h) Litigation. Section3(h) of the Disclosure Schedule sets forth each
instance in which the Seller (but only to the extent relating to the Acquired
Assets or Assumed Liabilities) or the Acquired Assets or Assumed Liabilities (i)
is subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is the subject of any pending, or to the Knowledge of Seller,
threatened in writing, action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction, except where the injunction,
judgment, order, decree, ruling, action, suit, proceeding, hearing, or
investigation would not reasonably be expected to involve consideration in
excess of $5,000. Section3(h) of the Disclosure Schedule lists all payments
during the five (5) years preceding the Closing Date for product-related claims
with respect to which each claim individually exceeds $25,000 in connection with
the products manufactured at the MDF Facility. The Seller is not a party to any
decree, order or arbitration award (or agreement entered into in any
administrative, judicial or arbitration proceeding with any governmental
authority) with respect to or having a material adverse effect upon the
financial condition of the Acquired Assets or Assumed Liabilities taken as a
whole.
(i) Financial.
(i) The Seller's balance sheets dated as of December 31, 1993,
December 31, 1994 and December 31, 1995, as well as income statements for
the years then ended, delivered to the Buyer (cumulatively the "Annual
Financial Statements") present fairly the financial position of the Seller
as of the date of each respective Annual Financial Statement and the
results of operations of the Seller for the respective periods covered by
the Annual Financial Statements in accordance with GAAP.
(ii) The unaudited balance sheet and income statements of the Seller
as of September 30, 1996 for the nine-month period then ended delivered to
the Buyer present fairly the financial position of the Seller as of the
date thereof and the results of operation of the Seller for the period
covered thereby in accordance with GAAP, subject to normal recurring
year-end adjustments in accordance with the Seller's historical accounting
practices.
(iii) The unaudited income statements of the Seller as of November
30, 1996, for the period then ended delivered to the Buyer present fairly
the financial position of the Seller as of the date thereof and the results
of operation of the Seller for the period covered thereby in accordance
with GAAP, subject to normal recurring year-end adjustments in accordance
with the Seller's historical accounting practices.
(iv) Other than the liabilities disclosed in the financial statements
described in this Section2(i) or otherwise in this Agreement, there are no
liabilities or obligations of the Business (whether absolute, contingent or
otherwise) which, if it had occurred or arisen prior to the date of such
financial statements, would have been required by GAAP to be reflected in
such financial statements.
(v) The Disclosure Schedule contains a list of the accounts payable
of MDF Facility as of a date not more than seven (7) days prior to the date
hereof, identifying the payee and the amount payable.
(vi) The Disclosure Schedule contains a list of the accounts
receivable of MDF Facility as of a date not more than seven (7) days prior
to the date hereof, identifying the payor and the amount payable.
(j) Permits and Licenses. Section3(j) to the Disclosure Schedule
contains a list of and true and correct copies of every material license, permit
or governmental approval applied for, issued or given to the Seller and every
material agreement with governmental authorities (federal, state, local or
foreign) entered into by the Seller as to the Business, which is in effect or
has been applied for or is pending.
(k) Scope of the Acquired Assets. The Acquired Assets constitute, and on
the Closing Date will constitute, all of the assets or property used or held for
use in the Business as presently conducted by Seller except the remaining assets
that are being retained by Seller. The Seller has good title to, or a valid
leasehold interest in, the material tangible assets that constitute the Acquired
Assets (other than Real Property).
(l) Environmental Matters. Seller has provided to Buyer, or given access
to Buyer with respect to, all of Seller's records relating to the
transportation, treatment or disposal of Hazardous Materials arising from or
related to the Acquired Assets. To its Knowledge, and except as disclosed in
the Environmental Report, the Seller is in compliance with all valid laws
(including federal, state, local and foreign statutes, laws, ordinances,
regulations, rules, permits, judgements, orders and decrees) applicable to the
Acquired Assets and the Business relating to environmental protection, including
standards relating to air, water, and land and the generation, storage,
transportation, treatment or disposal of solid wastes and Hazardous Materials,
except where the failure to comply would not have a material adverse effect upon
the financial condition of the Acquired Assets and Assumed Liabilities taken as
a whole. To its Knowledge, and except as disclosed in the Environmental Report,
there is no location on the Real Property where Hazardous Substances or other
harmful substances have entered into the soil or groundwater, except where the
existence of such substances would not have a material adverse effect upon the
financial condition of the Acquired Assets and Assumed Liabilities taken as a
whole.
(m) Intellectual Property Rights.
(i) Section3(m) of the Disclosure Schedule sets forth all license
agreements (the "Ancillary License Agreements") other than the License
Agreement relating to Seller's Intellectual Property Rights. Seller has
delivered to Buyer a true and correct copy of the License Agreement and
each of the Ancillary License Agreements, and such agreements have not been
modified in any material respect. To the Knowledge of Seller, the License
Agreement and the Ancillary License Agreements are in full force and
effect, no default exists thereunder and the licensors thereunder have not
alleged the existence of a default thereunder.
(ii) To the Knowledge of Seller, the Intellectual Property Rights
licensed to Seller under the License Agreement and the Ancillary License
Agreements are all of the Intellectual Property Rights of Seller used in
connection with the Business.
(iii) For purposes of this Section3(m), "use", with respect to
Intellectual Property Rights, includes make, reproduce, display or perform
(publicly or otherwise), prepare derivative works based on, sell,
distribute, disclose and otherwise exploit such Intellectual Property
Rights to the full extent permitted by law.
(n) Taxes. The Seller has timely paid all Taxes, and all interest and
penalties due thereon and payable by it for the Pre-Closing Tax Period which
will have been required to be paid on or prior to the Closing Date, the non-
payment of which would result in a Security Interest on any Acquired Asset,
would otherwise materially and adversely affect the Acquired Assets or Assumed
Liabilities taken as a whole or would result in the Buyer becoming liable or
responsible therefor.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this Section4 are true,
correct and complete as of the date of this Agreement and will be true, correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section4).
(a) Organization of the Buyer. The Buyer is a limited partnership duly
organized, validly existing, and in good standing under the laws of California.
(b) Authorization of Transaction. The Buyer has the power and authority
to execute and deliver this Agreement and the Ancillary Agreements and to
perform its obligations under this Agreement and the Ancillary Agreements, and
the execution and delivery of this Agreement and the Ancillary Agreements has
been duly authorized and approved by all necessary action of the Buyer. This
Agreement constitutes, and the Ancillary Agreements when executed by the Buyer
will constitute, valid and legally binding obligations of the Buyer, enforceable
in accordance with their respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated by this Agreement or the Ancillary Agreements, will (i) violate any
valid constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of the
organizational documents of the Buyer; or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice or obtain consent, or Security Interest would not have a material adverse
effect on the financial condition of the Buyer taken as a whole or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement or the Ancillary Agreements. To the Knowledge of the Buyer, and other
than in connection with the provisions of the Hart-Scott-Rodino Act, the Buyer
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement or the Ancillary Agreements, except where the failure to give notice,
to file, or to obtain any authorization, consent, or approval would not have a
material adverse effect on the financial condition of the Buyer taken as a whole
or on the ability of the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements.
(d) Brokers' Fees. The Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement or the Ancillary Agreements for
which the Seller could become liable or obligated.
(e) Financing. Buyer will have, on the Closing Date, all funds necessary
to pay the Purchase Price and related fees and expenses, and has, or will have
on the Closing Date, the financial capacity to perform all of its other
obligations under this Agreement.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section8
below).
(b) Notices and Consents. Each Party will give any notices to third
parties, and each Party will use its reasonable efforts to obtain any third
party consents, that the other Party reasonably may request in connection with
the matters referred to in Section3(c) and Section4(c) above. Each of the
Parties will give any notices to, make any filings with, and use its reasonable
efforts to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section3(c)
and Section4(c) above. Without limiting the generality of the foregoing, each
of the Parties, in consultation with the other party, will file any notification
and report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act or otherwise, will use its
reasonable efforts to obtain early termination of the applicable waiting period,
and will make any further filings pursuant thereto that may be necessary.
(c) Operation of Business. The Seller will conduct the Business in the
Ordinary Course of Business and will not engage in any practice, take any
action, or enter into any transaction in each case relating to the Business
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, from and after the date of this Agreement through the Closing Date,
without the prior consent of the Buyer, which shall not be unreasonably
withheld, the Seller shall not:
(i) terminate, modify or amend any lease of real property related to
the Acquired Assets in any material respect;
(ii) hire any new employee who shall have an annual salary in excess
of $25,000.00, except to replace an existing employee of the Seller who is
receiving a comparable annual salary;
(iii) increase the compensation payable to any employee;
(iv) sell, transfer or otherwise dispose of any material asset or
property related to the Acquired Assets, except for sales of Inventory in
the Ordinary Course of Business and except the remaining assets that are
being retained by Seller;
(v) order any Inventory, except in the Ordinary Course of Business;
or
(vi) borrow money or incur indebtedness, other than in the Ordinary
Course of Business for the payment of liabilities arising in the Ordinary
Course of Business.
(d) Access. The Seller will permit representatives of the Buyer to have
access at all reasonable times, and in a manner so as not unreasonably to
interfere with the normal business operations of the Seller, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to the Business as Buyer may reasonably request from
time to time. Subject to the provisions of Section5(h), the Buyer acknowledges
and agrees that it has completed to its satisfaction all of its other due
diligence in connection with the transactions contemplated by this Agreement,
including without limitation the environmental testing described in the
Environmental Report. Until the consummation of the transactions contemplated
by this Agreement, the Buyer will treat and hold as such any Confidential
Information it receives from the Seller, will not use any of the Confidential
Information except in connection with this Agreement and its conduct of the
Business, and, if this Agreement is terminated for any reason whatsoever, will
return to the Seller, or certify to the Seller that it has destroyed, all
tangible embodiments (and all copies) of the Confidential Information which are
in its possession.
(e) Notice of Developments.
(i) The Seller may elect at any time to notify the Buyer of any
development causing a breach of any of its representations and warranties
in Section3(e)-(n) above. Unless the Buyer has the right to terminate
this Agreement pursuant to Section14(a)(ii) below by reason of the
development and exercises that right within the period of ten (10) business
days referred to in Section14(a)(ii) below, the written notice pursuant to
this Section5(e)(i) will be deemed to have amended the Disclosure
Schedule, to have qualified the representations and warranties contained in
Section3 above, and to have cured any misrepresentation or breach of
warranty that otherwise might have existed hereunder by reason of the
development.
(ii) Each Party will give prompt written notice to the other Party of
any material adverse development causing a breach of any of its own
representations and warranties in Section3(a)-(d) and, Section4 above.
No disclosure by any Party pursuant to this Section5(e)(ii), however,
shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation or breach of warranty.
(f) Employee Matters. As Seller will no longer be owning or operating the
Business to be sold to the Buyer, Seller will terminate all of its employees
listed on Schedule 5 of the Disclosure Schedule immediately prior to the Closing
on the Closing Date. Prior to Closing, Buyer shall inform Seller in writing as
to which of the employees listed on Schedules 5 and 5.1 it intends to make an
Offer of Employment.
(g) Corporate Documentation and Authorization/Opinion. Seller shall
deliver to Buyer (with respect to Seller and Valhi, Inc.), and Buyer shall
deliver to Seller (with respect to Buyer), the following corporate or
partnership documentation and authorizations: (i) copies of organizational
documents consisting of articles or certificates of incorporation, bylaws,
partnership agreements and such other documents, including shareholder consents,
as the receiving party may reasonably request; (ii) copies of resolutions of the
respective board(s) of directors or similar persons with respect to the
transactions contemplated by this Agreement together with an original
certificate issued by an appropriate officer with respect thereto; and (iii) an
incumbency certificate issued by an appropriate officer with respect to all
officers executing documents in connection with the transactions contemplated by
this Agreement. In lieu of the delivery of the foregoing documents, Buyers
shall deliver to Seller at Closing an opinion, in form and substance
satisfactory to Seller, with respect to the authorization, execution and
delivery of the documents and the actions taken by Buyer with respect to the
transactions contemplated by this Agreement. Buyer agrees to deliver a draft of
such opinion to Seller within two (2) business days after the execution of this
Agreement.
(h) Title/Survey. Buyer acknowledges that Seller has delivered to the
Buyer a the Title Commitment issued by the Title Company for the issuance of an
ALTA Form B Owner's Title Insurance Policy (1992) (the "Title Policy") insuring
fee simple title to the real property owned by the Seller and part of the
Acquired Assets, all as more particularly described in Schedule 1 hereto (the
"Real Property"). The Title Commitment was accompanied by copies of all
instruments and documents of record referenced therein. Buyer acknowledges that
Seller, at Seller's sole cost and expense, has delivered to Buyer an Urban
ALTA/ASCM Land Title Survey (the Survey") certified to the Buyer and the Title
Company meeting accuracy standards jointly adopted by the American Land Title
Association and the American Congress on Surveying and Mapping and incorporating
the following Table A-Optional Survey Responsibilities and Specifications":
Items 1,2,3,4 (as to gross land area), 6, 7, 8, 9, 10, 11 and 13.
All exceptions listed in the Title Commitment or revealed on the Survey are
approved by Buyer and shall therefore be considered "Permitted Exceptions" for
purposes of this Agreement. It shall be a condition to Buyer's obligation to
proceed with the Closing that, when issued to Buyer at Closing or in accordance
with escrow arrangements, the Title Policy shall include full extended coverage
over all general exceptions and the Required Endorsements; provided however,
Buyer represents and warrants to Seller that the Buyer has confirmed that (i)
all Required Endorsements are available in the State of Oregon and, (ii) the
Buyer is ready, willing and able to satisfy all requirements of the Title
Company in order to obtain such Required Endorsements.
Buyer shall have the option to request, at Buyer's sole cost and expense,
that the Title Company agree to provide coverage against matters relating to
federal bankruptcy, state insolvency or similar creditors' rights laws, and the
following endorsements: an ALTA 3.1 zoning endorsement (with parking) and
contiguity endorsement (the "Required Endorsements") and such other endorsements
as Buyer may request (the "Additional Endorsements"). Buyer shall have the
option to request, at Buyer's sole cost and expense, that the Title Company
reinsure portions of the risk covered by the Title Policy with reinsurance
companies reasonably satisfactory to Buyer under standard reinsurance agreements
providing, at a minimum, for direct access and enforcement of rights by the
insured party to and against the reinsurer. Except for the issuance of the
Required Endorsements at the Closing or pursuant to escrow arrangements, none of
the matters described in this paragraph shall be conditions to Buyer's
obligations to close the transactions contemplated by this Agreement.
The Buyer shall have five (5) business days following receipt of any
updates or amendments to the Title Commitment or the Survey and copies of any
additional instruments and documents of record referenced therein to object by
written notice to the Seller to any title exception identified therein or
thereon. All title exceptions revealed by any updates or amendments to the
Title Commitment or the Survey to which Buyer does not object within the five-
day period provided above shall be considered Permitted Exceptions. In the
event the Buyer timely objects to a title exception as provided in the first
sentence of this paragraph, the Seller may, within two (2) business days
following receipt of the Buyer's written objections, and in any event no later
than the Closing Date, cause the Title Company to commit in writing to Buyer to
eliminate or modify or arrange for the removal or modification of such
disapproved exception to the Buyer's satisfaction. If the Seller is unable or
does not elect to eliminate or modify, or arrange for the elimination or
modification of any disapproved exception to the Buyer's satisfaction, within
such two (2) business day period, the Buyer shall have three (3) business days
after the expiration of such two (2) business day period within which to notify
the Seller whether the Buyer shall elect to terminate this Agreement or to waive
its objection to the disapproved exception (in which case the exception shall be
a Permitted Exception); provided, however, in the event that Buyer waives its
objection to a disapproved exception, the Buyer shall nonetheless receive a
credit, not to exceed $50,000 in the aggregate for all such exceptions, against
the Purchase Price with respect to any such exception to the extent the same
constitutes a lien or encumbrance of a definite or ascertainable amount. In the
event the Buyer elects termination, all obligations of the parties under this
Agreement (except such obligations that survive termination as set forth in
Section10(b)) shall thereafter cease and be of no further force or effect.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing:
(a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, including without
limitation for the purpose of assigning, transferring, granting, conveying, and
confirming the transfer to the Buyer of the Acquired Assets and the assumption
by the Buyer of the Assumed Liabilities in accordance with the terms of this
Agreement, each of the Parties will take such further action (including without
limitation the execution and delivery of such further deeds, assignments,
conveyances, assumptions and other assurances, documents, and instruments) as
the other Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section Section10, 11 or 12 below). Buyer will provide Seller
or its designees access at reasonable times and upon reasonable notice to any
documents, books, records, agreements and financial data concerning the
Business.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving any of Seller and its Subsidiaries, the other
Party shall cooperate with it and its counsel in the defense or contest, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the defense or contest, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section Section10, 11 or 12 below).
(c) Covenant not to Compete. In consideration of the purchase by the
Buyer of the Acquired Assets, the Seller agrees that, for a period of three
years commencing on the Closing Date, it will not directly or indirectly,
including through any Subsidiary or affiliate, compete with the Buyer or any
successor or assign of the Buyer in any state of the United States west of the
Mississippi River (the "Western United States") by engaging in the production,
sale or distribution of medium density fiberboard for or to customers in the
Western United States, provided, that the provisions of this paragraph shall not
prevent the Seller from owning up to 4.9% of the outstanding shares or other
equity interests of any publicly traded corporation or other entity, including
any corporation or other entity engaged in such business.
(d) Confidential Information. From and after the Closing, Seller agrees
that (i) Seller will treat as confidential any Buyer Confidential Information;
and (ii) Seller will not use any Buyer Confidential Information for purposes of
the manufacture and sale of medium density fibreboard except in connection with
the operation of its Irish manufacturing facilities, if any, and sales and other
activities in relation thereto.
(e) Employee Matters. Seller acknowledges its obligation to bargain with
the collective bargaining representative of employees covered by a collective
bargaining agreement with respect to the transactions contemplated herein and
the impact thereof on bargaining unit employees. If Buyer hires any of Seller's
former employees, all such employees shall receive credit for all prior service
with Seller for purposes of participation in Buyer's employee benefit plans.
Buyer will make an Offer of Employment to employees whom the Buyer desires, in
its sole and absolute discretion, to hire. Buyer agrees not to take any action
or omit to take any action in connection with the hiring process that would
subject Seller to any responsibility or liability under the WARN Act with
respect to the MDF Facility.
(f) Access. Seller shall retain, at least through ninety (90) days after
the Closing Date, the lease for the AS400 computer currently under lease to
Seller from Winthrop Resources. Until ninety (90) days after the Closing Date,
Seller shall allow Buyer access to the AS400 computer for the purpose of running
all software programs currently utilized in the management and operation of, and
accounting for, the Business (copies of which software shall be provided at
Closing). Seller shall have access to all historical records of the Business in
both hard copy and electronic form, to facilitate preparation of the Accounting
Report. Seller shall provide to Buyer at no cost access via remote computer
connection to Seller's computer system on which the software and data to be used
by the Buyer shall be made available. Buyer shall be responsible for any
telecommunications or other third-party charges related to such remote access.
(g) Air Permit. Buyer and Seller acknowledge that the MDF Facility may
not in the past have been, and may not presently be, in compliance with the
existing air quality discharge permit with the State of Oregon Department of
Environmental Quality (`ODEQ''). Buyer agrees Seller shall not have any
obligation or responsibility with respect to the modification of the air quality
discharge permit or issuance of a new permit in order to cure such non-
compliance, if any. In the event that any fines, penalties or other
assessments, together with interest thereon, are imposed by the ODEQ or any
other governmental agency in respect of any noncompliance events occurring on or
before the Closing Date relating to the air quality discharge permit, Seller
agrees to pay, and indemnify and hold Buyer harmless in respect of, such fines,
penalties or other assessments, together with interest thereon.
(h) Purchase Price Adjustments. Buyer and Seller agree to comply with the
provisions of Section Section2(f)-(h).
(i) Refiner Conversion. Seller agrees, at its sole cost and expense, to
cause the 42" refining system (L-42 Defibrator) described on attached Schedule
1.2 as "Used L-42 Refiner" to be removed from the MDF Facility, to be converted
to a 46" refining system (L-46 Defibrator) pursuant to the terms of the
Agreement dated August 23, 1995 between Medite Corporation and Sunds
Defibrator (as modified to provide for a conversion to a 46" refiner rather
than a 44" refiner) and to be delivered to the MDF Facility.
7. Tax Matters.
(a) Tax Cooperation. Each of the Buyer and the Seller will furnish, or
cause to be furnished to each other, upon request, as promptly as practicable,
such information and assistance relating to the Acquired Assets and the Business
as is reasonably necessary for the filing of all tax returns, and making of any
election related to taxes, the preparation for any audit by any taxing
authority, and the prosecution or defense of any claim, suit or proceeding
relating to any tax return. Each of the Buyer and the Seller shall cooperate
with the other in the conduct of any audit or other proceeding related to taxes
involving the Business. The obligations of the Parties pursuant to this
Section7(a) shall include, without limitation, information, assistance and
cooperation relating to matters arising after the Closing under employee benefit
arrangements.
(b) Allocation of Taxes. All real property taxes, personal property taxes
and similar ad valorem obligations (collectively, the "Apportioned Obligations")
levied with respect to the Acquired Assets for a taxable period which includes
(but does not end on) the Closing Date shall be apportioned between the Seller
and the Buyer as of the Closing Date based on the number of days of such taxable
period included in the Pre-Closing Tax Period or Post-Closing Tax Period,
respectively. The Seller shall be liable for the proportionate amount of such
taxes that is attributable to the Pre-Closing Tax Period. Within ninety (90)
days after the Closing, each of the Seller and the Buyer shall present a
statement to the other setting forth the amount of reimbursement to which each
is entitled under this Section7(b), together with such supporting evidence as
is reasonably necessary to calculate the proration amount. The proration amount
shall be paid by the party owing it the other within ten (10) days after
delivery of such statement. Thereafter, the Seller shall notify the Buyer upon
receipt of any bill for real or personal property taxes relating to the Acquired
Assets, part or all of which are attributable to the Post-Closing Tax Period,
and shall promptly deliver such bill to the Buyer who shall pay the same to the
appropriate taxing authority, provided that if such bill covers the Pre-Closing
Tax Period, the Seller shall also remit to the Buyer prior to the due date of
assessment payment for the proportionate amount of such bill that is
attributable to the Pre-Closing Tax Period. In the event that either the Seller
or the Buyer shall thereafter make a payment for which it is entitled to
reimbursement under this Section7(b), the other party shall make such
reimbursement promptly but in no event later than thirty (30) days after the
presentation of a statement setting forth the amount of reimbursement to which
the presenting party is entitled along with such supporting evidence as is
reasonably necessary to calculate the amount of reimbursement. Any payment
required under this Section and not made within ten (10) days of delivery of the
statement shall bear interest at the rate per annum determined, from time to
time, under the provisions of Section 6621(a)(2) of the Code for each day until
paid.
(c) Transfer Taxes. Any transfer, documentary, sales, use or other Taxes
assessed upon or with respect to the transfer of the Acquired Assets to the
Buyer and any recording or filing fees with respect thereto shall be paid by the
Buyer.
8. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties of Seller set forth in
Section3 above and of Valhi, Inc. in the Guaranty described below shall be
true and correct in all material respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any suit, proceeding, injunction, judgment,
order, decree, ruling, or charge in effect preventing or seeking to prevent
the consummation of any of the transactions contemplated by this Agreement,
the Ancillary Agreements or the Guaranty;
(iv) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section8(a)(i)-
(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Seller, its Subsidiaries, and the Buyer shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section3(c) and Section4(c) above;
(vi) the Seller shall have executed and delivered to the Buyer the
Assignment of License Agreement in the form of Exhibit G attached hereto;
(vii) Valhi, Inc. shall have executed and delivered to the Buyer the
Guaranty in the form of Exhibit F attached hereto;
(viii) the Buyer shall have received a consent to assignment and
estoppel certificate from the lender of the ODOE Loan in the form of
Exhibit J;
(ix) the Buyer shall have received a consent to assignment and
estoppel certificate from the licensor under the License Agreement in the
form of Exhibit K;
(x) no material adverse change shall have occurred with respect to
the Business taken as a whole since December 31, 1996, or, except as
publicly disclosed by Valhi, Inc., in the financial condition of Valhi Inc.
since September 30, 1996; and
(xi) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby shall have been executed, delivered, recorded, taken or
completed all as reasonably satisfactory in form and substance to the Buyer
and the Title Policy shall have been issued to Buyer contemporaneously with
the Closing or otherwise as is in accordance with the Title Company's
escrow procedure.
The Buyer may waive any condition specified in this Section8(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section8(b)(i)-
(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Seller, its Subsidiaries, and the Buyer shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section3(c) and Section4(c) above;
(vi) the Buyer shall have executed and delivered to Seller the
Assignment of License Agreement in the form of Exhibit G attached hereto;
(vii) Buyer shall have delivered to Seller the opinion or other
documents described in Section5(g) in form and substance satisfactory to
Seller;
(viii) All matters relating to air permit compliance on or before the
Closing Date shall have been resolved to the satisfaction of Seller in its
sole discretion; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby shall have been executed, delivered, recorded, taken or
completed all as reasonably satisfactory in form and substance to the
Seller.
The Seller may waive any condition specified in this Section8(b) if it executes
a writing so stating at or prior to the Closing.
9. Survival of Representations and Warranties. All of the
representations and warranties of the Buyer and the Seller shall survive the
Closing (unless the damaged Party had Knowledge (as a result of matters set
forth on the Disclosure Schedule or otherwise) of any misrepresentation or
breach of warranty contained in Section3 or Section4 above at the time of
Closing) and continue in full force (i) with respect to the representations of
the Seller in Section3(d) - (n) above, for a period of eighteen (18) months
after the Closing at which time such representations and warranties shall be
null and void and cease to be of any effect whatsoever, except that, to the
extent that any specific claim has been asserted by the Buyer prior to the
expiration of such period, the representations and warranties relating to such
claim shall continue in respect of such claim only until such claim is resolved,
and (ii) with respect to all other representations and warranties of Buyer and
Seller, in effect forever thereafter (subject to any applicable statutes of
limitations).
10. Indemnification Provisions for Benefit of the Buyer.
(a) Subject to the limitations contained in Section10(d), in the event
the Seller breaches any of its representations in Section3 or any of its
covenants contained in Section5(f) , Section6 and Section7, the Seller agrees
to indemnify the Buyer and Buyer's members, officers, employees and agents
(collectively, "Buyer's Indemnified Persons") from and against any Adverse
Consequences the Buyer's Indemnified Persons shall suffer through and after the
date of the claim for indemnification caused proximately by the breach, provided
however, that the indemnity in this Section10(a) shall not apply at all to
matters for which Buyer is indemnifying Seller as provided in this Agreement.
Solely for purposes of Seller's indemnification obligations under this
Section10(a), any representation or warranty of Seller in Section3 which
includes the term "material adverse effect" (or derivatives or variations of
such term) and/or "taken as a whole" shall be construed as if such term instead
were "effect" without any additional qualification.
(b) The Seller agrees to indemnify the Buyer's Indemnified Persons from
and against any Adverse Consequences the Buyer's Indemnified Persons shall
suffer caused proximately by any liability which is an Excluded Liability and,
to the extent provided in Section15, with respect to liabilities related to the
disposal or migration of Hazardous Materials prior to the Closing Date.
(c) The Seller agrees to indemnify the Buyer's Indemnified Persons from
and against any Adverse Consequences the Buyer's Indemnified Persons shall
suffer caused proximately by the failure of Seller to discharge when due
liabilities related to employees to the extent provided in Section16 hereof.
(d) Except with respect to any breach of Seller's representations in
Section3(a) - (c) and any breach of the covenants contained in Section5,
Section6 and Section7, Seller's indemnification obligations to the Buyer
pursuant to Section10(a) shall not exceed $2,000,000 in the aggregate. Buyer
agrees that it will not seek indemnification for any claim under Section10(a)
relating to the breach of a representation or warranty unless the aggregate of
all claims under Section10(a) will result in loss to Buyer's Indemnified
Persons in excess of $250,000 in the aggregate, provided however, that once such
threshold is exceeded, Seller shall indemnify Buyer's Indemnified Persons for
all such claims from the first dollar of claims up to the $2,000,000 limitation
specified above. Notwithstanding anything to the contrary contained in this
Section10(d), (x) the $2,000,000 limitation and (y) the $250,000 threshold
specified herein shall not be applicable with respect to any claim for
indemnification for the breach of the representations of the Seller in
Section3(d) - (n) to the extent Seller has Knowledge (and Buyer did not have
Knowledge) of the inaccuracy of such representation or warranty as of Closing.
11. Indemnification Provisions for Benefit of the Seller.
(a) In the event the Buyer breaches any of its representations in
Section4 above or any of its covenants contained in Section5(f), Section6 and
Section7 of this Agreement, the Buyer agrees to indemnify the Seller and
Seller's officers, directors, shareholders, employees and agents (collectively,
"Seller's Indemnified Persons") from and against any Adverse Consequences the
Seller's Indemnified Persons shall suffer through and after the date of the
claim for indemnification caused proximately by the breach, provided however,
that the indemnity in this Section11(a) shall not apply at all to matters for
which Seller is indemnifying Buyer as provided in this Agreement. Solely for
purposes of Buyer's indemnification obligations under this Section11(a), any
representation or warranty of Buyer in Section4 which includes the term
"material adverse effect" (or derivatives or variations of such term) and/or
"taken as a whole" shall be construed as if such term instead were "effect"
without any additional qualification.
(b) The Buyer agrees to indemnify the Seller's Indemnified Persons from
and against any Adverse Consequences the Seller's Indemnified Persons shall
suffer caused proximately by any liability which is an Assumed Liability.
(c) The Buyer agrees to indemnify the Seller's Indemnified Persons from
and against the failure of Buyer to discharge when due liabilities related to
the disposal or migration of Hazardous Materials to the extent provided in
Section15 hereof.
(d) The Buyer agrees to indemnify the Seller's Indemnified Persons from
and against the failure of Buyer to discharge when due liabilities related to
employees to the extent provided in Section16 hereof.
12. Matters Involving Third Parties.
(a) If any third party shall notify any Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against the other Party (the "Indemnifying Party")
under Section10 or Section11, then the Indemnified Party shall promptly (and
in any event within ten (10) business days after receiving notice of the Third
Party Claim) notify the Indemnifying Party thereof in writing.
(b) The Indemnifying Party will have the right within thirty (30) days of
receipt of the notice specified in the preceding paragraph to assume and
thereafter conduct the defense of the Third Party Claim with counsel of its
choice; provided, however, that the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not to
be withheld unreasonably) unless the judgment or proposed settlement involves
only the payment of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(c) Unless and until the Indemnifying Party assumes the defense of the
Third Party Claim as provided in Section12(b) above, however, the Indemnified
Party may defend against the Third Party Claim in any manner it reasonably may
deem appropriate, and the Indemnifying Party will cooperate and make available
to the Indemnified Party all books and records and such officers, agents and
employees as are reasonably necessary and useful in connection with the defense.
(d) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld and which consent shall be deemed given if the
Indemnifying Party has not replied in writing to the Indemnified Party within
fifteen (15) days of notice of any request for any such consent.
13. Miscellaneous Indemnity Provisions.
(a) Determination of Adverse Consequences. The Parties shall make
appropriate adjustments for tax benefits and insurance coverage and proceeds and
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of Section10 or
Section11. All indemnification payments under Section10 or Section11 shall be
deemed adjustments to the Purchase Price.
(b) Other Indemnification Provisions. The indemnification provisions in
Section10 and Section11 are the sole remedy any Party may have for breach of
representation, warranty, or covenant, provided however, that it is expressly
agreed between the parties that monetary damages would be inadequate to
compensate the Buyer for any breach by the Seller of its covenants and
agreements in Section6(c). Accordingly, the Seller agrees and acknowledges
that any such violation or threatened violation of such covenants will cause
irreparable injury to the Buyer and that, in addition to the remedies available
to it under this Section10, the Buyer shall be entitled to obtain injunctive
relief against any threatened or continuing breach of any covenant in
Section6(c), without the necessity of proving actual damages.
14. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event (A)
the Seller has within the then previous ten (10) business days given
the Buyer any notice pursuant to Section5(e)(i) above and (B) the
development that is the subject of the notice has had a material
adverse effect upon the financial condition of the Acquired Assets and
Assumed Liabilities taken as a whole;
(iii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A) in the event
the Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the
Buyer has notified the Seller of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice
of breach or (B) if the Closing shall not have occurred on or before
the twenty-first day after the date of this Agreement by reason of the
failure of any condition precedent under Section8(a) hereof (unless
the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement);
(iv) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Seller has
notified the Buyer of the breach, and the breach has continued without
cure for a period of ten (10) days after the notice of breach or (B)
if the Closing shall not have occurred on or before the twenty-first
day after the date of this Agreement by reason of the failure of any
condition precedent under Section8(b) hereof (unless the failure
results primarily from the Seller itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(vi) the Buyer may terminate this Agreement by giving written
notice to the Seller pursuant to Section5(h).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section14(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section5(d) above shall survive any
such termination.
15. Remediation Obligations for Hazardous Materials.
(a) The Seller and the Buyer shall each notify the other as soon as
reasonably practicable after receiving notice of any liabilities or potential
liabilities to the Business or having Adverse Consequences on the Acquired
Assets as a result of the disposal or migration of Hazardous Materials off the
Real Property at any time prior to the Closing Date (collectively, "Off-Site
Hazardous Materials"). As soon as practicable after receiving notice of any
such liability or potential liability, the Seller and Buyer shall determine
jointly an appropriate response. Seller shall have the responsibility to direct
the actions required to carry out the response and shall provide to the Buyer
such information with respect to such actions as the Buyer may reasonably
request. The costs, if any, associated with such response (such costs and
Adverse Consequences, the "Off-Site Remediation Costs"), shall be borne by the
Parties as provided below.
(b) All Off-Site Remediation Costs shall be paid by the Parties as
follows: The Seller shall pay, or indemnify the Buyer against, all Off-Site
Remediation Costs up to $500,000; the Buyer shall pay for, or indemnify the
Seller against, the next $1,000,000 of Off-Site Remediation Costs; and the
Seller shall thereafter pay for, or indemnify the Buyer against, all additional
Off-Site Remediation Costs, regardless of by whom or when incurred. Without
limiting the generality of the foregoing, the Seller shall indemnify and hold
harmless the Buyer and the Buyer's Indemnified Persons for all Adverse
Consequences arising from or caused by Off-Site Hazardous Materials, except to
the extent of the Buyer's obligation as provided in the first sentence of this
Paragraph (b). Without limiting the generality of the foregoing, the Buyer
shall indemnify and hold harmless the Seller and the Seller's Indemnified
Persons for all Adverse Consequences arising from or caused by Off-Site
Hazardous Materials, except to the extent of the Seller's obligation as provided
in the first sentence of this Paragraph (b). For purposes of this Paragraph
(b), the Off-Site Remediation Costs shall be measured as incurred, and
documented by appropriate invoice. Each Party shall pay to the other from time
to time (but no more frequently than once per calendar month) all Off-Site
Remediation Costs to be paid by such Party hereunder promptly upon receipt of
supporting documentation therefor, and shall provide to the other Party
supporting documentation with respect to the Off-Site Remediation Costs paid by
it.
16. Employee Severance.
(a) Attached hereto as Schedule 5 is a list of all current employees
of the MDF Facility and Seller's estimate of Seller's maximum potential
obligation to each of the Seller's employees at the MDF Facility (other than
employees covered by a collective bargaining agreement) that would result upon
the failure by the Buyer to make an Offer of Employment to each employee listed
on Schedule 5. Attached hereto as Schedule 5.1 is a list of all current
employees of the Medford Corporate Office and Seller's estimate of Seller's
maximum potential obligation to each of the Seller's employees at the Medford
Corporate Office that would result upon the failure by the Buyer to make an
Offer of Employment to each employee listed on Schedule 5.1. Buyer agrees to
provide a listing to Seller prior to Closing of employees on Schedules 5 and 5.1
to whom the Buyer does not intend to make an Offer of Employment.
(b) Buyer shall reimburse Seller for the payment of employee
severance payments made and obligations incurred, solely with respect to
Applicable Severance Obligations, provided liability for such reimbursement
obligations shall be limited individually (e.g., for each salaried employee,
limited to the individual severance amount set forth opposite each employee's
name) and in the aggregate to the amounts set forth on attached Schedules 5 and
5.1 plus the sum of the amounts, if any, of individual severance payments made
to employees pursuant to terms negotiated by Seller with the collective
bargaining representative of employees covered by a collective bargaining
agreement as provided in Schedule 5. Buyer shall indemnify and hold Seller
harmless in respect of all Applicable Severance Obligations. Buyer shall be
entitled to a credit against amounts otherwise owed to Seller pursuant to the
first sentence of this paragraph in an amount equal to the sum of the individual
severance amounts set forth on Schedule 5.1 for each employee listed on Schedule
5.1 to whom Buyer makes an Offer of Employment; provided however, such credit in
the aggregate shall not exceed the aggregate Applicable Severance Obligations
actually paid to employees listed on Schedule 5. In the event that any employee
on Schedule 5.1 who is hired by Buyer is subsequently terminated by Buyer, for
any reason other than Cause, and such termination occurs on or before one (1)
year after the Closing, Buyer shall refund to Seller, within ten (10) days after
any such termination, an amount equal to the reimbursement obligation with
respect to such employee as set forth on Schedule 5.1; provided however, Buyer's
aggregate refund obligation shall not exceed the aggregate amount actually
credited to Buyer pursuant to the preceding sentence.
(c) For purposes of this Section16, `Applicable Severance
Obligations' shall mean (i) severance payments and obligations that arise as a
result of Buyer's failure to make an Offer of Employment to any of the employees
at the MDF Facility described on attached Schedule 5, or (ii) severance payments
and obligations that arise as a result of the involuntary termination on or
before one (1) year after the Closing, for any reason other than Cause, of any
employee listed on Schedule 5 and any employees on Schedule 5.1 hired by the
Buyer.
17. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue or
make, or allow any affiliate to issue or make, any press release or public
announcement relating to the subject matter of this Agreement prior to the
Closing without the prior written approval of the other Party; provided,
however, that any Party or any affiliate of such Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the Party which intends, or which has an affiliate that intends, to issue
such press release or make such public announcement will advise the other Party
prior to making the disclosure and provide the other Party opportunity to
comment upon the release or announcement).
(b) No Third Party Beneficiaries. This Agreement and the Ancillary
Agreements shall not confer any rights or remedies upon any Person other than
the Parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the Ancillary Agreements
and other documents referred to herein) constitutes the entire agreement between
the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
three business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Medite Corporation
Three Lincoln Centre, Suite 1700
5430 LBJ Freeway
Dallas, TX 75240-2697
Attention: President
Tel: 972-233-1700
Fax: 972-239-0142
Copy to:
James L. Palenchar
Bartlit Beck Herman Palenchar & Scott
511 16th Street, Suite 500
Denver, CO 80202
Tel: 303-592-3100
Fax: 303-592-3140
If to the Buyer: Sierra Pine, a California limited partnership
305 South 4th Street
Springfield, Oregon 97477
Attention: Joseph Gonyea II
Tel: 541/747-3321
Fax: 541/744-5442
Copy to: David H. Dun
Dun & Martinek
730 7th Street Suite B
P.O. Box 1266
Eureka, California 95501-1142
Tel: 707- 442-3791
Fax: 707-442-9251
Earl Melamed
Neal Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Tel: 312-269-8012
Fax: 312-269-1747
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received on a business day by the intended
recipient; provided however, that if such notice, request, demand, claim, or
other communication is received on a business day after 3:00 p.m. local time, it
shall be deemed received on the next business day. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any such prior or subsequent occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Dispute Resolution; Expenses. If there shall be any dispute,
controversy or claim ("Dispute") between the Parties hereto arising out of,
relating to, or connected with this Agreement or the breach or invalidity of the
provisions of this Agreement, including without limitation the calculation of
the Final Net Working Capital Amount, the Parties shall use their best efforts
to resolve the matter on an amicable basis and in a manner fair and equitable to
the Parties. If one Party notifies the other Party that a Dispute has arisen
and the Parties are unable to resolve such Dispute within a period of fifteen
(15) days from such notice, then the matter shall be referred to the most senior
officers of such Parties for attempted resolution, who shall have a further
thirty (30) days from such notice to resolve the Dispute (the "Resolution
Deadline"). No recourse to litigation under this Agreement shall take place
unless and until such procedure has been followed.
Each of the Buyer and the Seller will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. Notwithstanding the foregoing
sentence, (i) the Seller shall bear the costs of the Title Policy, excluding all
Required Endorsements and Additional Endorsements, the Survey, and one-half of
the costs assessed by the ODOE in connection with the ODOE loan assumption; (ii)
the Buyer shall bear the costs of all Required Endorsements and Additional
Endorsements requested by the Buyer and any and all transfer taxes, including
without limitation any use or sales taxes, associated with the sale of the
Acquired Assets or the assumption of the Assumed Liabilities, and and one-half
of the costs assessed by the ODOE in connection with the ODOE loan assumption.
Escrow and other customary closing costs will be divided equally between the
Seller and the Buyer. Real estate taxes and any other customary prorations
shall be made as of the Closing Date.
(l) Construction. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
(m) Incorporation of Exhibits. The Exhibits and any annexes and schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Allocation of Purchase Price. The Buyer and the Seller will cooperate
in the preparation and filing of Internal Revenue Service Form 8594.
(o) Bulk Transfer Laws. The Buyer acknowledges that the Seller will not
comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Both parties
acknowledge that Oregon does not have presently have any bulk transfer laws.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
SIERRA PINE, a California limited partnership
By: Rockland Timber Co, a general partner
By:
-----------------------
Title:
---------------------
By: Emerson Investments, Inc.,
a general partner
By:
---------------------------------
Title:
---------------------
MEDITE CORPORATION, a Delaware corporation
By:
----------------------
Title:
---------------------
ASSET PURCHASE AGREEMENT
BETWEEN
SYBRA, INC.,
VALCOR, INC.
AND
U.S. RESTAURANT PROPERTIES MASTER L.P.
DECEMBER 23, 1996
TABLE OF CONTENTS
1. Definitions...........................................................1
2. Basic Transaction.....................................................4
(a) Purchase and Sale of Assets.....................................4
(b) Assumption of Liabilities. ....................................4
(c) Purchase Price..................................................4
(d) The Closing. ..................................................4
(e) Deliveries at the Closing.......................................4
(f) Allocation.....................................................5
3. Representations and Warranties of the Seller..........................5
(a) Organization of the Seller......................................5
(b) Authorization of Transaction....................................5
(c) Noncontravention................................................5
(d) Brokers' Fees...................................................6
(e) Legal Compliance................................................6
(f) Real Property..................................................6
(g) Litigation......................................................7
(h) Certain Notices.................................................7
(i) Financial Statements...........................................7
4. Representations and Warranties of the Buyer. ........................8
(a) Organization of the Buyer.......................................8
(b) Authorization of Transaction. .................................8
(c) Noncontravention................................................8
(d) Brokers' Fees. ................................................9
(e) Financing.......................................................9
(f) Due Diligence..................................................9
5. Pre-Closing Covenants.................................................9
(a) General. ......................................................9
(c) Notices and Consents...........................................11
(d) Access.........................................................11
(e) Notice of Developments.........................................11
(f) Exclusivity. ................................................12
6. Post-Closing Covenants..............................................12
(a) General........................................................12
(b) Litigation Support.............................................12
7. Conditions to Obligation to Close....................................13
(a) Conditions to Obligation of the Buyer..........................13
(b) Conditions to Obligation of the Seller.........................14
8. Remedies for Breaches of this Agreement..............................15
(a) Survival of Representations and Warranties.....................15
(b) Indemnification Provisions for Benefit of the Buyer............15
(c) Indemnification Provisions for Benefit of the Seller and Valcor16
(d) Matters Involving Third Parties................................16
(e) Determination of Adverse Consequences..........................17
(f) Other Indemnification Provisions..............................17
9. Termination..........................................................17
(a) Termination of Agreement. ....................................17
(b) Effect of Termination..........................................18
10. Miscellaneous.......................................................19
(a) Press Releases and Public Announcements........................19
(b) No Third Party Beneficiaries Other than Valcor.................19
(c) Entire Agreement...............................................19
(d) Succession and Assignment......................................19
(e) Counterparts. ................................................19
(f) Headings. ...................................................19
(g) Notices. .....................................................19
(h) Governing Law..................................................21
(i) Amendments and Waivers........................................21
(j) Severability..................................................22
(k) Expenses. ....................................................22
(l) Construction. ...............................................22
(m) Incorporation of Exhibits. .....................................22
(o) Bulk Transfer Laws. ..........................................23
EXHIBITS
EXHIBIT A Form of Assumption
EXHIBIT B Allocation Schedule
EXHIBIT C Disclosure Schedule
SCHEDULES
SCHEDULE 1 Acquired Assets
SCHEDULE 2 Assumed Liabilities
SCHEDULE 3 Agreed Value
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
December 23, 1996, by and between U.S. RESTAURANT PROPERTIES MASTER L.P., a
Delaware limited partnership (the "Buyer"), SYBRA, INC., a Michigan corporation
(the "Seller") and VALCOR, INC., a Delaware corporation and the sole stockholder
of Seller ("Valcor"). The Buyer and the Seller are referred to individually as a
"Party" and collectively as the "Parties."
This Agreement contemplates a transaction in which the Buyer will purchase,
for cash consideration, certain restaurant properties owned or ground-leased by
Seller.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
-----------
"Acquired Assets" means all of the right, title, and interest that the
---------------
Seller possesses and has the right to transfer in and to all of the assets
described on Schedule 1 attached to this Agreement and incorporated herein by
----------
this reference.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
`Agreed Value'' means the value of a parcel of Real Property as specified
------------
in Schedule 3.
"Applicable Rate" means the "Prime Rate" as identified in the Wall Street
---------------
Journal Money Rates section from time to time as the base rate of interest for
corporate loans.
"Assumed Liabilities" means all liabilities and obligations of the Seller
-------------------
described on Schedule 2 attached to this Agreement and incorporated herein by
----------
this reference.
"Buyer" has the meaning set forth in the preface above.
-----
"Closing" has the meaning set forth in Section2(d) below.
-------
"Closing Date" has the meaning set forth in Section2(d) below.
------------
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of the Seller that is not already generally available to the public.
"Disclosure Schedule" has the meaning set forth in Section3 below.
-------------------
"Environmental Law" means any national or local statute, law, ordinance,
-----------------
rule, regulation, order, consent, decree, judicial or administrative decision or
directive of applicable law now existing relating to (A) pollution or protection
of the environment, including natural resources, (B) exposure of persons,
including employees, to hazardous substances or other products, materials or
chemicals, or (C) protection of the public health or welfare from the effects of
products, by-products, waste, emissions, discharges or releases of chemical or
other substances from industrial or commercial activities.
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Indemnified Party" has the meaning set forth in Section8(d) below.
-----------------
"Indemnifying Party" has the meaning set forth in Section8(d) below.
------------------
"Knowledge" means actual knowledge without independent investigation of the
---------
referenced person or, if an entity, the executive officers of the referenced
entity.
"Newco" means an entity to be identified that will enter into the Stock
-----
Purchase Agreement and, pursuant to the Stock Purchase Agreement, will acquire
all of the outstanding equity interests in Seller.
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including, without limitation, with
respect to quantity and frequency).
"Party" has the meaning set forth in the preface above.
-----
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Purchase Price" has the meaning set forth in Section2(c) below.
--------------
"Real Property" has the meaning set forth in Section5(b)(i) below.
-------------
"Required Consents of Seller" has the meaning set forth in Section3(c)
---------------------------
below.
"Required Consents of Buyer" has the meaning set forth in Section4(c)
--------------------------
below.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
-----
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
------
"Stock Purchase Agreement" means a Stock Purchase Agreement by and between
------------------------
Valcor and Newco pursuant to which Newco will acquire all of the outstanding
equity interests in Seller.
"Subsidiary" means any corporation or other entity with respect to which a
----------
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or other equity interests, or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors or other persons
performing similar functions with respect to such entity.
"Survey" has the meaning set forth in Section5(b)(ii) below
------
"Third Party Claim" has the meaning set forth in Section8(d) below.
-----------------
"Title Commitment" has the meaning set forth in Section5(b)(i) below.
----------------
"Title Company" has the meaning set forth in Section5(b)(i) below.
-------------
"Units" means certain units of limited partnership interest of Buyer as
-----
more particularly described in the Units Purchase Agreement.
"Units Purchase Agreement" means the Units Purchase Agreement dated
------------------------
December 23, 1996 by and between Valhi and Buyer.
"Valcor" has the meaning set forth in the preface above.
------
"Valhi" means Valhi, Inc., a Delaware corporation.
-----
2. Basic Transaction.
-----------------
(a) Purchase and Sale of Assets. On and subject to the terms and
---------------------------
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section2.
(b) Assumption of Liabilities. On and subject to the terms and conditions
-------------------------
of this Agreement, the Buyer agrees to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or liability of
the Seller not included within the definition of Assumed Liabilities.
(c) Purchase Price. The Buyer agrees to pay to the Seller at the Closing
--------------
$45,000,000 (the "Purchase Price") by delivery of cash in the amount of the
Purchase Price payable by wire transfer or delivery of other immediately
available funds. The Purchase Price is subject to any prorations and
adjustments required by this Agreement, including without limitation, as
provided in Schedule 2.
----------
(d) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Valcor in Dallas,
-------
Texas, commencing at 9:00 a.m. local time on the second business day following
the satisfaction or waiver of all conditions to the obligations of the Parties
to consummate the transactions contemplated by this Agreement (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Buyer and the Seller may mutually
determine (the "Closing Date"); provided, however that the Closing Date shall be
------------ -----------------
no later than January 31, 1997 except that, by written notice to Buyer, Seller
may extend such date for up to fifteen (15) days in order to obtain Required
Consents.
(e) Deliveries at the Closing. At the Closing, (i) the Seller will
-------------------------
deliver to the Buyer the various certificates, instruments, and documents to be
delivered by Seller as referred to in Section7(a) below; (ii) the Buyer will
deliver to the Seller the various certificates, instruments, and documents to be
delivered by Buyer as referred to in Section7(b) below; (iii) the Seller will
execute, acknowledge (if appropriate), and deliver to the Buyer (A) a special
limited warranty deed (subject to Permitted Exceptions) with respect to each
parcel of Real Property owned by Seller that is part of the Acquired Assets, (B)
an assignment or other appropriate conveyance of Sybra's interest with respect
to each parcel of Real Property leased by the Seller that is part of the
Acquired Assets, and (C) such other instruments of sale, transfer, conveyance,
and assignment as the Buyer and its counsel reasonably may request; (iv) the
Buyer will execute, acknowledge (if appropriate), and deliver to the Seller (A)
an assumption in the form attached hereto as Exhibit A and (B) such other
---------
instruments of assumption as the Seller and its counsel reasonably may request;
and (v) the Buyer will deliver to the Seller the Purchase Price specified in
Section2(c) above.
(f) Allocation. The Parties agree to allocate the Purchase Price (and all
----------
other capitalizable costs) among the Acquired Assets for all purposes (including
financial accounting and tax purposes) in accordance with the allocation
schedule attached hereto as Exhibit B. The Buyer and the Seller will cooperate
---------
in the preparation and filing of Internal Revenue Service Form 8594 in a manner
consistent with this Section 2(f).
3. Representations and Warranties of the Seller. The Seller represents
--------------------------------------------
and warrants to the Buyer that the statements contained in this Section3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section3),
except as set forth in the disclosure schedule attached hereto as Exhibit C and
---------
incorporated in this Agreement by this reference (the "Disclosure Schedule").
-------------------
(a) Organization of the Seller. The Seller is a corporation validly
--------------------------
existing, and in good standing under the laws of Michigan.
(b) Authorization of Transaction. The Seller has the corporate power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (i) violate any valid constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or any
provision of the charter or bylaws of the Seller or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
financial condition of the Seller or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. To the Knowledge of the
Seller, and other than in connection with those required notices, consents and
approvals relating to the Seller as described in the Disclosure Schedule (the
"Required Consents of Seller"), Seller does not need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the financial condition of the Seller or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement.
(d) Brokers' Fees. The Seller has no liability or obligation to pay any
-------------
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(e) Legal Compliance. To the Knowledge of the Seller, the Acquired Assets
----------------
are in compliance with all applicable and valid laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) applicable to assets of such type and the restaurant
operations as presently conducted with respect to the Acquired Assets, except
where the failure to comply would not have a material adverse effect upon the
restaurant operations as presently conducted on any parcel of Real Property and
except that Seller makes no representation regarding Environmental Laws.
(f) Real Property.
-------------
(i) With respect to each parcel of Real Property owned by Seller, to
the Knowledge of Seller and except for matters set forth in the Title Commitment
and Surveys:
(A) the identified owner has good title to the parcel of Real
Property, free and clear of any Security Interest, easement or covenant, except
for installments of special assessments not yet delinquent, recorded easements,
covenants, and other restrictions, and utility easements, building restrictions,
zoning restrictions, and other easements and restrictions existing generally
with respect to properties of a similar character;
(B) there are no leases, subleases, licenses, concessions, or
other agreements granting to any party or parties the right of use or occupancy
of any portion of the parcel of Real Property; and
(C) there are no outstanding options or rights of first refusal
to purchase the parcel of Real Property, or any portion thereof or interest
therein.
(ii) The Seller has delivered to the Buyer correct and complete
copies (as amended to date) of the ground leases for each parcel of leased Real
Property, which ground leases are listed in Section3(f)(ii) of the Disclosure
Schedule. To the Knowledge of the Seller, each ground lease listed in
Section3(e)(ii) of the Disclosure Schedule is legal, valid, binding, enforceable
in accordance with its terms, and in full force and effect, except where the
illegality, invalidity, nonbinding nature, unenforceability, or ineffectiveness
would not have a material adverse effect on the Acquired Assets.
(g) Litigation. To the Knowledge of Seller, Section3(g) of the
----------
Disclosure Schedule sets forth each instance in which any of the Acquired Assets
(i) is subject to any outstanding injunction, judgment, order, decree, ruling,
or charge; or (ii) is the subject of any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction, except where the
injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing,
or investigation would not reasonably be expected to involve consideration in
excess of $10,000.
(h) Certain Notices. To the Knowledge of Seller, Section3(g) of the
---------------
Disclosure Schedule sets forth each instance in which any of the Real Property
(i) is the subject of a written notice received by Seller from any insurance
company, board of fire underwriters or similar organization regarding any
material defects in such Real Property; (ii) is the subject of a written notice
from a governmental authority that such Real Property is in violation in any
material respect of a material applicable law; or (iii) is the subject of a
written notice from a government authority of intent to initiate, or the
initiation, of a taking or condemnation proceeding.
(i) Financial Statements. Check dates
--------------------
(i) The Seller's balance sheets dated as of December 31, 1993,
December 31, 1994 and December 31, 1995, as well as income statements for the
years then ended, delivered to the Buyer (cumulatively the "Annual Financial
----------------
Statements") present fairly the financial position of the Seller as of the date
- ----------
of each respective Annual Financial Statement and the results of operations of
the Seller for the respective periods covered by the Annual Financial Statements
in accordance with GAAP.
(ii) The unaudited income statements of the Seller as of June 30,
1996 for the six-month period then ended delivered to the Buyer present fairly
the financial position of the Seller as of the date thereof and the results of
operation of the Seller for the period covered thereby in accordance with GAAP,
subject to normal recurring year-end adjustments in accordance with the Seller's
historical accounting practices.
(iii) The unaudited income statements of the Seller as of September
28, 1996, for the period then ended delivered to the Buyer present fairly the
financial position of the Seller as of the date thereof and the results of
operation of the Seller for the period covered thereby in accordance with GAAP,
subject to normal recurring year-end adjustments in accordance with the Seller's
historical accounting practices.
4. Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Seller and to and for the benefit of Valcor that the statements
contained in this Section4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section4), except as set forth in the Disclosure
Schedule.
(a) Organization of the Buyer. The Buyer is a limited partnership duly
-------------------------
formed, validly existing, and in good standing under the laws of the
jurisdiction of its formation.
(b) Authorization of Transaction. The Buyer has the partnership power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Buyer, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated by this
Agreement (including, without limitation, the assignments and assumptions
referred to in Section2 above), will (i) violate any valid constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its limited partnership agreement or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets) except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
material adverse effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of the Buyer, and
other than in connection with those required notices, consents and approvals
relating to the Buyer or any of its Subsidiaries as described in the Disclosure
Schedule (the "Required Consents of Buyer"), the Buyer does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement (including the
assignments and assumptions referred to in Section2 above), except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. The Buyer has no liability or obligation to pay any
-------------
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
(e) Financing. Buyer will have, on the Closing Date, all funds necessary
---------
to pay the Purchase Price and related fees and expenses, and has, or will have
on the Closing Date, the financial capacity to perform all of its other
obligations under this Agreement.
(f) Due Diligence. Buyer acknowledges and agrees (A) that Buyer has had
-------------
access to and the opportunity to perform unrestricted due diligence with respect
to Sybra, the Acquired Assets and the Assumed Liabilities; (B) Buyer is
acquiring the Acquired Assets and assuming the Assumed Liabilities without
reliance on any representations or warranties of Seller except as expressly set
forth in Section3 of this Agreement and subject to all of the limitations
provided in this Agreement.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to take
-------
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section7
below).
(b) Title Insurance; Surveys.
------------------------
(i) Buyer and Seller shall cooperate to obtain a commitment (the
"Title Commitment") issued by a title insurance company reasonably acceptable to
Buyer and Seller (the "Title Company") for the issuance of a standard owner's
(ALTA) policy or policies of title insurance insuring fee simple title to the
real property owned by the Seller and part of the Acquired Assets and fee simple
leasehold title to the real property leased pursuant to ground leases by the
Seller and part of the Acquired Assets, all as more particularly described in
Schedule 1 hereto (the "Real Property"). The Buyer shall have twenty (20) days
- ----------
following receipt of the Title Commitment and the Survey with respect to each
parcel of Real Property and copies of all exceptions listed in such Title
Commitment to object by written notice to the Seller to any title exception
revealed by the Title Commitment, exceptions or the Survey. All title
exceptions revealed by any Title Commitment, exceptions or any Survey to which
Buyer does not object within the twenty-day period provided above shall be
considered approved (such exceptions, together with the matters referenced in
Section3(f)(i)(A) hereof, the "Permitted Exceptions"). In the event the Buyer
timely objects to a title exception, the Seller may, within fifteen (15) days
following receipt of the Buyer's written objections, and in any event no later
than the Closing Date, eliminate or modify or arrange for the removal or
modification of such disapproved exception to the Buyer's reasonable
satisfaction; provided however, Seller shall provide for the release on or
before Closing of all liens on the Real Property securing indebtedness for
borrowed money, judgment liens or similar obligations. In the event that the
Seller is unable or does not elect to eliminate or modify, or arrange for the
elimination or modification of any disapproved exceptions within such fifteen
(15) day period, the Buyer shall be entitled to (i) amend this Agreement so as
to exclude any parcel of Real Property the title to which is so impaired as to
make the title unmarketable, and (ii) receive a reduction of the purchase price
with respect to the Agreed Value of each such parcel of Real Property; provided,
---------
however, that Buyer's rights under this sentence shall not extend to more than
- -------
two (2) parcels of Real Property in addition to the Buyer's termination rights
under Section9(a)(vi). In addition, in the event that (i) the Seller is unable
or does not elect to eliminate or modify, or arrange for the elimination or
modification of any disapproved exceptions within such fifteen (15) day period,
(ii) Buyer has exercised all of its exclusion rights under the foregoing
sentence and/or Section9(a)(vi) with respect to the parcel or parcels of Real
Property affected by some of such disapproved exceptions, and (iii) the
disapproved exceptions affecting the remaining parcels of Real Property,
individually or in the aggregate would have a material adverse effect on the
aggregate value of all such remaining Real Property, the Buyer shall have ten
(10) days after the expiration of such fifteen (15) day period within which to
notify the Seller in writing whether the Buyer shall elect to terminate this
Agreement. If Buyer fails to provide such notice within such fifteen (15) day
period, Buyer shall be deemed to have waived its objection to the disapproved
exceptions (in which case the exceptions shall be a Permitted Exceptions). In
the event of such termination, all obligations of the parties under this
Agreement (except such obligations that survive termination as set forth in
Section9(b)) shall thereafter cease and be of no further force or effect.
Buyer's rights to terminate this Agreement, partially or in its entirety,
pursuant to this Section5(b) and/or Section9(a)(vi) are Buyer's sole rights
and remedies with respect to the title exceptions affecting the Real Property.
Seller shall bear the costs of the Title Commitments and premiums for title
insurance policies, excluding special endorsements requested by Buyer which
shall be at Buyers sole cost and expense, issued pursuant to the Title
Commitment at the Closing.
(ii) Buyer and Seller shall cooperate to obtain a current "as built"
survey ("Survey") for each parcel of Real Property, which Survey shall meet the
minimum standard detail requirements for ALTA/ACSM land title surveys, shall be
certified or recertified to Buyer and the Title Company, shall list all
easements and encroachments affecting the Real Property, shall identify parking
spaces (including handicapped designations) and ingress and egress, and shall
contain a flood plain certification. Seller shall bear the costs of obtaining
such Surveys.
(c) Notices and Consents. Each Party will give any notices (and will
--------------------
cause each of its Subsidiaries, if any, to give any notices) to third parties,
and each Party will use its reasonable efforts to obtain (and will cause each of
its Subsidiaries, if any, to use its reasonable efforts to obtain) any third
party consents, including the Required Consents of Seller and the Required
Consents of Buyer, that the other Party reasonably may request in connection
with the matters referred to in Section3(c) and Section4(c) above. Each of
the Parties will (and will cause each of its Subsidiaries, if any, to) give any
notices to, make any filings with, and use its reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section3(c) and Section4(c)
above.
(d) Access. The Seller will permit representatives of the Buyer to have
------
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Seller, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to the Seller as Buyer may reasonably request from time to time
solely (i) for the purpose of confirming Seller's compliance with Section5(c)
above, and (ii) to conduct environmental assessments. The Buyer will treat and
hold in confidence any Confidential Information it receives or has received from
the Seller or Valcor in the course of its due diligence review or the reviews
contemplated by this Section5(d), will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to the Seller and Valcor or
destroy, at Seller's or Valcor's request, all tangible embodiments (and all
copies) including, without limitation, all electronic media, of the Confidential
Information which are in its possession.
(e) Notice of Developments.
----------------------
(i) The Seller may elect at any time to notify the Buyer of any
development causing a breach of any of its representations and warranties in
Section3(e)-(g) above. Unless the Buyer has the right to terminate this
Agreement pursuant to Section9(a)(ii) below by reason of the development and
exercises that right within the period of ten (10) business days referred to in
Section9(a)(ii) below, the written notice pursuant to this Section5(e)(i) will
be deemed to have amended the Disclosure Schedule, to have qualified the
representations and warranties contained in Section3 above, and to have cured
any misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.
(ii) Each Party will give prompt written notice to the other Party of
any material adverse development causing a breach of any of its own
representations and warranties in Section3(a)-(d) and, Section4 above. No
disclosure by any Party pursuant to this Section5(e)(ii), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation or breach of warranty.
(f) Exclusivity. The Seller will not solicit, initiate, or encourage the
-----------
submission of any proposal or offer from any Person relating to the acquisition
of the Acquired Assets.
(g) Security Interest. The Seller will not grant any Security Interest
-----------------
with respect to the Acquired Assets other than in the ordinary course of
business.
6. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing:
(a) General. In case at any time after the Closing any further action is
-------
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other Party reasonably may request, all at the
sole cost and expense of the requesting Party (except to the extent that the
requesting Party is entitled to indemnification therefor under Section8 below).
(b) Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Seller, the other Party shall cooperate with it
and its counsel in the defense or contest, make available its personnel, and
provide such testimony and access to its books and records as shall be necessary
in connection with the defense or contest, all at the sole cost and expense of
the contesting or defending Party (except to the extent that the contesting or
defending Party is entitled to indemnification therefor under Section8 below).
7. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) no material adverse change shall have occurred with respect to
the Acquired Assets taken as a whole since September 30, 1996;
(v) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section7(a)(i)-(iv) is
satisfied in all respects;
(vi) the Buyer shall have received the Required Consents of Buyer,
all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section3(c) and Section4(c) above and
evidence reasonably satisfactory to Buyer of receipt of all required consents
from Seller's lessors with respect to leases affecting the Real Property ;
(vii) the Title Insurance Company shall be prepared to issue title
insurance policies for each parcel of Real Property, subject only to Permitted
Exceptions;
(viii) the results of Buyer's environmental assessments and other due
diligence relating to the condition of the Acquired Assets with respect to
environmental liabilities shall be satisfactory to Buyer in all material
respects;
(ix) the financial condition and the identity of the owners of the
purchaser under the Stock Purchase Agreement shall be satisfactory to Buyer in
all material respects;
(x) Valcor and Newco shall have entered into a Stock Purchase
Agreement in form and substance reasonably satisfactory to Buyer and Valcor;
(xi) Simultaneously with the Closing, Newco and Buyer shall enter
into a lease by Buyer to Newco and/or Seller with respect to the Real Property,
which lease shall be in form and substance reasonably satisfactory to Buyer and
Seller;
(xii) all conditions have been satisfied to the obligations of the
parties to the Stock Purchase Agreement and the Units Purchase Agreement and the
closings of the transactions contemplated in the Stock Purchase Agreement and
the Units Purchase Agreement shall occur simultaneously with the Closing; and
(xiii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
The Buyer may waive any condition specified in this Section7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
--------------------------------------
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section7(b)(i)-(iii)
is satisfied in all respects;
(v) the Seller shall have received the Required Consents of Seller
and all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section3(c) and Section4(c) above;
(vi) all conditions have been satisfied to the obligations of the
parties to the Stock Purchase Agreement and the Units Purchase Agreement and the
closings of the transactions contemplated in the Stock Purchase Agreement and
the Units Purchase Agreement shall occur simultaneously with the Closing;
(vii) Valcor and Newco shall have entered into a Stock Purchase
Agreement in form and substance reasonably satisfactory to Buyer and Valcor;
(viii) Simultaneously with the Closing, Newco (or Seller) and Buyer
shall enter into a lease by Buyer to Newco (or to Seller) with respect to the
Real Property, which lease shall be in form and substance reasonably
satisfactory to Buyer and Seller; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
The Seller may waive any condition specified in this Section7(b) if it executes
a writing so stating at or prior to the Closing.
8. Remedies for Breaches of this Agreement.
----------------------------------------
(a) Survival of Representations and Warranties. None of the
-------------------------------------------
representations and warranties of the Seller contained in Section3(e)-(g) shall
survive the Closing. Subject to the limitations set forth in Section8(b)(i)
below, all of the other representations and warranties of the Buyer and the
Seller in this Agreement or any deed or other conveyance executed pursuant to
this Agreement shall survive the Closing (unless the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty contained in
Section3 or Section4 above or any deed or other conveyance at the time of
Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer. In the event the
----------------------------------------------------
Seller breaches any of its representations, warranties, or the covenants
contained in this Agreement or in any deed or other conveyance executed pursuant
to this Agreement, and, if there is an applicable survival period pursuant to
Section8(a) above, provided that the Buyer makes a written claim for
indemnification against Valcor pursuant to Section10(g) below within such
survival period, then Valcor agrees to indemnify the Buyer from and against any
Adverse Consequences the Buyer shall suffer through and after the date of the
claim for indemnification (but excluding any Adverse Consequences the Buyer
shall suffer after the end of any applicable survival period) caused proximately
by the breach; provided, however, that Valcor shall not have any obligation to
indemnify the Buyer from and against any Adverse Consequences caused by the
breach of any representation or warranty of the Seller contained in
Section3(e)-(g) of this Agreement. Valcor's indemnification obligations to the
Buyer pursuant to this Subsection together with Valcor's indemnification
obligations under the Stock Purchase Agreement shall not exceed $2,000,000
million in the aggregate, determined, as of any relevant date, based upon
aggregate claims actually paid as of such date by Valcor to Buyer or Newco.
Buyer agrees that it will not seek indemnification for any claim under this
Subsection unless the aggregate of all claims under this Subsection together
with all claims under the Stock Purchase Agreement, determined as of the date
any claim is made, will result in loss to Buyer and/or Newco in excess of
$100,000 in the aggregate, provided however, that once such threshold is
exceeded, Valcor shall indemnify Buyer and/or Newco, as applicable, for all such
claims from the first dollar of claims up to and subject to the $2,000,000
limitation specified above.
(c) Indemnification Provisions for Benefit of the Seller and Valcor. In
---------------------------------------------------------------
the event the Buyer breaches any of its representations, warranties or the
covenants contained in this Agreement, and, if there is an applicable survival
period pursuant to Section8(a) above, provided that Seller or Valcor makes a
written claim for indemnification against the Buyer within such survival period,
then the Buyer agrees to indemnify Seller and Valcor from and against the
entirety of any Adverse Consequences the Seller or Valcor, as applicable, shall
suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences the Seller or Valcor shall suffer after the
- ---------
end of any applicable survival period) caused proximately by the breach.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which may give rise
- ----- -----------------
to a claim for indemnification against another Party (the "Indemnifying Party")
------------------
under this Section8, then the Indemnified Party shall promptly (and in any
event within ten (10) business days after receiving notice of the Third Party
Claim) notify the Indemnifying Party thereof in writing.
(ii) The Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with counsel of its
choice; provided, however, that the Indemnifying Party will not consent to the
-----------------
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not to
be withheld unreasonably) unless the judgment or proposed settlement involves
only the payment of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(iii) Unless and until the Indemnifying Party assumes the defense of
the Third Party Claim as provided in Section8(d)(ii) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party except to the extent
that the Indemnified Party elects to waive its right to indemnification
hereunder with respect to such claim.
(e) Determination of Adverse Consequences. The Parties shall make
--------------------------------------
appropriate adjustments for tax benefits and insurance coverage and take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section8. All
indemnification payments under this Section8 shall be deemed adjustments to the
Purchase Price.
(f) Other Indemnification Provisions. The indemnification provisions in
---------------------------------
this Section8 are the sole remedy any Party may have after the Closing for
breach of representation or warranty in this Agreement, any covenant in this
Agreement (excluding those set forth in Section6 of this Agreement) or any
representations and warranties contained in any other conveyance executed
pursuant to this Agreement; provided, however, that the Buyer acknowledges and
agrees that it shall not have any remedy after the Closing for any breach of the
representations and warranties in Section3(e)-(g) above; and provided further,
each Party shall be entitled to specific performance of all covenants.
(g) Specific Performance. A remedy of specific performance shall be the
--------------------
sole remedy available to either Buyer or Seller in the event that the other
fails to perform at the Closing as required by this Agreement if all conditions
of the party failing to perform have been satisfied as required by this
Agreement or waived.
9. Termination.
-----------
(a) Termination of Agreement. The Parties may terminate this
------------------------
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement pursuant to
Section5(b)(i);
(iii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event (A) the
Seller has within the then previous ten (10) business days given the Buyer any
notice pursuant to Section5(e)(i) above and (B) the development that is the
subject of the notice has had a material adverse effect upon the Acquired Assets
and/or Assumed Liabilities, taken as a whole.
(iv) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A) in the event the
Seller has breached any material representation, warranty, or covenant contained
in this Agreement (other than the representations and warranties in
Section3(e)-(g) above) in any material respect, the Buyer has notified the
Seller of the breach, and the breach has continued without cure for a period of
the shorter of (x) thirty (30) days after the notice of breach or (y) the number
of days between the notice of breach and the Closing Date or (B) if the Closing
shall not have occurred on or before January 31, 1997 (or such later date to
which extended by Seller as provided in Section2(d)), by reason of the failure
of any condition precedent under Section7(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement);
(v) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the Buyer
has breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Seller has notified the Buyer of the
breach, and the breach has continued without cure for a period of thirty (30)
days after the notice of breach or (B) if the Closing shall not have occurred on
or before January 31, 1997 (or such later date to which extended by Seller as
provided in Section2(d)), by reason of the failure of any condition precedent
under Section7(b) hereof (unless the failure results primarily from the Seller
itself breaching any representation, warranty, or covenant contained in this
Agreement); and
(vi) the Buyer shall be entitled to (A) terminate this Agreement
as to any parcel of Real Property the title to which is so impaired as to be
unmarketable or the environmental condition of which is so impaired as to make
the parcel of Real Property unusable to Buyer without substantial remediation,
and (B) receive a reduction of the purchase price with respect to the Agreed
Value of each such parcel of Real Property; provided, however, that Buyer's
-----------------
entitlement under this clause (vi) shall not extend to more than three (3)
parcels of Real Property.
(b) Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
-----------------
the confidentiality provisions contained in Section5(d) above shall survive any
such termination.
10. Miscellaneous.
-------------
(a) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that any Party or any affiliate of such Party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its publicly-
traded securities (in which case the Party which intends, or which has an
affiliate that intends, to issue such press release or make such public
announcement will advise the other Party prior to making the disclosure and
provide the other Party opportunity to comment upon the release or
announcement).
(b) No Third Party Beneficiaries Other than Valcor. This Agreement shall
----------------------------------------------
not confer any rights or remedies upon any Person other than the Parties and
Valcor and their respective successors and permitted assigns. The Buyer
acknowledges and agrees that Valcor is intended to be and shall be a beneficiary
of Buyer's representations, warranties, covenants and indemnification
obligations in this Agreement.
(c) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Sybra, Inc.
----------------
8300 Dunwoody Place, Suite 300
Atlanta, Georgia 30350-1296
Attention: President
Tel: 770-587-0290
Fax: 770-594-7044
Prior to Closing, copy to:
-------------------------
Valcor, Inc.
Three Lincoln Centre, Suite 1700
5430 LBJ Freeway
Dallas, TX 75240-2697
Attention: Steven L. Watson
Tel: 214-233-1700
Fax: 214-239-0142
James L. Palenchar
Bartlit Beck Herman Palenchar & Scott
511 16th Street, Suite 500
Denver, Colorado 80202
Tel: 303-592-3100
Fax: 303-592-3140
Edward J. Hardin
Rogers & Hardin
2700 International Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Tel: 404-522-4700
Fax: 404-525-2224
If to the Buyer: U.S. Restaurant Properties Master L.P.
---------------
5310 Harvest Hill Road, Suite 270
L.B. 168
Dallas, Texas 75230
Tel: 972-387-1487
Fax: 972-490-9119
Copy to: Richard Wilensky, Esq.
-------
Middleberg Riddle & Gianna
2323 Bryan Street, Suite 1600
Dallas, Texas 75201
Tel: 214-220-6300
Fax: 214-220-0179
If to Valcor: Valcor, Inc.
------------
Three Lincoln Centre, Suite 1700
5430 LBJ Freeway
Dallas, TX 75240-2697
Attention: Steven L. Watson
Tel: 214-233-1700
Fax: 214-239-0142
James L. Palenchar
Bartlit Beck Herman Palenchar & Scott
511 16th Street, Suite 500
Denver, Colorado 80202
Tel: 303-592-3100
Fax: 303-592-3140
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware; provided however,
that all conveyances and similar documents relating to the transfer of the
Acquired Assets shall be governed by the laws of the states in which the
Acquired Assets, respectively, are located.
(i) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer, the Seller and Valcor. The Seller may consent to any such amendment at
any time prior to the Closing with the prior authorization of its board of
directors; provided, however, that any amendment effected after Valcor has
-----------------
approved this Agreement will be subject to the restrictions contained in the
Delaware General Corporation Law. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any such prior or subsequent
occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. The Seller shall bear the costs and expenses identified in
--------
Section5(b)(i)(other than special endorsements), and the Buyer will bear the
costs and expenses of all special endorsements and all due diligence required by
it with respect to environmental assessments and other due diligence relating to
the condition of the Acquired Assets with respect to environmental liabilities.
Except as otherwise provided in this Agreement, each of the Buyer and the
Seller will bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Seller will also bear all of Valcor's costs and expenses (including
all of its legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby (other than any income tax on any
income or gain Valcor may realize if the Seller makes any dividend or
distribution to Valcor). The Seller and Buyer each shall bear one-half of the
costs of any customary and reasonable closing expenses.
(l) Construction. In the event an ambiguity or question of intent or
------------
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
(m) Incorporation of Exhibits. The Exhibits and any annexes and schedules
-------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Bulk Transfer Laws. The Buyer acknowledges that the Seller will not
------------------
comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as of]
the date first above written.
U.S. RESTAURANT PROPERTIES MASTER
L.P., a Delaware limited partnership
By:
----------------------
Title:
---------------------
SYBRA, INC., a Michigan corporation
By:
----------------------
Title:
---------------------
VALCOR, INC., a Delaware corporation
By:
----------------------
Title:
---------------------
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BETWEEN
VALCOR, INC.
AND
I.C.H. CORPORATION
FEBRUARY 7, 1997
TABLE OF CONTENTS
1. Definitions............................................................1
2. Purchase and Sale of Sybra Shares......................................6
(a) Basic Transaction................................................6
(b) Purchase Price...................................................6
(c) Pre-Closing Dividends and Distributions to Seller................6
(d) The Closing......................................................6
(e) Deliveries at the Closing........................................6
(f) Adjustment to Purchase Price....................................7
(g) Contingent Consideration.........................................7
3. Representations and Warranties Concerning the Transaction..............8
(a) Representations and Warranties of the Seller.....................8
(i) Organization of the Seller..................................8
(ii) Authorization of Transaction...............................9
(iii) Noncontravention..........................................9
(iv) Brokers' Fees..............................................9
(v) Sybra Shares................................................9
(b) Representations and Warranties of the Buyer.....................10
(i) Organization of the Buyer..................................10
(ii) Authorization of Transaction..............................10
(iii) Noncontravention.........................................10
(iv) Brokers' Fees.............................................11
(v) Investment.................................................11
(vi) Financing.................................................11
(vii) Due Diligence............................................11
4. Representations and Warranties Concerning Sybra.......................11
(a) Organization, Qualification, and Corporate Power................11
(b) Capitalization..................................................12
(c) Noncontravention................................................12
(d) Brokers' Fees...................................................12
(e) Title to Tangible Assets Other than the Real Property Assets....12
(f) Subsidiaries....................................................12
(g) Financial Statements............................................13
(h) Events Subsequent to Most Recent Fiscal Quarter End.............13
(i) Legal Compliance................................................13
(j) Income Tax Matters..............................................13
(k) Intellectual Property...........................................14
(l) Contracts.......................................................14
(m) Litigation......................................................14
(n) Employee Benefits...............................................15
5. Pre-Closing Covenants.................................................16
(a) General.........................................................16
(b) Notices and Consents............................................16
(c) Operation of Business...........................................16
(d) Access..........................................................16
(e) Notice of Developments..........................................17
(f) Other Transactions..............................................17
(g) Estoppel Certificates............................................17
6. Post-Closing Covenants...............................................18
(a) General.........................................................18
(b) Litigation Support..............................................18
(c) Employee Benefits Matters.......................................18
7. Conditions to Obligation to Close.....................................19
(a) Conditions to Obligation of the Buyer...........................19
(b) Conditions to Obligation of the Seller..........................20
8. Remedies for Breaches of this Agreement...............................21
(a) Survival of Representations and Warranties......................21
(b) Indemnification Provisions for Benefit of the Buyer.............22
(c) Indemnification Provisions for Benefit of the Seller............22
(d) Matters Involving Third Parties.................................22
(e) Determination of Adverse Consequences...........................23
(f) Other Indemnification Provisions................................23
9. Termination...........................................................23
(a) Termination of Agreement........................................23
(b) Effect of Termination...........................................24
10. Income Tax Matters...................................................24
(a) Income Tax Sharing Agreements...................................25
(b) Income Taxes of Other Persons...................................25
(c) Returns for Periods Through the Closing Date....................25
(d) Audits..........................................................25
(e) Carrybacks......................................................25
(f) Post-Closing Elections..........................................26
(g) Indemnification for Post-Closing Transactions...................26
(h) Post-Closing Transactions not in the Ordinary Course............26
11. Miscellaneous........................................................26
(a) Press Releases and Public Announcements.........................26
(b) No Third Party Beneficiaries Other than Affiliated Group Parent.26
(c) Entire Agreement................................................27
(d) Succession and Assignment.......................................27
(e) Counterparts....................................................27
(f) Headings........................................................27
(g) Notices.........................................................27
(h) Governing Law; Jurisdiction.....................................28
(i) Amendments and Waivers..........................................29
(j) Severability....................................................29
(k) Expenses........................................................29
(l) Construction....................................................29
(m) Incorporation of Exhibits.......................................29
EXHIBITS
EXHIBIT A Agreed Value
EXHIBIT B Disclosure Schedule
EXHIBIT C Financial Statements
EXHIBIT D Form of Estoppel Certificate
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
February 7, 1997, by and between I.C.H. CORPORATION, a Delaware corporation (the
"Buyer"), and VALCOR, INC., a Delaware corporation (the "Seller"). The Buyer and
the Seller are referred to individually as a "Party" and collectively as the
"Parties."
The Seller holds all of the outstanding capital stock of Sybra, Inc., a
Michigan corporation (the "Sybra").
This Agreement contemplates a transaction in which the Buyer will purchase
for cash consideration from the Seller, and the Seller will sell to the Buyer,
all of the outstanding capital stock of Sybra.
Now, therefore, in consideration of the premises and the mutual promises,
representations, warranties and covenants set forth below, the Parties agree as
follows.
1. Definitions.
-----------
"Accrued Expenses and Payables" means any liability of Sybra classified as
-----------------------------
a current liability in its financial statements prepared in accordance with
GAAP, excluding any current liability classified as (i) current portion of long-
term debt, (ii) current portion of a capital lease obligation, (iii) payable to
affiliates, (iv) current or deferred income taxes payable or (v) current portion
of a reserve for store closures.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group of companies within the
----------------
meaning of Code Section1504(a).
"Affiliated Group Parent" means, during the period from October 1, 1987 to
-----------------------
present, Contran.
"Applicable Rate" means the "Prime Rate" as identified in the Wall Street
---------------
Journal Money Rates section from time to time as the base rate of interest for
corporate loans.
"Buyer" has the meaning set forth in the preface above.
-----
"Cash" means cash and cash equivalents (including marketable securities and
----
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section2(d) below.
-------
"Closing Date" has the meaning set forth in Section2(d) below.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of Sybra that is not already generally available to the public.
"Contran" means Contran Corporation, a Delaware corporation.
-------
"Debt Repayment" has the meaning set forth in Section2(b) below.
--------------
"Determination Date" has the meaning set forth in Section2(g)(ii) below.
------------------
"Disclosure Schedule" has the meaning set forth in Section3 below.
-------------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
-----------------------------
Section3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
-----------------------------
Section3(1).
"Environmental Law" means any national or local statute, law, ordinance,
-----------------
rule, regulation, order, consent, decree, judicial or administrative decision or
directive of applicable law at any time relating to (A) pollution or protection
of the environment, including natural resources, (B) exposure of persons,
including employees, to hazardous substances or other products, materials or
chemicals, or (C) protection of the public health or welfare from the effects of
products, by-products, waste, emissions, discharges or releases of chemical or
other substances from industrial or commercial activities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Financial Statements" has the meaning set forth in Section4(g) below.
--------------------
"Fiscal Month" means, as applicable, the four or five consecutive weeks
------------
within an accounting cycle for Sybra for Unit #740.
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Gross Revenues" means all revenues and other items of income as those
--------------
terms are normally used in accordance with GAAP.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
---------------------
Act of 1976, as amended.
"Income Tax" means any federal, state, local, or foreign income tax,
----------
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
-----------------
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" has the meaning set forth in Section8(d) below.
-----------------
"Indemnifying Party" has the meaning set forth in Section8(d) below.
------------------
"Inventories" means inventories, including supplies, calculated in
-----------
accordance with GAAP applied on a basis consistent with the preparation of the
Financial Statements.
"Knowledge" means actual knowledge without independent investigation of the
---------
referenced person or, if an entity, the executive officers of the referenced
entity and, in the case of Sybra, the executive officers and regional vice
presidents of Sybra.
"Lease" means a lease by and between Sybra and USRP pursuant to which Sybra
-----
leases from USRP the Acquired Assets as defined in the USRP Agreement.
`Monthly Free Cash Flow" means, for each Fiscal Month, or portion thereof,
----------------------
the excess of Gross Revenues over Operating Expenses.
"Most Recent Financial Statements" has the meaning set forth in
--------------------------------
Section4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section4(g)
----------------------------
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section3(37).
------------------
"Operating Expenses" shall mean reasonably necessary and customary costs
------------------
and other types of expenses, provided, however, that Operating Expenses shall
exclude (x) depreciation, amortization and other non-cash expenses, (y) interest
expense and (z) provision for income taxes, as all of those terms are normally
used in accordance with GAAP.
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including, without limitation, with
respect to quantity and frequency).
"Party" has the meaning set forth in the preface above.
-----
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Purchase Price" has the meaning set forth in Section2(b) below.
--------------
"Real Property Assets" means the real property assets that Sybra intends to
--------------------
sell to USRP and USRP intends to purchase from Sybra as described in the USRP
Agreement.
"Reportable Event" has the meaning set forth in ERISA Section4043.
----------------
"Required Consents of Seller" has the meaning set forth in
---------------------------
Section3(a)(iii) below.
"Required Consents of Buyer" has the meaning set forth in Section3(b)(iii)
--------------------------
below.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
------
"Subsidiary" means any corporation or other entity with respect to which a
----------
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or other equity interests, or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors or other persons
performing similar functions with respect to such entity.
"Sybra" has the meaning set forth in the preambles above.
-----
"Sybra Share" means any share of the Common Stock, par value $.50 per
-----------
share, of Sybra.
`Tax'' means any federal, state, local, or foreign tax, including any
---
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto.
"Third Party Claim" has the meaning set forth in Section8(d) below.
-----------------
"Unit #740" means Sybra's Unit #740 located at the Park City Mall in
---------
Lancaster, Pennsylvania.
"Units Purchase Agreement" means the Units Purchase Agreement by and
------------------------
between Valhi and USRP, as amended, supplemented or modified.
"USRP" means U.S. Restaurant Properties Master L. P., a Delaware limited
----
partnership.
"USRP Agreement" means the Asset Purchase Agreement dated December 23, 1996
--------------
by and between Sybra and USRP, as amended, supplemented or modified.
"Valcor" means Valcor, Inc., a Delaware corporation.
------
"Valhi" means Valhi, Inc., a Delaware corporation.
-----
2. Purchase and Sale of Sybra Shares.
---------------------------------
(a) Basic Transaction. On the terms and subject to the conditions of this
-----------------
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, at Closing, all of its Sybra Shares for the consideration
specified below in this Section2.
(b) Purchase Price. The Buyer agrees (i) to pay to the Seller at the
--------------
Closing $14,000,000 (the "Purchase Price"), subject to adjustment as provided in
Section Section2(f) and (g) below, by delivery of cash in the amount of the
Purchase Price payable by wire transfer or delivery of other immediately
available funds, and (ii) to pay in full indebtedness of Sybra, in an amount not
to exceed $23,772,000, more particularly described in Section2(b) of the
Disclosure Schedule (the "Debt Repayment").
(c) Pre-Closing Dividends and Distributions to Seller. Immediately prior
-------------------------------------------------
to or concurrently with the Closing, the Seller will cause Sybra to pay to the
Seller an aggregate amount equal to Sybra's good faith estimate of the
consolidated Cash of Sybra as of the Closing, including, without limitation, all
of the net cash proceeds of Sybra's sale of certain of its assets to USRP
pursuant to the USRP Agreement, provided however, Seller shall not permit Sybra
to dividend Cash to the extent that, based on Sybra's good faith estimate,
remaining Cash and Inventories as of the Closing Date and after such dividend
would be less than $2,605,000. The Seller may cause Sybra to make any such
payment to it in the form of a dividend or a redemption of capital stock. In
addition, prior to the Closing, the Seller will cause Sybra to dividend to
Seller all of its right, title and interest in and to the real property
described in Section2(c) of the Disclosure Schedule.
(d) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Valcor in Dallas,
-------
Texas, commencing at 9:00 a.m. local time on the second business day following
the satisfaction or waiver of all conditions to the obligations of the Parties
to consummate the transactions contemplated by this Agreement (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Buyer and the Seller may mutually
determine (the "Closing Date"); provided, however that the Closing Date shall be
-----------------
no later than April 14, 1997.
(e) Deliveries at the Closing. At the Closing, (i) the Seller will
-------------------------
execute, acknowledge (if appropriate), and deliver to the Buyer the various
certificates, instruments, and documents to be delivered by Seller as referred
to in Section7(a) below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents to be delivered by Buyer as referred to
in Section7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of its Sybra Shares, endorsed in blank or
accompanied by duly executed assignment documents, (iv) the Buyer will deliver
to the Seller the Purchase Price specified in Section2(b) above, and (v) the
Buyer will pay or cause to be paid the Debt Repayment described in Section2(b)
above.
(f) Adjustment to Purchase Price. The Purchase Price shall be increased
-----------------------------
by the Agreed Value set forth on Exhibit A of each restaurant unit that is not
---------
purchased by USRP under the USRP Agreement and Buyer shall pay such increase at
Closing. The Purchase Price also shall be adjusted as provided in
Section5(g)(ii). In addition, as promptly as practicable, but no later than 90
days following the Closing Date, Seller and Buyer shall jointly prepare, or
cause to be prepared, in accordance with GAAP financial statements of Sybra,
including a consolidated balance sheet as of the close of business on the
Closing Date (after giving effect to the transactions contemplated in the USRP
Agreement and all dividends contemplated by this Section2) (the "Closing
Balance Sheet"). Within ten (10) days after completion of the Closing Balance
Sheet, if the aggregate amount of Accrued Expenses and Payables as set forth in
the Closing Balance Sheet, net of the aggregate amount of Cash and Inventories
as set forth in the Closing Balance Sheet, is greater than $6,895,000, the
Purchase Price shall be adjusted and the Seller shall make a cash payment in
immediately available funds to the Buyer in an amount (the "Payment Amount")
equal to the difference between U.S.$6,895,000 and the aggregate amount of
Accrued Expenses and Payables as set forth in the Closing Balance Sheet, net of
the aggregate of Cash and Inventories as set forth in the Closing Balance Sheet,
plus interest on the Payment Amount at the rate of eight percent (8%) per annum
calculated from the Closing Date through the date of such cash payment. Any
payment pursuant to the foregoing provisions shall be an adjustment (net of any
interest included in such payment) to the Purchase Price.
(g) Contingent Consideration. Buyer agrees to pay Seller additional,
------------------------
contingent consideration computed in accordance with this Section2(g).
(i) Commencing on the Closing Date and continuing through the date of
payment in full of the amounts due under Section2(g)(ii) and/or
Section2(g)(iii), as applicable, Buyer shall pay Seller an amount equal to 50%
of the Monthly Free Cash Flow of Unit #740 for each Fiscal Month, or portion
thereof. Buyer shall pay such amount to Seller by wire transfer or delivery of
other immediately available funds within 15 business days after the last
business day of each such Fiscal Month, or portion thereof.
(ii) In the event that, after the Closing Date, (a) Sybra enters into
a lease having a duration of one year or more for Unit #740, (b) Sybra enters
into a lease for another location at the Park City Mall, Lancaster, Pennsylvania
or (c) neither of the events described in (a) or (b) has occurred and Sybra has
not been forced by the lessor to vacate Unit #740 on or before the second
anniversary of the Closing Date (the "Determination Date"), Buyer shall pay
Seller the sum of $2,000,000. At Buyer's option, the Determination Date may be
extended from the second anniversary of the Closing Date to the third
anniversary of the Closing Date, provided that Buyer shall have given Seller
written notice of such extension on or before 30 days prior to the second
anniversary of the Closing Date, and provided further that Buyer has paid and
continues to pay all amounts due pursuant to Section2(g)(i). Buyer shall pay
the amount due pursuant to this Section2(g)(ii) to Seller by wire transfer or
delivery of other immediately available funds within 5 business days after the
Determination Date. Upon and after the date of payment in full of the amount
due pursuant to this Section2(g)(ii), Buyer shall not be obligated to pay
Seller any amounts pursuant to Section2(g)(iii) nor, pursuant to
Section2(g)(i), any amounts for periods commencing after the date of such
payment pursuant to this Section2(g)(ii).
(iii) If, prior to the payment of amounts due pursuant to
Section2(g)(ii), the lease for Unit #740 is terminated, Sybra is forced by the
lessor to vacate Unit #740 and Sybra has not entered into a lease for another
location at the Park City Mall, Lancaster, Pennsylvania, Buyer shall pay Seller
cash in an amount equal to 50% of the cumulative Monthly Free Cash Flow of Unit
#740 (in addition to amounts payable pursuant to Section2(g)(i)), calculated
from the Closing Date to the date upon which Sybra vacates Unit #740. Buyer
shall pay the amount due pursuant to this Section2(g)(iii) to Seller by wire
transfer or delivery of other immediately available funds, within 5 business
days after the date Buyer vacates Unit #740. Unless Buyer subsequently enters
into a lease for another location at the Park City Mall, Lancaster, Pennsylvania
upon and after the date of payment in full of the amount due pursuant to this
Section2(g)(iii), Buyer shall not be obligated to pay Seller any amounts
pursuant to Section2(g)(ii) nor, pursuant to Section2(g)(i), any amounts for
periods commencing after the date of such payment pursuant to this
Section2(g)(iii). In the event that Buyer subsequently enters into a lease for
another location at the Park City Mall, Lancaster, Pennsylvania, Buyer shall be
obligated to pay the amounts due pursuant to Section2(g)(ii) and, pursuant to
Section2(g)(i), amounts due for all periods prior to payment in full pursuant to
Section2(g)(ii) .
3. Representations and Warranties Concerning the Transaction.
---------------------------------------------------------
(a) Representations and Warranties of the Seller. The Seller represents
--------------------------------------------
and warrants to the Buyer that the statements contained in this Section3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this
Section3(a)), except as set forth in the disclosure schedule attached hereto as
Exhibit B and incorporated in this Agreement by this reference (the "Disclosure
- ---------
Schedule").
(i) Organization of the Seller. The Seller is a corporation validly
--------------------------
existing, and in good standing under the laws of Delaware.
(ii) Authorization of Transaction. The Seller has the corporate
----------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement and the execution and delivery of this
Agreement has been approved by the Seller's Board of Directors. This Agreement
constitutes the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (A) violate any valid constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or any
provision of its charter or bylaws or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Seller is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect the ability of the
Parties to consummate the transactions contemplated by this Agreement. To the
Knowledge of the Seller, and other than in connection with the provisions of the
Hart-Scott-Rodino Act and those required notices, consents and approvals
relating to the Seller as described in the Disclosure Schedule (the "Required
Consents of Seller"), the Seller does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
material adverse effect on the financial condition of Sybra or on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
(iv) Brokers' Fees. The Seller has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(v) Sybra Shares. The Seller holds of record and owns beneficially
-------------
the number of Sybra Shares set forth in the Disclosure Schedule, free and clear
of any restrictions on transfer (other than restrictions on transfer imposed by
the Securities Act and state securities laws), taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. The Seller is not a party to any option, warrant, purchase right,
or other contract or commitment (other than this Agreement) that could require
the Seller to sell, transfer, or otherwise dispose of any capital stock of
Sybra. The Seller is not a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any capital stock of Sybra that
will exist after the Closing.
(b) Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Seller that the statements contained in this Section3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this
Section3(b)), except as set forth in the Disclosure Schedule.
(i) Organization of the Buyer. The Buyer is a corporation duly
-------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has the corporate power
----------------------------
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and the execution and delivery of this Agreement has been
approved by the Buyer's Board of Directors. This Agreement constitutes the
valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (A) violate any valid constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject. To the Knowledge of the Buyer, and other than in connection
with the provisions of the Hart-Scott-Rodino Act and those required notices,
consents and approvals relating to the Buyer or any of its Subsidiaries as
described in the Disclosure Schedule (the "Required Consents of Buyer"), the
Buyer does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the ability of the Parties to consummate the transactions contemplated by this
Agreement.
(iv) Brokers' Fees. The Buyer has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
(v) Investment. The Buyer is acquiring Sybra Shares for investment
----------
and not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
(vi) Financing. Buyer will have, on the Closing Date, all funds
---------
necessary to pay the Purchase Price and related fees and expenses, and has, or
will have on the Closing Date, the financial capacity to perform all of its
other obligations under this Agreement.
(vii) Due Diligence. Subject to Buyer's thirty-five (35) day due
-------------
diligence period following the execution of this Agreement, Buyer acknowledges
and agrees (A) that Buyer has had access to and the opportunity to perform
unrestricted due diligence with respect to Sybra; (B) Buyer is acquiring the
Sybra Shares without reliance on any representations or warranties of Seller
except as expressly set forth in Section4 of this Agreement, and subject to all
of the limitations provided in this Agreement.
4. Representations and Warranties Concerning Sybra. The Seller represents
-----------------------------------------------
and warrants to the Buyer that the statements contained in this Section4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section4),
except as set forth in Disclosure Schedule.
(a) Organization, Qualification, and Corporate Power. Sybra is a
------------------------------------------------
corporation validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Sybra is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a material adverse effect on the financial condition or results of
operations of Sybra. Sybra has the corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. Section4(a) of the Disclosure Schedule lists the directors and
executive officers of Sybra.
(b) Capitalization. The entire authorized capital stock of Sybra consists
--------------
of 200,000 Sybra Shares, all of which are common shares, par value $.50 per
share. There are 55,199 Sybra Shares issued and outstanding. No Sybra Shares
are held in treasury. All of the issued and outstanding Sybra Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Seller. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require Sybra to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Sybra.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated by this
Agreement, will (i) violate any valid constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Sybra is subject or any
provision of the charter or bylaws of Sybra or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Sybra is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect on the financial
condition of Sybra or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of the Seller,
and other than in connection with the provisions of the Hart-Scott-Rodino Act
and the Required Consents of Seller, Sybra does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the financial condition or results of
operations of Sybra or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. Sybra does not have any liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Tangible Assets Other than the Real Property Assets. Sybra
------------------------------------------------------------
has good title to, or a valid leasehold interest in, the material tangible
assets they use regularly in the conduct of its businesses other than the Real
Property Assets.
(f) Subsidiaries. Sybra does not have any Subsidiaries.
------------
(g) Financial Statements. Attached hereto as Exhibit C are the following
-------------------- ---------
financial statements (collectively the "Financial Statements"): (i) audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 25, 1993,
December 31, 1994, and December 30, 1995 for Sybra; and (ii) unaudited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
--------------------------------
nine months ended September 28, 1996 (the "Most Recent Fiscal Quarter End") for
------------------------------
Sybra. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby and present fairly the financial condition of Sybra as
of such dates and the results of operations of Sybra for such periods; provided,
---------
however, that the Most Recent Financial Statements are subject to normal year-
- -------
end adjustments and lack footnotes and other presentation items.
(h) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
---------------------------------------------------
Recent Fiscal Quarter End, there has not been any material adverse change in the
financial condition or results of operations of Sybra except as contemplated in
the USRP Agreement and this Agreement. Without limiting the generality of the
foregoing and except as contemplated in the USRP Agreement and in this
Agreement, including in Section2(c) of this Agreement, since that date Sybra
has not engaged in any practice, taken any action, or entered into any
transaction outside the Ordinary Course of Business the primary purpose or
effect of which has been to generate or preserve Cash.
(i) Legal Compliance. To the Knowledge of the Seller, Sybra has complied
----------------
with all applicable and valid laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a material adverse effect upon
the financial condition or results of operations of Sybra and except that Seller
makes no representation regarding Environmental Laws.
(j) Income Tax Matters.
------------------
(i) Sybra has filed, or its Affiliated Group Parent has filed on
behalf of Sybra, all Tax Returns that it was required to file prior to the
Closing, and has paid all Income Taxes due and payable prior to Closing, except
where the failure to file Tax Returns or to pay Taxes would not have a material
adverse effect on the financial condition or results of operations of Sybra.
(ii) Section4(j) of the Disclosure Schedule lists all Income Tax
Returns filed with respect to Sybra for taxable periods ended on or after
December 31, 1988, indicates those Income Tax Returns that have been audited,
and indicates those Income Tax Returns that currently are the subject of audit.
The Seller has delivered to the Buyer correct and complete copies of all
federal Income Tax Returns of Sybra, examination reports relating to Sybra, and
statements of deficiencies assessed against or agreed to by Sybra since December
31, 1988.
(iii) Sybra has not waived any statute of limitations in respect of
Income Taxes or agreed to any extension of time with respect to an Income Tax
assessment or deficiency.
(iv) Sybra is not a party or subject to any Income Tax allocation or
sharing agreement except with its Affiliated Group Parent.
(v) To the Knowledge of the Seller, since October 1, 1987, Sybra has
not been a member of an Affiliated Group filing a consolidated federal Income
Tax Return (other than a group the common parent of which was Contran).
(k) Intellectual Property. Section4(k) of the Disclosure Schedule
---------------------
identifies each patent or trademark registration which has been issued to Sybra
with respect to any of its intellectual property, identifies each pending patent
application or application for trademark registration which Sybra has made with
respect to any of its intellectual property, and, to the Knowledge of the
Seller, identifies each material license, agreement, or other permission which
Sybra has granted to any third party with respect to any of its intellectual
property.
(l) Contracts. Section4(l) of the Disclosure Schedule lists all written
---------
contracts and other written agreements to which Sybra is a party the performance
of which will involve consideration in excess of $50,000 on an annual basis. The
Seller has delivered to the Buyer a correct and complete copy of each contract
or other agreement listed in Section4(l) of the Disclosure Schedule (as amended
to date). To the Knowledge of Seller, no party to any of such contracts has
asserted that Sybra is in breach or default as to any such contract. To the
Knowledge of Seller, none of the parties (other than Sybra) to any of such
contracts is in breach or default as to any such contract.
(m) Litigation. Section4(m) of the Disclosure Schedule sets forth each
----------
instance in which Sybra or any Employee Benefit Plan or other arrangement listed
on Section4(n) of the Disclosure Schedule (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction, except where the injunction, judgment, order, decree,
ruling, action, suit, proceeding, hearing, or investigation would not reasonably
be expected to involve consideration in excess of $10,000.
(n) Employee Benefits.
-----------------
(i) Section4(n) of the Disclosure Schedule lists each Employee
Benefit Plan that Sybra maintains or to which Sybra contributes and any
employment agreements, collective bargaining agreements, severance agreements or
stock-based compensation or other incentive, insurance or similar, programs
which cover current or former employees of Sybra.
(ii) To the Knowledge of the Seller, each such Employee Benefit Plan
or other arrangement listed on Section4(n) of the Disclosure Schedule (and each
related trust, insurance contract, or fund) complies in form and in operation in
all respects with the applicable requirements of ERISA and the Code, except
where the failure to comply would not have a material adverse effect on the
financial condition or results of operations of Sybra, and there has been no
transaction or any act or omission which would subject an Employee Benefit Plan
or any party dealing with an Employee Benefit Plan to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax under Sections 4971 through 4980B
of the Code, inclusive.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is either an Employee Pension Benefit Plan or
an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan has received a post-Tax reform Act of 1986 determination letter
from the Internal Revenue Service to the effect that it meets the requirements
of Code Section401(a).
(v) Sybra does not currently contribute, not has Sybra contributed to
a Multiemployer Plan since 1990, and Sybra is not currently responsible for any
`withdrawal liability" as that term is defined in Section 4201 of ERISA with
respect to any Multiemployer Plan.
(vi) The Sybra, Inc. Retirement Income Plan does not have any
`amount of unfunded benefit liabilities'' as such term is described in Section
4008(a)(18) of ERISA.
(vii) Except as required by applicable law, no Employee Welfare
Benefit Plan has any obligation for post-retirement or post employment benefits
that cannot be terminated upon no more than sixty (60) days' notice without
incurring a liability thereunder.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to take
-------
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section7
below).
(b) Notices and Consents. Each Party will give any notices (and cause
--------------------
each of its Subsidiaries, if any, to give any notices) to third parties, and
each Party will use its reasonable efforts to obtain (and will cause each of its
Subsidiaries, if any, to use its reasonable efforts to obtain) any third party
consents including the Required Consents of Seller and the Required Consents of
Buyer, that the other Party reasonably may request in connection with the
matters referred to in Section3(a)(iii), Section3(b)(iii) and Section4(c)
above and the related Disclosure Schedule. Each of the Parties will (and will
cause each of its Subsidiaries, if any, to) give any notices to, make any
filings with, and use its reasonable efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section3(a)(iii), Section3(b)(iii) and
Section4(c) above and the related Disclosure Schedule. Without limiting the
generality of the foregoing, each of the Parties will file (and will cause each
of its Subsidiaries, if any, to file as applicable) any notification and report
forms and related material that it may be required to file with the Internal
Revenue Service, the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the Hart-Scott-Rodino Act or
otherwise, will use its reasonable efforts to obtain (and will cause each of its
Subsidiaries, if any, to use its reasonable efforts to obtain) early termination
of the applicable waiting period, and will make (and will cause each of its
Subsidiaries, if any, to use its reasonable efforts to obtain) any further
filings pursuant thereto that may be necessary.
(c) Operation of Business. The Seller will not permit Sybra to engage in
---------------------
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business except (i) as contemplated in the USRP Agreement or
this Agreement, (ii) Sybra may pay dividends or make other distributions to
Valcor as permitted by Sybra's bank credit agreements, (iii) Sybra may repay
intercompany loans from Valcor, and (iv) Sybra may make the dividends and
distributions contemplated by Section2(c).
(d) Access. The Seller will permit representatives of the Buyer to have
------
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of Sybra, to all premises, properties, personnel,
books, records (including tax records), contracts, and documents of or
pertaining to Sybra as Buyer may reasonably request from time to time solely for
the purpose of confirming Seller's compliance with Section5(c) above. The
Buyer will treat and hold in confidence any Confidential Information it receives
or has received from the Seller or Sybra in the course of due diligence review
or the reviews contemplated by this Section5(d), will not use any of the
Confidential Information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, will return to the Seller and
or destroy, at Seller's or Sybra's request, all tangible embodiments (and all
copies) including, without limitation, all electronic media, of the Confidential
Information which are in its possession.
(e) Notice of Developments.
----------------------
(i) The Seller may elect at any time to notify the Buyer of any
development causing a breach of any of its representations and warranties in
Section4 above. Unless the Buyer has the right to terminate this Agreement
pursuant to Section9(a)(ii) below by reason of the development and exercises
that right within the period of ten (10) business days referred to in
Section9(a)(ii) below, the written notice pursuant to this Section5(e)(i) will
be deemed to have amended the Disclosure Schedule, to have qualified the
representations and warranties contained in Section4 above, and to have cured
any misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.
(ii) Each Party will give prompt written notice to the other Party of
any material adverse development causing a breach of any of its own
representations and warranties in Section3 above. No disclosure by any Party
pursuant to this Section5(e)(ii), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation
or breach of warranty.
(f) Other Transactions. Prior to the expiration of the time periods
------------------
specified in Section7(a)( x) and (xi), the Seller agrees, on behalf of itself
and each of its Affiliates, that, prior to Closing it will not, and will cause
each of its officers, directors, representatives and agents not to, directly or
indirectly, take any action to solicit, encourage, initiate or facilitate
(including by way of making available or furnishing information) any inquiries,
proposals or offers with respect to any merger or consolidation involving Sybra,
the acquisition of Sybra Shares or the acquisition of all or substantially all
of the assets of Sybra other than the Real Property Assets by any person other
than the Buyer or its permitted assigns. After the expiration of the time
periods specified in Section7(a)( x) and (xi), Seller shall no longer be
subject to the limitations of the foregoing sentence unless Buyer has provided
evidence reasonably satisfactory to Seller that Buyer has obtained the formal
commitment letters specified in Section7(a)(xi).
(g) Estoppel Certificates.
---------------------
(i) By no later than five (5) business days following the date of
this Agreement, Seller shall cause Sybra to send out for execution estoppel
certificates, in the form of Exhibit D, to each of its lessors or sublessors, as
the case may be.
(ii) Seller agrees to cause Sybra to use commercially reasonable
efforts, without incurring any additional expenses to any lessor or sublessor
unless such expenditure is required by the terms of a particular lease (a
"Consent Fee"), to obtain the maximum number of estoppel certificates prior to
the Closing Date. Buyer agrees to pay to Seller, prior to expenditure by
Seller, an amount equal to each Consent Fee. At Closing, Seller shall credit
Buyer against the Purchase Price an amount equal to the aggregate amount paid by
Buyer to Seller in respect of Consent Fees.
(iii) Seller agrees to cause Sybra to promptly deliver to Buyer
copies of the executed estoppel certificates as they are received by Sybra prior
to and on the Closing Date.
6. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
-------
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other Party reasonably may request, all at the
sole cost and expense of the requesting Party (except to the extent that the
requesting Party is entitled to indemnification therefor under Section8 below).
(b) Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Sybra, the other Party shall cooperate with it
and its counsel in the defense or contest, make available its personnel, and
provide such testimony and access to its books and records as shall be necessary
in connection with the defense or contest, all at the sole cost and expense of
the contesting or defending Party (except to the extent that the contesting or
defending Party is entitled to indemnification therefor under Section8 below).
(c) Employee Benefits Matters. The Buyer will adopt and assume at and as
-------------------------
of the Closing each of the Employee Benefit Plans identified in Section4(n) of
the Disclosure Schedule that Sybra maintains and each trust, insurance contract,
annuity contract, or other funding arrangement that the Seller has established
with respect thereto. The Buyer will ensure that on and after the Closing Date
the Employee Benefit Plans credit employment with Sybra in the same manner that
employment with Sybra prior to the Closing Date was credited for purposes of
eligibility, vesting, and benefit accrual. The Seller will transfer (or cause
the plan administrators to transfer) at and as of the Closing all of the
corresponding assets associated with the Employee Benefit Plans that the Buyer
is adopting and assuming, with such transfers to occur at or as soon as
administratively possible after the Closing without imposition of any
conditions.
7. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section3(a) and
Section4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section7(a)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and
the Buyer shall have received the Required Consents of Buyer and all other
authorizations, consents, and approvals of governments and governmental agencies
referred to in Section3(a)(iii), Section3(b)(iii), and Section4(c) above;
(vi) all conditions have been satisfied or waived to the obligations
of the parties to the USRP Agreement and the Units Purchase Agreement and the
closings of the transactions contemplated in the USRP Agreement shall occur
simultaneously with the Closing;
(vii) all conditions have been satisfied to the obligations of the
parties to the Lease and the closings of the transactions contemplated in the
Lease shall occur simultaneously with the Closing;
(viii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer;
(ix) Passage of the Effective Date of the First Amended Joint Plan of
Reorganization under Chapter 11, filed in the Chapter 11 cases of I.C.H.
Corporation and its related debtors, pending in the United States Bankruptcy
Court for the Northern District of Texas as Jointly Administered Case Number
395-36351-RCM-11;
(x) Buyer shall have completed a satisfactory business and due
diligence review of Sybra; provided, however, that the condition to closing set
-----------------
forth in this clause (x) shall expire on the thirty-fifth day following the date
of this Agreement;
(xi) Buyer shall have obtained formal commitment letters for the
financing of at least $31,000,000, which commitment letters shall be on terms
and conditions that are reasonably satisfactory to Buyer from a commercial point
of view; provided, however, that the condition to closing set forth in this
-----------------
clause (xi) shall expire on the thirty-fifth day following the date of this
Agreement; and
(xii) Buyer shall have received the 1996 audited financial statements
of Sybra, including the unqualified opinion of Sybra's independent public
accountants.
The Buyer may waive any condition specified in this Section7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
--------------------------------------
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section3(b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section7(b)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and
the Seller and Sybra shall have received the Required Consents of Seller and all
other authorizations, consents, and approvals of governments and governmental
agencies referred to in Section3(a)(ii), Section3(b)(ii), and Section4(c)
above;
(vi) all conditions have been satisfied to the obligations of the
parties to the USRP Agreement and the Units Purchase Agreement and the closings
of the transactions contemplated in the USRP Agreement and the Units Purchase
Agreement shall occur simultaneously with the Closing;
(vii) all conditions have been satisfied to the obligations of the
parties to the Lease and the closings of the transactions contemplated in the
Lease shall occur simultaneously with the Closing; and
(viii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents required to effect the transactions
contemplated hereby, which may include any instruments or documents required by
Arby's, Inc. to be executed by the Buyer, will be reasonably satisfactory in
form and substance to the Seller.
The Seller may waive any condition specified in this Section7(b) if it executes
a writing so stating at or prior to the Closing.
8. Remedies for Breaches of this Agreement.
---------------------------------------
(a) Survival of Representations and Warranties. Except with respect to
------------------------------------------
the representations and warranties of the Seller contained in Section
Section4(b), (j), (m) and (n), which shall survive for the applicable statute of
limitations, none of the representations and warranties of the Seller contained
in Section4 above shall survive the Closing. All of the representations and
warranties of the Parties contained in Section3 above shall survive the Closing
(unless the damaged Party knew or had reason to know of any misrepresentation or
breach of warranty contained in Section3 above at the time of Closing) and
continue in full force and effect forever thereafter (subject to any applicable
statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer. In the event the
---------------------------------------------------
Seller breaches any of its representations and warranties contained in
Section3(a) and Section4 of this Agreement, any covenants contained in this
Agreement or any representations and warranties contained in any stock transfer
or other conveyance executed pursuant to this Agreement, and, if there is an
applicable survival period pursuant to Section8(a) above, provided that the
Buyer makes a written claim for indemnification against the Seller pursuant to
Section11(g) below within such survival period, then the Seller agrees to
indemnify the Buyer from and against any Adverse Consequences the Buyer shall
suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences the Buyer shall suffer after the end of any
applicable survival period) caused proximately by the breach; provided, however,
that the Seller shall not have any obligation to indemnify the Buyer from and
against any Adverse Consequences caused by the breach of any representation or
warranty of the Seller contained in Section4 of this Agreement other than those
contained in Section4(j), (m) and (n). Seller's indemnification obligation to
the Buyer pursuant to this Subsection and Section10 (other than with respect to
breaches of the representations and warranties of Seller contained in Section
Section3(a) and 4(b)) together with Valcor's indemnification obligations under
the USRP Agreement shall not exceed $4,000,000 in the aggregate, determined, as
of any relevant date, based upon claims actually paid as of such date by Valcor
to Buyer or USRP. Buyer agrees that it will not seek indemnification for any
claim under this Subsection unless the aggregate of all claims under this
Subsection together with all claims under the USRP Agreement , determined as of
the date any claim is made, will result in loss to Buyer and/or USRP in excess
of $250,000 in the aggregate, and then only to the extent of such excess, up to
and subject to the $4,000,000 limitation specified above.
(c) Indemnification Provisions for Benefit of the Seller. In the event
----------------------------------------------------
the Buyer breaches any of its representations in Section3 above or any of its
covenants contained in this Agreement, the Buyer agrees to indemnify the Seller
from and against any Adverse Consequences the Seller shall suffer through and
after the date of the claim for indemnification caused proximately by the
breach.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which may give rise
- ----- -----------------
to a claim for indemnification against the other Party (the "Indemnifying
------------
Party") under this Section8, then the Indemnified Party shall promptly (and in
- -----
any event within ten (10) business days after receiving notice of the Third
Party Claim) notify the Indemnifying Party thereof in writing.
(ii) The Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with counsel of its
choice; provided, however, that the Indemnifying Party will not consent to the
-----------------
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not to
be withheld unreasonably) unless the judgment or proposed settlement involves
only the payment of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(iii) Unless and until the Indemnifying Party assumes the defense of
the Third Party Claim as provided in Section8(d)(ii) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party except to the extent
that the Indemnified Party elects to waive its right to indemnification
hereunder with respect to such claim.
(e) Determination of Adverse Consequences. The Parties shall make
-------------------------------------
appropriate adjustments for tax benefits and insurance coverage and take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section8. All
indemnification payments under this Section8 shall be deemed adjustments to the
Purchase Price.
(f) Other Indemnification Provisions. The indemnification provisions in
--------------------------------
this Section8 are the sole remedy any Party may have after the Closing for
breach of representation or warranty in this Agreement, any covenant in this
Agreement (excluding those set forth in Section6 of this Agreement) or any
representations and warranties contained in any stock transfer or other
conveyance executed pursuant to this Agreement; provided, however, that the
Buyer acknowledges and agrees that it shall not have any remedy after the
Closing for any breach of the representations and warranties in Section4 above
(other than Section4(j), (m) and (n)); and provided further, either Party shall
be entitled to specific performance of all covenants.
9. Termination.
-----------
(a) Termination of Agreement. The Parties may terminate this Agreement as
------------------------
provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing in the event (A) the Seller has
within the then previous ten (10) business days given the Buyer any notice
pursuant to Section5(e)(i) above and (B) the development that is the subject of
the notice has had or is reasonably expected to have a material adverse effect
upon the financial condition or results of operations of Sybra;
(iii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller has
breached any representation, warranty, or covenant contained in this Agreement
in any material respect, the Buyer has notified the Seller of the breach, and
the breach has continued without cure for a period of thirty (30) days after the
notice of breach, or (B) if the Closing shall not have occurred on or before
April 14, 1997, by reason of the failure of any condition precedent under
Section7(a) hereof (unless the failure results primarily from the Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement);
(iv) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (A) in the event the Buyer has
breached any representation, warranty, or covenant contained in this Agreement
in any material respect, the Seller has notified the Buyer of the breach, and
the breach has continued without cure for a period of thirty (30) days after the
notice of breach or (B) if the Closing shall not have occurred on or before
April 14, 1997, by reason of the failure of any condition precedent under
Section7(b) hereof (unless the failure results primarily from the Seller itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
(v) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the expiration of the time periods provided in
Section7(a)(x) and (xi) if Buyer is not satisfied with its business and due
diligence review of Sybra as provided in Section7(a)(x) or Buyer has not
obtained formal commitment letters as provided in Section7(a)(xi).
(b) Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
-----------------
the confidentiality provisions contained in Section5(d) above shall survive
termination.
10. Income Tax Matters.
------------------
(a) Income Tax Sharing Agreements. Any Income Tax sharing agreement
-----------------------------
between Affiliated Group Parent or any of its Subsidiaries and Sybra is
terminated as of the Closing Date and will have no further effect for any future
taxable year.
(b) Income Taxes of Other Persons. The Seller agrees to indemnify the
-----------------------------
Buyer from and against any Adverse Consequences the Buyer may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any Liability
of Sybra for Income Taxes of any Person other than Sybra under (i) Reg.
Section1.1502-6 (or any similar provision of state, local or foreign law), or
(ii) any Income Tax sharing agreement.
(c) Returns for Periods Through the Closing Date. Affiliated Group Parent
--------------------------------------------
will include the income of Sybra (including any deferred income triggered into
income by Reg. Section1.1502-13 and Reg. Section1. 1502-14 and any excess loss
accounts taken into income under Reg. Section1.1502-19) on the Affiliated Group
Parent consolidated federal Income Tax Returns for all periods through the
Closing Date and pay any Income Taxes attributable to such income, including
without limitation any Income Tax on any income or gain Sybra may realize in
respect of the transactions contemplated by the USRP Agreement. Sybra will
furnish Income Tax information to Affiliated Group Parent for inclusion in
Affiliated Group Parent's federal consolidated Income Tax Return for the period
which includes the Closing Date and will pay to Affiliated Group Parent its
separate company Income Tax liability for such period, computed in accordance
with the Affiliated Group Parent tax sharing agreement in effect through the
Closing Date in accordance with Sybra's past custom and practice, including
without limitation any Income Tax on any income or gain Sybra may realize in
respect of the transactions contemplated by the USRP Agreement. The income of
Sybra for the period up to and including the Closing Date and for the period
after the Closing Date shall be determined by closing the books of Sybra as of
the end of the Closing Date.
(d) Audits. Affiliated Group Parent will allow Sybra and its counsel to
------
participate at its own expense in any audits of Affiliated Group Parent
consolidated Income Tax Returns to the extent that such returns relate to Sybra
tax periods ending on or prior to the Closing Date. Affiliated Group Parent
will cooperate with Sybra and its counsel and provide access to books and
records relating to Sybra reasonably related to such audit. Affiliated Group
Parent will not settle any such audit in a manner which would adversely affect
Sybra after the Closing Date without the prior written consent of the Buyer or
Sybra, which consent shall not unreasonably be withheld.
(e) Carrybacks. Affiliated Group Parent will immediately pay to the Buyer
----------
any Income Tax refund (or reduction in Income Tax liability) resulting from a
carryback of a post-Closing Date Income Tax attribute of Sybra into the
Affiliated Group Parent consolidated Income Tax return, when such refund or
reduction is realized by the Affiliated Group Parent group. Affiliated Group
Parent will cooperate with Sybra in obtaining such refunds (or reduction in
Income Tax liability), including through the filing of amended Income Tax
returns or refund claims. The Buyer agrees to indemnify Affiliated Group Parent
for any Income Taxes resulting from the disallowance of such post-Closing Date
Income Tax attribute on audit or otherwise.
(f) Post-Closing Elections. At Affiliated Group Parent's request, the
----------------------
Buyer will cause Sybra to make and/or join with Affiliated Group Parent in
making certain tax return elections after Closing, as required under the
Affiliated Group Parent tax sharing agreement in effect through the Closing
Date. At Affiliated Group Parent's request, the Buyer will cause Sybra to make
or join with Affiliated Group Parent in making any other election if the making
of such election does not have a material adverse impact on the Buyer (or Sybra)
for any postacquisition Income Tax period. Seller agrees to indemnify Buyer for
any liability resulting from such elections.
(g) Indemnification for Post-Closing Transactions. Buyer agrees to
---------------------------------------------
indemnify Seller and Affiliated Group Parent for any additional Income Tax owed
by Seller and/or Affiliated Group Parent (including Income Tax owed by Seller
and/or Affiliated Group Parent due to this indemnification payment) resulting
from any transaction not in the ordinary course of business occurring on or
after the Closing Date following Buyer's purchase of Seller's Sybra Shares.
(h) Post-Closing Transactions not in the Ordinary Course. Buyer and
----------------------------------------------------
Seller agree to report all transactions not in the Ordinary Course of Business
occurring on the Closing Date after Buyer's purchase of Seller's Sybra Shares on
Buyer's Income Tax Return to the extent permitted by Reg.
Section1.1502-76(b)(1)(B).
11. Miscellaneous.
-------------
(a) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that any Party or any affiliate of such Party
-----------------
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its publicly-
traded securities (in which case the Party which intends, or which has an
affiliate that intends, to issue such press release or make such public
announcement will advise the other Party prior to making the disclosure and
provide the other Party opportunity to comment upon the release or
announcement).
(b) No Third Party Beneficiaries Other than Affiliated Group Parent. This
---------------------------------------------------------------
Agreement shall not confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns, and as otherwise
set forth in this Section11(b). The Buyer acknowledges and agrees that
Affiliated Group Parent is intended to be and shall be a beneficiary of Buyer's
representations, warranties, covenants and indemnification obligations in
Section10 of this Agreement.
(c) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided however, that (i) Buyer may collaterally assign its
rights, interests and obligations hereunder to its lenders providing the
financing to complete the transactions contemplated by this Agreement, and (ii)
after the Closing, Seller may assign its rights, interests, or obligations under
this Agreement to any successor of Seller's business or any affiliate of Seller,
provided that, concurrently with such assignment Valhi, Inc. enters into an
assumption agreement with respect to Seller's obligations under this Agreement
in form and substance reasonably satisfactory to Buyer.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Valcor, Inc.
----------------
Three Lincoln Centre, Suite 1700
5430 LBJ Freeway
Dallas, TX 75240-2697
Attention: Bobby D. O'Brien
Tel: 972-233-1700
Fax: 972-239-0142
Copy to: James L. Palenchar
-------
Bartlit Beck Herman Palenchar & Scott
511 16th Street, Suite 500
Denver, Colorado 80202
Tel: 303-592-3100
Fax: 303-592-3140
If to the Buyer: I.C.H. Corporation
---------------
c/o James R. Arabia
9404 Genesee Avenue, Suite 330
La Jolla, CA 92037
Tel: 619-587-8533
Fax: 619-535-1687
Copy to: Selig D. Sacks, Esq.
-------
Pryor, Cashman, Sherman & Flynn
410 Park Avenue, 10th floor
New, York, NY 10022
Tel: 212-421-4100
Fax: 212-326-0806
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited (next-day) courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient; provided, however, that any such notice sent by expedited (next-day)
courier shall be deemed to have been duly given when delivered to the address
set forth above for the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Party notice in the manner herein set forth.
(h) Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware. Any judicial
proceeding brought by or against any party to this Agreement in respect of
claims arising under or relating to this Agreement shall be brought only in a
court of competent jurisdiction located in the State of Delaware, United States
of America. By execution and delivery of this Agreement, each party accepts for
itself and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts. Each party to this
Agreement waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Nothing in this
subsection shall affect the right to serve process in any manner permitted by
law.
(i) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any such prior or subsequent occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Buyer and the Seller will bear its own costs
--------
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. Notwithstanding the
foregoing sentence, Buyer shall bear the costs of any and all transfer taxes,
including without limitation any use or sales taxes, associated with or related
to the sale of the Sybra Shares.
(l) Construction. In the event an ambiguity or question of intent or
------------
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation.
(m) Incorporation of Exhibits. The Exhibits and any annexes and schedules
-------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
I.C.H. CORPORATION
By:
--------------------------
Title:
------------------------
VALCOR, INC., a Delaware corporation
By:
--------------------------
Title:
------------------------
20815.d9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VALCOR,
INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 136,054
<SECURITIES> 0
<RECEIVABLES> 14,816
<ALLOWANCES> 274
<INVENTORY> 18,222
<CURRENT-ASSETS> 177,816
<PP&E> 163,606
<DEPRECIATION> 75,684
<TOTAL-ASSETS> 289,016
<CURRENT-LIABILITIES> 73,075
<BONDS> 108,458
0
0
<COMMON> 1
<OTHER-SE> 94,389
<TOTAL-LIABILITY-AND-EQUITY> 289,016
<SALES> 204,717
<TOTAL-REVENUES> 204,717
<CGS> 159,334
<TOTAL-COSTS> 159,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 11,680
<INCOME-PRETAX> 20,458
<INCOME-TAX> 8,443
<INCOME-CONTINUING> 12,015
<DISCONTINUED> 39,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,036
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
