UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____ TO ____
Commission file number 1-12854
McWhorter Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3919940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Cottage Place
Carpentersville, Illinois 60110 847-428-2657
(Address of principal executive (Registrant's telephone number
offices,including zip code) including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
Common Stock, $0.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes X No
As of May 31, 1998, 10,346,505 shares of
common stock were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim financial statements
of McWhorter Technologies, Inc. (the "Company" or
"McWhorter") do not include all disclosures
normally provided in annual financial statements.
These financial statements, which should be read
in conjunction with the financial statements
contained in McWhorter's Annual Report on Form 10-
K for the fiscal year ended October 31, 1997, are
unaudited but include all adjustments that
McWhorter's management considers necessary for a
fair presentation. These adjustments consist of
normal recurring accruals. Interim results are
not necessarily indicative of the results expected
for the year. All references to years are to
fiscal years ended October 31.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Six Months
Ended Ended
April 30, April 30,
1998 1997 1998 1997
(Note 1) (Note 1)
<S> <C> <C> <C> <C>
Net sales $ 115,614 $ 80,882 $213,734 $152,416
Costs and expenses:
Cost of sales (Note 2) 96,763 68,145 181,894 128,831
Research 2,741 2,068 5,395 4,124
Selling, general and
administrative 7,462 3,922 14,501 7,957
Other (income) expenses,
net (Note 3) (208) 726 (476) 964
Income from operations 8,856 6,021 12,420 10,540
Interest expense, net 1,821 364 3,421 661
Income before income taxes 7,035 5,657 8,999 9,879
Income tax expense (Note 4) 675 1,781 1,430 3,489
Net income $6,360 $3,876 $7,569 $6,390
Net income per share -
basic (Note 6) $ .62 $ .38 $ .74 $ .62
Net income per share -
diluted (Note 6) $ .61 $ .37 $ .73 $ .61
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
(April 30, 1998 Unaudited)
<CAPTION>
April 30, October 31,
1998 (Note 1) 1997
<S> <C> <C>
Assets
Current assets:
Cash $ 1,563 $ 3,929
Accounts receivable 81,957 67,762
Inventories (Note 5) 37,573 26,487
Other current assets 8,075 8,743
129,168 106,921
Property, plant and equipment 186,073 148,609
Accumulated depreciation (51,660) (43,315)
Net property, plant and equipment 134,413 105,294
Intangibles, net 72,719 36,153
Other assets 7,297 10,814
$343,597 $259,182
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 21,846 $ 23,706
Trade accounts payable 49,956 43,265
Accrued liabilities 16,541 15,276
88,343 82,247
Long-term debt 130,676 57,152
Deferred income taxes 20,990 22,446
Accrued environmental liabilities 1,646 2,201
Other liabilities 5,248 3,468
Shareholders' equity:
Common stock (par value $.01 per
share; authorized 30,000,000 shares;
issued 10,965,547 shares at April 30,
1998 and October 31, 1997) 110 110
Additional paid-in capital 10,913 10,867
Retained earnings 100,549 92,980
Currency translation adjustments (3,220) (940)
Restricted stock awards (1,727) (1,633)
Treasury stock, at cost (619,231
shares at April 30, 1998 and
612,460 shares at October 31, 1997) (9,931) (9,716)
96,694 91,668
$343,597 $259,182
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended April 30,
1998 1997
(Note 1)
<S> <C> <C>
Operating Activities
Net income $ 7,569 $ 6,390
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,738 4,790
Deferred income taxes (840) 62
Other, net (37) 211
Changes in working capital:
Accounts receivable (4,281) 687
Inventories (1,449) (5,091)
Trade accounts payable and
accrued liabilities (1,360) (1,028)
Other current assets 977 (137)
Net cash provided by operating activities 8,317 5,884
Investing Activities
Acquisition spending, net of cash acquired (55,231)
Capital expenditures (10,992) (4,372)
Investment in and advances to joint ventures (1,607) (2,343)
Other, net (420)
Net cash used by investing activities (68,250) (6,715)
Financing Activities
Increase in debt, net 57,509 3,680
Purchase of treasury stock (2,476)
Proceeds from exercise of stock options 58 28
Net cash provided by financing activities 57,567 1,232
(Decrease) increase in cash (2,366) 401
Cash at beginning of period 3,929 1,060
Cash at end of period $1,563 $1,461
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.The consolidated results for the quarter and
six months ended April 30, 1998 included the
full consolidation of Accurate Dispersions
(Accurate), the European joint-venture, and
Syntech S.p.A. subsequent to their being
purchased by the Company. On April 1, 1998
substantially all of the assets of Accurate
Coatings and Dispersions, Inc. together with
$6.5 million of debt was acquired for
approximately $39.4 million in cash. The
excess of purchase price over the net book
value of assets was approximately $35 million,
the largest component of which was allocated to
goodwill. The buyout of the European joint-
venture partners occurred in separate
transactions during November 1997 and January
1998 for a total of approximately $8.2 million,
net of cash acquired. Syntech S.p.A. and its
affiliated entities and subsidiaries was
acquired on August 1, 1997.
2.Second quarter 1998 results included a pretax
charge of approximately $500,000 ($300,000 after
taxes, or 3 cents per share) related to the one-
time amortization of the excess of fair value over
net book value associated with inventories
acquired as part of the purchase of Accurate.
3.Second quarter 1997 results included a pretax
charge of $811,000 ($483,000 after taxes, or 5
cents per share) for costs, primarily severance,
related to the relocation of the Minneapolis
research facility to Carpentersville and the write-
off of a tax related receivable.
4.Second quarter 1998 results included a
favorable adjustment of $2,311,000 (22 cents per
share) relating to the impact on deferred income
taxes of changes in the Italian income tax
regulations. Second quarter 1997 results included
a favorable adjustment of $591,000 (6 cents per
share) that resulted from the conclusion of an
income tax audit for the period prior to the
Company's spin-off in 1994.
5.The major classes of inventories consist of the following:
<TABLE>
<CAPTION>
April 30, October 31
Dollars in thousands 1998 1997
<S> <C> <C>
Manufactured products $23,386 $16,407
Raw materials, supplies and work-in-process 14,187 10,080
$37,573 $26,487
</TABLE>
<PAGE>
6.The Company adopted Financial Accounting
Standards Board Statement of Financial Accounting
Standard No. 128, "Earnings Per Share". Statement
128 replaced the previously reported primary and
fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary
earnings per share, basic earnings per share
excludes any dilutive effects of options.
Diluted earnings per share is very similar to
fully diluted earnings per share. As required
by the Statement, prior period amounts have been
restated. The difference between the previously
reported amounts and the restated amounts was not
material.
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
April 30, April 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income for calculation
of net income per share-
basic and diluted $6,360,000 $3,876,000 $7,569,000 $6,390,000
Weighted average common
shares outstanding 10,346,502 10,421,131 10,345,094 10,444,719
Less: Shares contingently
returnable 104,836 100,332 103,317 97,335
Weighted average shares for
calculation of net income
per share - basic 10,241,666 10,320,799 10,241,777 10,347,384
Effect of dilutive securities:
Dilutive effect of stock
options 100,852 66,708 100,935 65,361
Other 68,701 12,201 59,818 12,201
Dilutive potential common
shares 169,553 78,909 160,753 77,562
Weighted average shares for
calculation of net income
per share - diluted 10,411,219 10,399,708 10,402,530 10,424,946
Net income per share -
basic $ .62 $ .38 $ .74 $ .62
Net income per share -
diluted $ .61 $ .37 $ .73 $ .61
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
The following discussion and analysis of results
of operations and financial condition of McWhorter
should be read in conjunction with the financial
statements and notes thereto included in the
Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1997. Except for
historical information contained herein, certain
matters set forth in this Form
10-Q are forward-looking statements that involve
certain risks and uncertainties that could cause
actual results to differ materially from those in
the forward-looking statements.
Overview
On April 1, 1998, the Company completed the
acquisition of substantially all of the assets of
Accurate Coatings and Dispersions, Inc. together
with $6.5 million of debt for approximately $39.4
million in cash. Accurate Dispersions (Accurate)
located in South Holland, Illinois manufactures
and distributes dispersed pigments for the
coatings industry. The purchase price was funded
from the Company's $150 million revolving credit
facility. The acquisition was accounted for under
the purchase method and the results of Accurate
since the date of acquisition have been included
in the consolidated results of the Company. The
excess of purchase price over the net book value
of assets was approximately $35 million, the
largest component of which was allocated to
goodwill.
<PAGE>
Results of Operations
Net sales increased 43 percent in the second
quarter of 1998 to $115,614,000 compared to
$80,882,000 in the same period of 1997. For the
six months, net sales were $213,734,000, a 40
percent increase versus net sales of $152,416,000
in the comparable period a year ago. The increase
in net sales was primarily from acquired
businesses (see Note 1 of Notes to Consolidated
Financial Statements). Excluding acquired
businesses, second quarter sales were flat and six
month sales decreased 1 percent. Volume
comparisons with 1997 continue to be impacted by
the loss of low margin industrial toll business.
The Company's gross profit margin for the second
quarter of 1998 was 16.3 percent compared to 15.7
percent in last year's second quarter. For the
six months, the gross profit margin was 14.9
percent versus 15.5 percent for the comparable
period a year ago. Current quarter margins were
favorably impacted by lower raw material costs,
improved product mix, and internal process
improvements in the U.S.
Operating expenses (research, selling, general and
administrative) for the second quarter of 1998
were 8.8 percent of net sales compared to 7.4
percent in the prior year second quarter. For the
six months, operating expenses were 9.3 percent of
sales compared to 7.9 percent for the same period
a year ago. Higher expenses compared to prior
year resulted primarily from the acquired
businesses.
Net interest expense increased $1,457,000 in the
second quarter and $2,760,000 year-to-date
compared to 1997. The increase is from debt
borrowed to fund acquisitions (see Note 1 of Notes
to Consolidated Financial Statements).
The effective tax rate for the second quarter of
1998 was 42 percent versus 40.5 percent in the
comparable period a year ago excluding the
favorable adjustments to 1998 and 1997 income tax
expense discussed in Note 4 of Notes to
Consolidated Financial Statements. The increase
is from the non-deductibility of goodwill
amortization for the Syntech S.p.A. acquisition.
Net income for the second quarter of 1998 was
$6,360,000, or 61 cents per share on a diluted
basis compared to last year's second quarter net
income of $3,876,000, or 37 cents per share on a
diluted basis. For the six months, net income was
$7,569,000, or 73 cents per share on a diluted
basis, compared to last year's six month net
income of $6,390,000, or 61 cents per share on a
diluted basis. Refer to Notes 2, 3, and 4 of
Notes to Consolidated Financial Statements for a
discussion on the impact of certain nonrecurring
items on 1998 and 1997 net income. The net impact
of the nonrecurring items was a favorable 19 cents
per share in the second quarter and year-to-date
1998 and a favorable 1 cent per share in the
comparable periods of 1997.
Financial Condition
In the first six months of 1998, cash generated by
operations was $8,317,000 compared to cash
generated by operations of $5,884,000 in the
comparable period a year ago. The Company's
current ratio was 1.5 at April 30, 1998 compared
to 1.3 at October 31, 1997. Excluding the
working capital of the entities acquired in 1998,
working capital increased approximately $4.5
million primarily from the seasonality of the
business.
<PAGE>
Investing activities used cash of $68,250,000 in
the first six months of 1998 compared to cash used
of $6,715,000 in the comparable period a year ago.
The increase was primarily because of the
acquisitions in 1998 (see Note 1 of Notes to
Consolidated Financial Statements). Capital
expenditures of approximately $11,000,000 in the
first six months of 1998 were primarily for the
construction of the new research and development
facility, powder capacity expansion, and
productivity improvements. Capital expenditures
of $4,400,000 in the first six months of 1997 was
primarily for productivity improvements. Capital
spending for fiscal year 1998 is currently
anticipated to be approximately $25,000,000.
Financing activities provided cash of $57,567,000
in the first six months of 1998 compared to cash
provided of $1,232,000 in the comparable period a
year ago. Debt as a percentage of invested
capital was 61.2 percent at April 30, 1998, up
from 46.9 percent at October 31, 1997, and 24.3
percent a year ago. Total debt increased to
$152,522,000 at April 30, 1998 from $80,858,000 at
October 31, 1997. This increase was primarily
attributed to the borrowings to fund acquisitions
(see Note 1 of Notes to Consolidated Financial
Statements) and the assumed debt of the acquired
entities.
The Company has a $150 million unsecured revolving
credit facility that terminates on July 30, 2002.
At April 30, 1998, $25.9 million was available
under this facility. The Company's European
subsidiaries, primarily the Italian subsidiary,
have short-term lines of credit that are
cancelable at any time of $25 million of which $10
million is available for future use at April 30,
1998. The credit facilities and internally
generated funds are expected to be adequate to
finance McWhorter's capital expenditures and other
operating requirements.
With respect to environmental liabilities,
management reviews each site, taking into
consideration the numerous factors that influence
the costs that will likely be incurred. Reserves
are adjusted as additional information becomes
available to better estimate the total remediation
costs at individual sites. While uncertainties
exist with respect to the amounts and timing of
McWhorter's ultimate environmental liabilities,
management believes that such liabilities,
individually and in the aggregate, will not have a
material adverse effect on the Company's financial
condition or results of operations.
Impact of Year 2000
The Company has completed an assessment of the
impact of Year 2000 and determined that the
majority of the computer programs were developed
using a four-digit year rather than a two-digit
year. However, it will be required to modify
portions of its software so that all computer
systems will function properly with respect to
dates in the year 2000 and thereafter. The
estimated effort for the Year 2000 project is not
material and is expected to be completed by June
1999. To date, the Company has not incurred any
material expense in the assessment of the Year
2000 issue and the development of modification
plans.
The Company is initiating formal communications
with significant suppliers and customers to
determine the extent of which the Company's
interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000
issues. There is no guarantee that the systems of
other companies on which the Company's systems
rely will be timely converted and would not have
an adverse effect on the Company's operations.
<PAGE>
The costs of the project and the date on which the
Company believes it will complete the Year 2000
modifications are based on management's best
estimates, which were derived utilizing numerous
assumptions of future events, including the
continued availability of certain resources and
other factors. However, there can be no guarantee
that these estimates will be achieved and actual
results could differ materially from those
anticipated. Specific factors that might cause
such material differences include, but are not
limited to, the availability and cost of personnel
trained in this area, the ability to locate and
correct all relevant computer codes, and similar
uncertainties.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On February 18, 1998, the annual meeting of
stockholders of the Company was held. The
following individuals were elected directors at
the meeting and the voting results were as
follows:
Directors Votes For Votes Withheld
Michelle L. Collins 6,855,196 104,277
Edward M. Giles 6,926,194 33,279
D. George Harris 6,720,434 239,039
John G. Johnson, Jr. 6,927,597 31,876
Jeffrey M. Nodland 6,926,455 33,018
John R. Stevenson 6,924,287 35,186
Heinn F. Tomfohrde III 6,927,497 31,976
In addition, the following proposal was submitted
to stockholders as described in the Company's
Proxy Statement dated January 5, 1998 and was
voted upon and approved by the stockholders at the
meeting, with the voting results as follows:
<TABLE>
<CAPTION>
Proposal Votes For Votes Against Abstentions
<S> <C> <C> <C>
Ratification of
Ernst & Young
LLP as auditors 6,895,202 46,698 17,573
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.32 Asset Purchase Agreement by and among
Accurate Coatings & Dispersions, Inc.,
the Principal Stockholders Thereof and McWhorter
Technologies, Inc. dated as of March 23, 1998
27.1 Financial Data Schedule for the
second quarter of 1998
27.2 Financial Data Schedule for the second quarter of 1997.
The Financial Data Schedule for the
second quarter of 1997 is being
included to reflect restatement of
information pursuant to the
adoption of statement of Financial
Accounting Standard No. 128,
"Earnings Per Share."
(b) No reports on Form 8-K were filed during the second quarter of 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
McWhorter Technologies, Inc.
/s/ Louise M. Tonozzi-Frederick
Louise M. Tonozzi-Frederick
Vice President and Chief Financial Officer
Date: June 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Income, Balance Sheets and Statements of Cash Flows and is
qualified in its entirety by references to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,563
<SECURITIES> 0
<RECEIVABLES> 81,957
<ALLOWANCES> 0
<INVENTORY> 37,573
<CURRENT-ASSETS> 129,168
<PP&E> 186,073
<DEPRECIATION> 51,660
<TOTAL-ASSETS> 343,597
<CURRENT-LIABILITIES> 88,343
<BONDS> 130,676
0
0
<COMMON> 110
<OTHER-SE> 96,584
<TOTAL-LIABILITY-AND-EQUITY> 343,597
<SALES> 213,734
<TOTAL-REVENUES> 213,734
<CGS> 181,894
<TOTAL-COSTS> 181,894
<OTHER-EXPENSES> 19,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,421
<INCOME-PRETAX> 8,999
<INCOME-TAX> 1,430
<INCOME-CONTINUING> 7,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,569
<EPS-PRIMARY> .74
<EPS-DILUTED> .73
</TABLE>
ASSET PURCHASE AGREEMENT
By and Among
ACCURATE COATINGS & DISPERSIONS, INC.,
the PRINCIPAL STOCKHOLDERS THEREOF
and
McWHORTER TECHNOLOGIES, INC.
dated as of
March 23, 1998
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Basic Transaction 6
(a) Purchase and Sale of Assets 6
(b) Assumption of Liabilities 6
(c) Purchase Price 7
(d) The Closing 7
(e) Deliveries at the Closing 7
(f) Allocation 7
3. Representations and Warranties of the Seller and the
Principal Stockholders. 7
(a) Organization; Capitalization 8
(b) Authorization of Transaction 8
(c) Noncontravention 8
(d) Brokers' Fees 8
(e) Title to Assets 8
(f) Subsidiaries 8
(g) Financial Statements 9
(h) Events Subsequent to 9
(i) Undisclosed Liabilities 9
(j) Legal Compliance 9
(k) Tax Matters 9
(l) Real Property 10
(m) Intellectual Property 11
(n) Year 2000 Compatibility 13
(o) Tangible Assets 13
(p) Inventory 13
(q) Contracts 13
(r) Notes and Accounts Receivable 14
(s) Powers of Attorney 15
(t) Insurance 15
(u) Litigation 15
(v) Product Warranty 15
(w) Product Liability 15
(x) Employees 15
(y) Employee Benefits 16
(z) Guaranties 18
(aa) Environment, Health, and Safety 18
(ab) Certain Business Relationships with the
Seller 18
(ac) Customers 19
(ad) Disclosure 19
4. Representations and Warranties of the Buyer 19
(a) Organization of the Buyer 19
(b) Authorization of Transaction 19
(c) Noncontravention 19
(d) Brokers' Fees 20
5. Pre-Closing Covenants 20
(a) General 20
(b) Notices and Consents 20
(c) Operation of Business 20
(d) Preservation of Business 22
(e) Full Access 22
(f) Notice of Developments 22
(g) Exclusivity 22
(h) Press Releases and Public Announcements 22
(i) Title Insurance and Surveys. 23
(j) Employment Matters. 24
6. Conditions to Obligation to Close. 24
(a) Conditions to Obligation of the Buyer 24
(b) Conditions to Obligation of the Seller 25
7. Termination 26
(a) Termination of Agreement 26
(b) Effect of Termination 27
(c) Specific Performance 27
8. Survival and Indemnification. 27
(a) Survival of Representations and Warranties 27
(b) Indemnification Provisions for the Benefit of
the Buyer 27
(c) Indemnification Provisions for the Benefit of
the Seller 28
(d) Matters Involving Third Parties 28
(e) Indemnity Limitations for the Seller and the
Principal Stockholders 29
(f) Adjustment to Purchase Price 30
(g) Recourse Limited 30
9. Other Agreements and Covenants 30
(a) Seller's Use of Proceeds 30
(b) Consent Regarding Redevelopment Agreements 30
(c) Records and Documents 30
10. Miscellaneous 30
(a) No Third-Party Beneficiaries 30
(b) Entire Agreement 30
(c) Succession and Assignment 31
(d) Counterparts 31
(e) Headings 31
(f) Notices 31
(g) Governing Law 32
(h) Amendments and Waivers 32
(i) Severability 32
(j) Expenses and Related Transaction Costs 32
(k) Construction 33
(l) Incorporation of Exhibits and Schedules 33
(m) Bulk Transfer Laws 33
EXHIBITS
Exhibit A -- Form of Escrow Agreement
Exhibit B-1 -- Form of Assignment and Bill of Sale
Exhibit B-2 -- Form of Trademark Assignment
Exhibit B-3 -- Form of General Warranty Deed
Exhibit C -- Form of Assumption
Exhibit D -- Allocation Principles
Exhibit E -- Third Party Consents
Exhibit F -- Form of Legal Opinion of Jenner & Block
ASSET PURCHASE AGREEMENT
Agreement entered into as of March 23, 1998, by and among
McWhorter Technologies, Inc., a Delaware corporation (the
"Buyer"), Accurate Coatings & Dispersions, Inc., a Delaware
corporation, (the "Seller") and James L. Valukas, Anton R.
Valukas, Robert A. Lopp, Steve S. Hoglund, Phillip J. Luciani,
Linda Valukas Blum, Linda Blum Lopp, as Custodian for Jason Blum
under the Illinois Uniform Gifts to Minors Act, and Marcel J.
Fournier, as Trustee under the Declaration of Trust dated
12/18/80 as amended 6/1/90 (collectively, the "Principal
Stockholders"). The Buyer, the Seller and the Principal
Stockholders are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which the Buyer
will purchase substantially all of the assets (and assume certain
of the liabilities) of the Seller in return for cash.
Now, therefore, in consideration of the premises and the
mutual promises herein made, and in consideration of the
representations, warranties, and covenants herein contained, the
Parties agree as follows.
Section 1. Definitions.
"Acquired Assets" means all right, title, and interest in
and to all of the assets of the Seller, including all of its (a)
tangible personal property (such as inventories of raw materials,
supplies, packaging goods, and finished goods, equipment,
manufactured and purchased parts, machinery, goods in process,
furniture, automobiles, trucks, tractors, trailers, tools, jigs,
and dies), (b) agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar
arrangements, and rights thereunder, (c) franchises, approvals,
permits, licenses, orders, registrations, certificates,
variances, exemptions, and similar rights obtained from
governments and governmental agencies (the "Permits"), (d)
Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and
rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
jurisdictions, (e) real property, fixtures, improvements, and
fittings thereon, leaseholds and subleaseholds therein, and
easements, rights-of-way, and other appurtenants thereto (such as
appurtenant rights in and to public streets), (f) leases,
subleases, and rights thereunder, (g) prepayments, prepaid
expenses, and deferred items, claims, deposits, refunds, causes
of action, choses in action, rights of recovery, rights of set
off, and rights of recoupment, including any claims and refunds
relating to real estate Taxes, (h) accounts, notes, and other
receivables, (i) securities, (j) books, records, ledgers, files,
documents, correspondence, lists, plats, architectural plans,
drawings, and specifications, creative materials, advertising and
promotional materials, studies, reports, and other printed or
written materials, and (k) Cash; provided, however, that the
Acquired Assets shall not include the Excluded Assets.
"Adverse Consequences" means all actions, suits,
proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, 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 of
1934, as amended.
"Affiliated Group" means any affiliated group within the
meaning of Code Sec. 1504.
"Aggregate Indemnification Amount" has the meaning set forth
in '8(e) below.
"Assumed Liabilities" means (i) all indebtedness (the
"Revolving Indebtedness") pursuant to the First Revolving Note,
dated March 6, 1997, issued under the Seller's Credit Facility;
(ii) excluding the Revolving Indebtedness, outstanding principal
in an aggregate amount no greater than $4.3 million as of the
Closing Date, pursuant to the Credit Facility; (iii) the
obligation to pay the Dividend; (iv) all trade accounts payable
and accrued expenses of the Seller which arose in the ordinary
course of business and are set forth on the Most Recent Balance
Sheet; (v) all trade accounts payable and accrued expenses of the
Seller which have arisen after the date of the Most Recent
Balance Sheet in the ordinary course of business; (vi) subject to
clauses (i) and (ii) above, all obligations of the Seller under
the agreements, contracts, leases, licenses, and other
arrangements referred to in the definition of Acquired Assets,
except as otherwise noted therein; (vii) Liabilities for workers
compensation claims incurred in 1998 but not reported as of the
Closing Date; and (viii) all obligations of the Seller to its
employees under its Employee Benefit Plans for holiday, vacation,
sick, and bereavement pay and cash bonuses consistent with past
practice and to the extent previously accrued for by the Seller;
and (ix) the obligations of the Seller, if any, under clause (y)
of '10(j); provided, however, that the Assumed Liabilities shall
expressly not include (i) any Liability of the Seller for unpaid
income or franchise Taxes or income Taxes arising in connection
with the consummation of the transactions contemplated hereby;
(ii) any obligation of the Seller to indemnify any Person
(including any of the Stockholders) by reason of the fact that
such Person was a director, officer, employee, or agent of the
Seller or was serving at the request of any such entity as a
partner, trustee, director, officer, employee, or agent of
another entity (whether such indemnification is for judgments,
damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement,
or otherwise; (iii) any Liability or obligation of the Seller
under its Employee Benefit Plans, except for obligations of the
Seller to its employees, under its Employee Benefit Plans for
holiday, vacation, sick and bereavement pay and cash bonuses
consistent with past practice and to the extent previously
accrued for by the Seller; (iv) except as otherwise provided
herein, any Liability or obligation relating to indebtedness for
money borrowed of the Seller; (v) except as otherwise provided in
'10(j), any Liability or obligation of the Seller for costs or
expenses incurred in connection with this Agreement or the
transactions contemplated hereby; (vi) any liability or
obligation under those agreements set forth on '3(q) of the
Disclosure Schedule that have an asterisk set forth next to the
names of such agreements; or (vii) any Liability or obligation of
the Seller under this Agreement.
"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 '2(d) below.
"Closing Date" has the meaning set forth in '2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" has the meaning set forth in '5(i)(i) below.
"Controlled Group of Corporations" has the meaning set forth
in Code Sec. 1563.
"Credit Facility" means the Amended and Restated Loan and
Security Agreement dated as of July 1, 1996, among the Seller,
First American Bank and James L. Valukas, as amended.
"Disclosure Schedule" has the meaning set forth in '3 below.
"Dividend" means that certain cash dividend declared by the
board of directors of the Seller to be paid to the Stockholders
within 30 days after the Closing Date which shall be equal to
25.45% of the sum of (a) the net income of the Seller for the
period from January 1, 1998 until the Closing Date plus (b) the
difference between (x) the amount allocated, in accordance with
Exhibit D, to the inventory of the Seller as of the Closing Date
(the "Inventory") and (y) the Seller's tax basis in the
Inventory, which net income and Inventory shall be calculated in
accordance with tax accounting principles and practices applied
on a basis consistent with the tax accounting principles and
practices applied in preparing the Tax Returns of the Seller
(which dividend shall not have previously been paid).
"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), (d) Employee Welfare Benefit Plan, or
(e) any bonus, incentive, severance, stock option, stock
purchase, short-term disability plan or other material fringe
benefit plan, program or arrangement, including policies
concerning holidays, vacations and salary continuation during
short absences for illness or otherwise.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Sec. 3(1).
"Environmental, Health, and Safety Laws" means the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Clean Air Act, the Federal Water Pollution Control Act, the
Safe Drinking Water Act, the Toxic Substance Control Act, the
Emergency Planning and Community Right-to-Know Act of 1986, the
Hazardous Material Transportation Agreement, the Occupational
Safety and Health Act of 1970, and the California Safe Drinking
Water and Toxic Enforcement Act, each as amended, together with
all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, permits, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic
materials (including petroleum products and asbestos) or wastes
into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes ("Hazardous Substances").
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow" has the meaning set forth in '2(c) below.
"Escrow Agreement" has the meaning set forth in '2(c) below.
"Escrow Amount" has the meaning set forth in '2(c) below.
"Excluded Assets" means (a) the corporate charter,
qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and
other documents relating to the organization, maintenance, and
existence of the Seller as a corporation; (b) tax records of the
Seller; (c) all causes of action, choses in action, rights of
recovery, rights of set-off, and rights of recoupment relating to
any Excluded Asset or Excluded Liability; (d) all rights of the
Seller under policies of insurance and prepaid insurance to the
extent providing coverage or indemnity for any Excluded
Liability; (e) all rights of the Seller under term life insurance
policies covering employees of the Seller; (f) all agreements set
forth on '3(q) of the Disclosure Schedule that have an asterisk
set forth next to the names of such agreements; (g) all rights of
the Seller under this Agreement including the cash proceeds of
the sale of the Acquired Assets; and (h) all rights of the Seller
under the Escrow Agreement and the assumption agreement described
in '2(e)(iv) below.
"Excluded Liabilities" means the Liabilities of the Seller
other than the Assumed Liabilities.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in '3(g)
below.
"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 Substances" has the meaning set forth in the
definition of Environmental, Health, and Safety Laws.
"Indemnified Party" has the meaning set forth in '8(d)
below.
"Indemnifying Party" has the meaning set forth in '8(d)
below.
"Intellectual Property" means (a) all trade secrets and
confidential business information (including customer and
supplier lists, ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes
and techniques, technical data, designs, drawings,
specifications, pricing and cost information, and business and
marketing plans and proposals), (b) all trademarks, service
marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in
connection therewith, (c) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations
thereof, (d) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection
therewith, (e) all mask works and all applications,
registrations, and renewals in connection therewith, (f) all
computer software (including data and related documentation), (g)
all other proprietary rights, and (h) all copies and tangible
embodiments thereof (in whatever form or medium).
"Letter of Intent" means that certain letter agreement
dated February 6, 1998 and accepted February 9, 1998, between the
Buyer and the Seller regarding the transactions contemplated by
this Agreement.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), including any liability for
Taxes.
"Most Recent Balance Sheet" means the balance sheet
contained within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth
in '3(g) below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec.
3(37).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning set forth in the definition of
Acquired Assets.
"Permitted Exceptions" has the meaning set forth in '5(i)(i)
below.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a limited liability
company or partnership, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Principal Stockholder" has the meaning set forth in the
preface above.
"Prohibited Transaction" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
"Property" has the meaning set forth in '3(l)(i) below.
"Purchase Price" has the meaning set forth in '2(c) below.
"Reportable Event" has the meaning set forth in ERISA Sec.
4043.
"Representative" means, with respect to a Person, such
Person's directors, employees, accountants, legal counsel,
financial advisors, bankers and other agents and representatives.
"Revolving Indebtedness" has the meaning set forth in the
definition of Assumed Liabilities.
"Secrecy Agreement" means that certain secrecy agreement,
dated July 29, 1997, between the Buyer and the Seller.
"Security Interest" means any lien, encumbrance, mortgage,
pledge, or other security interest.
"Seller" has the meaning set forth in the preface above.
"Software" means all computer hardware and software
programs, program specifications, charts, procedures, source
codes (including annotations), object codes, input data,
diagnostic and other routines, data bases and report layouts and
formats, record file layouts, diagrams, functional specifications
and narrative descriptions and flow charts owned or used by the
Seller.
"Stockholder" means any person who or which holds any shares
of the capital stock of the Seller.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the
common stock or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Survey" has the meaning set forth in '5(i)(ii) below.
"Survey Defect" has the meaning set forth in '5(i)(iii)
below.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Sec. 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including and interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
"Third Party Claim" has the meaning set forth in '8(d)
below.
"Title Company" has the meaning set forth in '5(i)(i) below.
"Title Policies" has the meaning set forth in '5(i)(i)
below.
"Unpermitted Exceptions" has the meaning set forth in
'5(i)(iii) below.
Section 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 with respect to the
Acquired Assets specified below in this '2.
(b) Assumption of Liabilities. On and subject to the terms
and conditions of this Agreement, the Buyer agrees at the Closing
to assume and become responsible for, to thereafter pay, perform
and discharge when due, all of the Assumed Liabilities. The
Buyer will not assume or have any responsibility, however, with
respect to any Excluded Liability or any other obligation or
Liability of the Seller not included within the definition of
Assumed Liabilities.
(c) Purchase Price. Subject to the terms hereof, the Buyer
agrees to pay an aggregate purchase price for the Acquired Assets
equal to $39,405,000 (the "Purchase Price"). The Purchase Price
shall be paid as follows: (i) an amount equal to $38,405,000
shall be paid to the Seller by delivery of cash payable by wire
transfer or delivery of other immediately available funds; and
(ii) $1,000,000 (the "Escrow Amount") shall be deposited in an
escrow account (the "Escrow") established pursuant to the terms
and conditions of the escrow agreement by and among the Buyer,
the Seller, and an escrow agent substantially in the form of
Exhibit A attached hereto (the "Escrow Agreement").
(d) The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place
at the offices of McDermott, Will & Emery, 227 West Monroe
Street, Suite 5500, Chicago Illinois 60606, 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 hereby
(other than conditions with respect to actions the respective
Parties will take at the Closing itself) or such other date as
the Parties may mutually determine (the "Closing Date");
provided, however, that the Closing Date shall be no later than
May 1, 1998.
(e) Deliveries at the Closing. At the Closing:
(i) the Seller will deliver to the Buyer the various
certificates, instruments, and documents, opinions and
letters referred to in '6(a) below;
(ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents, opinions and
letters referred to in '6(b) below;
(iii) the Seller will execute, acknowledge (if
appropriate), and deliver to the Buyer (A) assignments
(including real property and Intellectual Property transfer
documents) in the forms attached hereto as Exhibits B-1
through B-3 and (B) such other instruments of sale,
transfer, conveyance, and assignment as the Buyer and its
counsel may reasonably request;
(iv) the Buyer will execute, acknowledge (if
appropriate), and deliver to the Seller (A) an assumption
agreement in the form attached hereto as Exhibit C and (B)
such other instruments of assumption as the Seller and its
counsel may request; and
(v) the Buyer will deliver to the Seller and to the
Escrow the consideration specified in '2(c) above.
(f) Allocation. The Parties agree to allocate the Purchase
Price (and all other capitalizable costs) hereunder among the
Acquired Assets for all purposes (including financial accounting
and tax purposes) in accordance with the general principles set
forth on Exhibit D and in accordance with an allocation schedule
to be prepared by the Buyer and the Seller promptly following the
Closing on a basis consistent with Exhibit D.
Section 3. Representations and Warranties of the Seller and the
Principal Stockholders.
Each of the Seller and the Principal Stockholders, jointly
and severally, represents and warrants that the statements
contained in this '3 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 '3),
except as set forth in the disclosure schedule accompanying this
Agreement (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this '3.
(a) Organization; Capitalization. The Seller is a
corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware. '3(a) of the
Disclosure Schedule accurately sets forth the authorized and
outstanding capital stock of the Seller and the name and number
of shares of capital stock held by each Stockholder. There are
no outstanding or authorized options, warrants, purchase rights,
subscription rights, exchange rights, or other contracts or
commitments that require the Seller to issue, sell, or otherwise
cause to become outstanding any of its capital stock.
(b) Authorization of Transaction. The Seller has full
power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform
its obligations hereunder. Without limiting the generality of
the foregoing, each of the Principal Stockholders and the board
of directors of the Seller have duly authorized the execution,
delivery, and performance of this Agreement by the Seller. 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 hereby (including the assignments and
assumptions referred to in '2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is
subject, other than such violations which would not have a
material adverse effect on the Acquired Assets or the business,
financial condition, operations or results of operations of the
Seller, or violate any provision of the charter or bylaws of the
Seller or (ii) except as set forth on '3(c) of the Disclosure
Schedule, 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) other than such breaches or defaults which would not
have a material adverse effect on the Acquired Assets or the
business, financial condition, operations or results of
operations of the Seller. Except as set forth on '3(c) of the
Disclosure Schedule, 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 (including the assignments and assumptions referred to
in '2 above).
(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) Title to Assets. Except as set forth on '3(e) of the
Disclosure Schedule, the Seller has good and marketable title to,
or a valid leasehold interest in, the properties and assets used
by it, located on its premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear
of all Security Interests, except for properties and assets
disposed of in the ordinary course of business since the date of
such Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no Subsidiaries.
(g) Financial Statements. '3(g) of the Disclosure Schedule
sets forth the following financial statements (collectively, the
"Financial Statements"): audited balance sheets and statements of
income, retained earnings, and cash flows as of and for the
fiscal years ended December 31, 1996 and December 31, 1997 for
the Seller (such Financial Statements as of and for the fiscal
year ended December 31, 1997 being herein referred to as the
"Most Recent Financial Statements"). The Financial Statements
(including the notes thereto) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the
Seller as of such dates and the results of operations of the
Seller for such periods, are correct and complete in all material
respects, and are consistent with the books and records of the
Seller (which books and records are correct and complete in all
material respects).
(h) Events Subsequent to the Date of the Most Recent
Balance Sheet. Since the date of the Most Recent Balance Sheet,
there has not been any material adverse change in the business,
financial condition, operations or results of operations of the
Seller. Since the date of the Most Recent Balance Sheet, the
Seller has conducted its business only in the ordinary and usual
course, and except as set forth in '3(h) of the Disclosure
Schedule, there have not occurred any of the events set forth in
'5(c) hereof.
(i) Undisclosed Liabilities. The Seller has no Liability
(and, to the Seller's knowledge, there is no basis for any
present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of
them giving rise to any Liability) of the type that would be
required to be reflected on a balance sheet of the Seller
prepared in accordance with GAAP, except for (i) Liabilities set
forth on the Most Recent Balance Sheet, (ii) Liabilities which
have arisen after the date of the Most Recent Balance Sheet in
the ordinary course of business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement,
or violation of law), and (iii) Liabilities set forth in '3(i) of
the Disclosure Schedule.
(j) Legal Compliance. Except as set forth on '3(j) of the
Disclosure Schedule, each of the Seller, and its Affiliates has
complied in all material respects with all applicable 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), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure
so to comply.
(k) Tax Matters.
(i) The Seller has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by the
Seller (whether or not shown on any Tax Return) have been
paid. There are no Security Interests on any of the assets
of the Seller that arose in connection with any failure (or
alleged failure) to pay any Tax when due.
(ii) The Seller has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(iii) The Seller does not expect any authority to
assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Seller either (A)
claimed or raised by any authority in writing or (B) as to
which the Seller has knowledge. '3(k) of the Disclosure
Schedule lists all federal, state, local, and foreign income
Tax Returns filed with respect to the Seller for taxable
periods ended on or after December 31, 1993, indicates those
Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Seller
has made available to the Buyer correct and complete copies
of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by
the Seller since December 31, 1993.
(iv) The Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(v) The Seller has not been a United States real
property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code
Sec. 897(c)(1)(A)(ii). The Seller is not a party to any Tax
allocation or sharing agreement. The Seller (A) 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 the Seller) and (B) has no Liability for
the Taxes of any Person under Treas. Reg. '1.1502-6 (or any
similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(vi) The Seller's election to be treated as an "S
corporation" pursuant to '1362(a) of the Code is currently
valid and, with respect to Tax Returns for taxable periods
ended on or after December 31, 1989, the Seller is not aware
of any facts which could form a basis for the termination of
such election.
(l) Real Property.
(i) '3(l)(i) of the Disclosure Schedule contains the
legal descriptions and street addresses of any real property
(including without limitation any option or other right or
obligation to purchase any real property) owned by the
Seller as of the date hereof (the "Property"). With respect
to each such parcel of owned Property:
(A) Seller has good and marketable fee
simple title to the Property, subject only to the
Permitted Exceptions and liens or encumbrances of a
definite or ascertainable amount that may be removed by
payment of sums at Closing;
(B) there are no pending or, to the Seller's
knowledge, threatened condemnation proceedings,
lawsuits, or administrative actions relating to the
Property or other matters affecting adversely the
current use, occupancy, or value thereof;
(C) the legal description for the Property
contained in '3(l)(i) of the Disclosure Schedule
describes such parcel fully and adequately, and, except
as set forth on '3(l)(i) of the Disclosure Schedule,
the buildings and improvements are located within the
boundary lines of the described parcels of land, are
not in violation of zoning laws and ordinances (and
none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use"
or "permitted non-conforming structure"
classifications), and do not encroach on any easement
which may burden the land, the land does not serve any
adjoining property for any purpose inconsistent with
the present use of the land, and the Property is not
located within any flood plain or subject to any
similar type of restriction for which any permits or
licenses necessary to the use thereof have not been
obtained;
(D) Seller has not received any notice of
any special tax, levy or assessment for benefits or
betterments that affect the Property and, to Seller's
knowledge, no such special taxes, levies or assessments
are pending or contemplated;
(E) all facilities have received all
approvals of governmental authorities (including
licenses and permits) required in connection with the
ownership or operation thereof and the Property has
been and is being operated and maintained in all
material respects in accordance with all zoning,
building, health code and other similar laws,
ordinances and regulations and with all covenants,
conditions and restrictions affecting the Property;
(F) there are no leases, subleases,
licenses, concessions, or other agreements, written or
oral, granting to any party or parties the right of
use, possession or occupancy of any portion of the
Property and there are no parties (other than Seller)
in possession of the Property;
(G) there are no outstanding options or
rights of first refusal to purchase the Property, or
any portion thereof or interest therein; and
(H) all facilities located on the Property
are supplied with utilities and other services
necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary
sewer, and storm sewer, all of which services are
adequate for the Seller's present use of the Property
in accordance with all applicable laws, ordinances,
rules, and regulations.
(ii) The Seller is not a party to any leases, licenses
or similar agreements that are for the use or occupancy of
real property owned by a third party.
(iii) The Property and the facilities thereon
constitute all of the real property necessary or useful for
the conduct of the business of the Seller.
(m) Intellectual Property. Except as set forth on '3(m) of
the Disclosure Schedule:
(i) The Seller owns or has the right to use pursuant
to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of its
business as presently conducted. Each item of Intellectual
Property owned or used by the Seller immediately prior to
the Closing hereunder will be owned or available for use by
the Buyer on identical terms and conditions immediately
subsequent to the Closing hereunder. The Seller has taken
all necessary action to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) To the Seller's knowledge, the Seller has not
interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property
rights of third parties. The Seller has never received any
charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or
violation (including any claim that the Seller must license
or refrain from using any Intellectual Property rights of
any third party). To the Seller's knowledge, no third party
has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property
rights of the Seller.
(iii) '3(m)(iii) of the Disclosure Schedule identifies
each patent or registration which has been issued to the
Seller with respect to any of its Intellectual Property,
identifies each pending patent application or application
for registration which the Seller has made with respect to
any of its Intellectual Property, and identifies each
license, agreement, or other permission which the Seller has
granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The
Seller has made available to the Buyer correct and complete
copies of all such patents, registrations, applications,
licenses, agreements, and permissions (as amended to date)
and has made available to the Buyer correct and complete
copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
'3(m)(iii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by the Seller in
connection with its business. With respect to each item of
Intellectual Property required to be identified in
'3(m)(iii) of the Disclosure Schedule:
(A) the Seller possesses all right, title,
and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree or
ruling;
(C) no action, suit, proceeding, hearing,
investigation, complaint, claim, or demand is pending
or, to the Seller's knowledge, threatened which
challenges the legality, validity, enforceability, use,
or ownership of the item; and
(D) the Seller has never agreed to indemnify
any Person for or against any interference,
infringement, misappropriation, or other conflict with
respect to the item.
(iv) '3(m)(iv) of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns
and that the Seller uses pursuant to license, sublicense,
agreement, or permission. The Seller has made available to
the Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to
date). With respect to each such item of used Intellectual
Property required to be identified in '3(m)(iv) of the
Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect against the
Seller and, to the Seller's knowledge, against the
third party thereto;
(B) neither the Seller, nor to the Seller's
knowledge, any other party to the license, sublicense,
agreement, or permission is in breach or default, and,
to the Seller's knowledge, no event has occurred which
with notice or lapse of time would constitute a breach
or default or permit termination, modification, or
acceleration thereunder;
(C) neither the Seller, nor to the Seller's
knowledge, any other party to the license, sublicense,
agreement, or permission, has repudiated any provision
thereof;
(D) to the Seller's knowledge, the
underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(E) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or, to the Seller's knowledge, threatened which
challenges the legality, validity, or enforceability of
the underlying item of Intellectual Property; and
(F) the Seller has not granted any
sublicense or similar right with respect to the
license, sublicense, agreement, or permission.
(v) To the Seller's knowledge, the Seller will not
interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its
business as presently conducted.
(n) Year 2000 Compatibility. To the Seller's knowledge,
all Software owned or otherwise used by the Seller which contains
or calls on a calendar function shall record, store, process,
provide and, where appropriate, insert true and correct dates and
calculations for dates and spans prior to, including and
following January 1, 2000.
(o) Tangible Assets. The Seller owns or leases all
buildings, machinery, equipment and other tangible assets
necessary for the conduct of its business as presently conducted.
Each such tangible asset is free from patent defects, has been
maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is
used.
(p) Inventory. The inventory of the Seller consists of raw
materials, supplies, packaging goods, and finished goods,
manufactured and purchased parts, and goods in process, all of
which is merchantable and fit for the purpose for which it was
procured or manufactured and is adequate for the operation of the
Seller's business, and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory
writedown set forth on the Most Recent Balance Sheet as adjusted
for the passage of time through the Closing Date in accordance
with the past custom and practice of the Seller.
(q) Contracts. '3(q) of the Disclosure Schedule lists the
following contracts and other agreements to which the Seller is a
party:
(i) any agreement (or group of related agreements) for
the lease of personal property to or from any Person
providing for lease payments in excess of $10,000 per annum;
(ii) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which
will extend over a period of more than one year or that
would result in a material loss to the Seller if terminated;
(iii) any consignment agreement (executed or
contemplated);
(iv) any agreement concerning a partnership or joint
venture;
(v) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed
any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $10,000 or under which it has
imposed a Security Interest on any of its assets, tangible
or intangible;
(vi) any agreement concerning confidentiality or
noncompetition;
(vii) any agreement involving any of the Stockholders
and their Affiliates (other than the Seller);
(viii) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation,
severance, or other plan or arrangement for the benefit of
its current or former directors, officers, and employees;
(ix) any collective bargaining agreement;
(x) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $50,000 or
providing severance benefits;
(xi) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and
employees outside the ordinary course of business;
(xii) any agreement under which the consequences of a
default or termination could have a material adverse effect
on the business, financial condition, operations or results
of operations of the Seller; or
(xiii) any other agreement (or group of related
agreements) the performance of which involves consideration
in excess of $100,000, other than purchase orders for raw
materials and supplies and contracts represented by accepted
customer purchase orders for finished goods.
The Seller has made available to the Buyer a correct and complete
copy of each written agreement listed in '3(q) of the Disclosure
Schedule (as amended to date) and a written summary setting forth
the terms and conditions of each oral agreement referred to in
'3(q) of the Disclosure Schedule. With respect to each such
agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect against the Seller and,
to the Seller's knowledge, against the third party thereto; (B)
the Seller and, to the Seller's knowledge, the third party
thereto, is not in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration,
under the agreement; and (C) the Seller and, to the Seller's
knowledge, the third party thereto has not repudiated any
provision of the agreement.
(r) Notes and Accounts Receivable. All notes and accounts
receivable of the Seller are reflected properly on the Seller's
books and records, are valid receivables subject to no setoff or
counterclaims, are current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the Most Recent
Balance Sheet as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of
the Seller.
(s) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Seller.
(t) Insurance. '3(t) of the Disclosure Schedule sets forth
an accurate description of each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which
the Seller is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance
policy: (A) the policy is legal, valid, binding, enforceable,
and in full force and effect against the Seller and, to the
Seller's knowledge, against the third party to the policy; (B)
the Seller and, to the Seller's knowledge, the third party to the
policy, is not in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (C) the
Seller and, to the Seller's knowledge, the third party to the
policy has not repudiated any provision thereof. The Seller has
been covered during the past five years by insurance in scope and
amount customary and reasonable for the business in which it has
engaged during the aforementioned period.
(u) Litigation. '3(u) of the Disclosure Schedule sets
forth each instance in which the Seller (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the Seller's knowledge, is
threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the
actions, suits, proceedings, hearings, and investigations set
forth in '3(u) of the Disclosure Schedule could reasonably be
expected to result in any material adverse change in the
business, financial condition, operations, results of operations,
or future prospects of the Seller. The Seller has no reason to
believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against it.
(v) Product Warranty. Each product manufactured, sold,
leased, or delivered by the Seller has been in conformity with
all applicable contractual commitments and all express and
implied warranties, and the Seller has no Liability for
replacement or repair thereof or other damages in connection
therewith, subject only to the reserve for product warranty
claims set forth on the Most Recent Balance Sheet as adjusted for
the passage of time through the Closing Date in accordance with
the past custom and practice of the Seller. Except as set forth
in '3(v) of the Disclosure Schedule, no product manufactured,
sold, leased, or delivered by the Seller is subject to any
guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. '3(v) of the
Disclosure Schedule includes copies of the standard terms and
conditions of sale or lease for the Seller (containing applicable
guaranty, warranty, and indemnity provisions).
(w) Product Liability. The Seller has no Liability arising
out of any injury to individuals or property as a result of the
ownership, possession, or use of any product it manufactured,
sold, leased, or delivered.
(x) Employees.
(i) To the Seller's knowledge, no executive, key
employee, or group of employees has any plans to terminate
employment with the Seller.
(ii) (A) the Seller is not a party to any collective
bargaining agreement or similar agreement with respect to
its employees; (B) there is no labor strike, dispute,
slowdown, work stoppage, or lockout, or other labor
controversy in effect or, to the Seller's knowledge,
threatened against or otherwise affecting or involving the
business of the Seller nor has any such labor controversy
occurred within the past three years; (C) there is no
grievance which might be reasonably expected to have a
material adverse effect and no arbitration proceeding is
pending or, to the Seller's knowledge, threatened and no
claim therefor has been asserted nor has any such action
occurred within the past three years; (D) there is no unfair
labor practice charge or complaint pending or, to the
Seller's knowledge, threatened relating to the business of
the Seller; (E) no representation question has been brought
to the attention of the Seller respecting any of the
employees of the Seller within the past three years, nor are
there any campaigns being conducted to solicit cards from
any of the employees of the Seller to authorize
representation by any labor organization; (F) no collective
bargaining agreement relating to any of the employees of the
Seller is being negotiated; (G) payment in full to all of
the employees of the Seller of all wages, salaries,
commissions, bonuses, benefits, and other compensation due
to such employees or otherwise arising under any policy,
practice, agreement, plan, program, statute, or other law
has been made when due; (H) no facility of the Seller has
been closed, there have not been any layoffs of any of its
employees or implementations of any early retirement,
separation, or window program within the past three years
with respect to the Seller, nor, other than as contemplated
herein, are there any plans or announcements of any such
action or program for the future; and (I) the Seller is in
compliance with its obligations pursuant to the Workers
Adjustment and Retraining Notification Act of 1988, as
amended, and all other notification and bargaining
obligations arising under any collective bargaining
agreement or statute.
(y) Employee Benefits.
(i) '3(y) of the Disclosure Schedule lists each
Employee Benefit Plan that the Seller maintains or to which
the Seller contributes.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund)
complies in form and in operation in all material
respects with the applicable requirements of ERISA, the
Code, and other applicable laws.
(B) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual
Reports, PBGC-1's, and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code
Sec. 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(C) 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 an Employee Pension
Benefit Plan, and all contributions for any period
ending on or before the Closing Date which are not yet
due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the Seller's
past custom and practice. All premiums or other
payments for all periods ending on or before the
Closing Date have been paid with respect to each such
Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(D) Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan and which is described
on '3(y) of the Disclosure Schedule as meeting the
requirements of Code Sec. 401(a), meets the
requirements of a "qualified plan" under Code Sec.
401(a) and has received a favorable determination
letter from the Internal Revenue Service and no such
determination letter has been revoked nor, to the
knowledge of the Seller, has revocation been
threatened, nor has any such Employee Pension Benefit
Plan been amended since the date of its most recent
determination letter in any respect which would
adversely affect its qualification or materially
increase its cost.
(E) The market value of assets under each
such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) equals
or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(F) The Seller has delivered to the Buyer
correct and complete copies of the plan documents and
Summary Plan Descriptions, the most recent
determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and
other funding agreements which implement each such
Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that
the Seller and the Controlled Group of Corporations which
includes the Seller maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever
has been required to contribute:
(A) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially
terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the
PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee Benefit
Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action,
suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened.
The Seller has no knowledge of any basis for any such
action, suit, proceeding, hearing, or investigation.
(C) The Seller has not incurred, and will
not incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code
with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan.
(iii) Except as set forth on '3(y) of the Disclosure
Schedule, none of the Seller and the other members of the
Controlled Group of Corporations that includes the Seller
contributes to, ever has contributed to, or ever has been
required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any
Multiemployer Plan.
(iv) Except as set forth on '3(y) to the Disclosure
Schedule, the Seller does not maintain and has never
maintained and does not contribute, and has never
contributed, and has never been required to contribute to
any Employee Welfare Benefit Plan providing medical, health,
or life insurance or other welfare-type benefits for current
or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code Sec.
4980B).
(z) Guaranties. The Seller is not a guarantor or otherwise
liable for any Liability or obligation (including indebtedness)
of any other Person.
(aa) Environment, Health, and Safety. Except as set forth
on '3(aa) of the Disclosure Schedule:
(i) Each of the Seller and its Affiliates has complied
and is currently complying with all applicable
Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been served, filed, or
commenced against any of them alleging any failure so to
comply. '3(aa) of the Disclosure Schedule accurately sets
forth a list of all environmental audits or assessments or
occupational health studies undertaken by or on behalf of
the Seller or governmental agencies with respect to matters
relating to the Environmental, Health, and Safety Laws. The
Seller has all Permits required for the conduct of its
business. The Seller has complied and is currently
complying with all other applicable limitations,
restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which
are contained in all Environmental, Health, and Safety Laws.
(ii) The Seller has no Liability (and none of the
Seller and its Affiliates has handled or disposed of any
substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in
any manner that could form the basis for any present or
future action, suit, proceeding, hearing, investigation,
complaint, claim, or demand against the Seller giving rise
to any Liability of the Buyer) for damage to any site,
location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other
individual, or for any reason under any Environmental,
Health, and Safety Law.
(iii) All properties and equipment used in the
business of the Seller and its Affiliates have been and are
free of Hazardous Substances, other than Hazardous
Substances held or used in compliance with applicable
Environmental, Health, and Safety Laws.
(iv) No underground storage tanks, as defined in the
Resource Conservation and Recovery Act of 1970, as amended
or under any applicable state law, are present on any of the
properties used by the Seller, no such tanks were previously
abandoned or removed by the Seller and, except as set forth
on '3(aa) of the Disclosure Schedule, to the Seller's
knowledge, no such tanks were previously abandoned or
removed by any Person other than the Seller.
(bb) Certain Business Relationships with the Seller.
Except as set forth on '3(ab) of the Disclosure Schedule, none of
the Stockholders and their Affiliates has been involved in any
business arrangement or relationship with the Seller within the
past 12 months, and none of the Stockholders and their Affiliates
owns any asset, tangible or intangible, which is used in the
Seller's business.
(cc) Customers. '3(ac) of the Disclosure Schedule sets
forth (i) the names of the 20 largest customers of the Seller, in
terms of sales over the last twelve months, and (ii) the sales by
the Seller to each such customer over such period. As of the
date hereof, the Seller has not received any notice and has no
knowledge that any such customer intends to terminate or
materially reduce its business with the Seller and, as of the
date hereof, no such customer has terminated or materially
reduced its business with the Seller in the last twelve months.
(dd) Disclosure. The representations and warranties
contained in this '3 do not contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements and information contained in this '3
not misleading.
Section 4. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller and the
Stockholders that the statements contained in this '4 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 '4), except as set forth in the
Disclosure Schedule. The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs
contained in this '4.
(a) Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the
laws of the state of Delaware and is duly qualified as a foreign
corporation and is in good standing in the State of Illinois.
(b) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. Without limiting the generality of the foregoing, the
Buyer's board of the directors has duly authorized the execution,
delivery and performance by the Buyer of this Agreement and all
agreements and undertakings to be entered into by the Buyer
pursuant to this Agreement. 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 hereby (including the assignments and
assumptions referred to in '2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (ii) except
as set forth on '4(c) of the Disclosure Schedule, 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. Except as set forth on
'4(c) of the Disclosure Schedule, 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 '2 above).
(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.
Section 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 best efforts
to take all action and to do all things necessary, proper, or
advisable 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 '6 below).
(b) Notices and Consents. The Seller will give any notices
to third parties and will obtain any third party consents
described on Exhibit E hereto in connection with the matters
referred to in '3(c) above (including with respect to the
Permits). Each of the Parties will give any notices to, make any
filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to
in '3(c) and '4(c) above. Without limiting the generality of the
foregoing, each of the Parties 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 and will make any further filings pursuant thereto
that may be necessary, proper, or advisable in connection
therewith.
(c) Operation of Business. The Seller will not engage in
any practice, take any action, or enter into any transaction
outside the ordinary course of business. Without limiting the
generality of the foregoing, the Seller will not, without the
prior written consent of the Buyer:
(i) declare, set aside, or pay any extraordinary
dividend or make any other distribution with respect to its
capital stock (whether in cash or in kind), other than the
Dividend, or redeem, purchase, or otherwise acquire any of
its capital stock;
(ii) increase the amount of its Revolving
Indebtedness, except in the ordinary course of business;
(iii) sell, lease, transfer, or assign any of its
assets, tangible or intangible, to any third party
(including any intercompany transfer) other than the sale of
inventory and other properties in the ordinary course of
business;
(iv) except for purchases of raw materials and
supplies and sales of finished goods in the ordinary course
of business, enter into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases,
and licenses) either involving more than $50,000 or outside
the ordinary course of business;
(v) accelerate, terminate, modify, or cancel any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more
than $50,000 to which the Seller is a party or by which it
is bound;
(vi) impose any Security Interest upon any of its
assets, tangible or intangible;
(vii) make any capital expenditure (or series of
related capital expenditures) either involving more than
$50,000 or outside the ordinary course of business; in
addition, the Seller will notify the Buyer prior to making
any material capital expenditures that otherwise would not
be prohibited by the terms of this clause (vii);
(viii) make any capital investment in, any loan to, or
any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and
acquisitions);
(ix) delay or postpone the payment of accounts payable
and other Liabilities outside the ordinary course of
business;
(x) fail to maintain the level or quality of its
inventory consistent with past conduct and practice;
(xi) accelerate the collection of accounts, notes, or
other receivables;
(xii) cancel, compromise, waive, or release any right
or claim (or series of related rights and claims) either
involving more than $50,000 or outside the ordinary course
of business;
(xiii) grant any license or sublicense of any rights
under or with respect to any Intellectual Property;
(xiv) issue, sell or otherwise dispose of any of its
capital stock, or grant any options, warrants, or other
rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xv) experience any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xvi) enter into any employment contract or collective
bargaining agreement, written or oral, or modify the terms
of any existing such contract or agreement;
(xvii) grant any increase in the compensation
(including base salary and bonus) of any of its directors,
officers, and employees, other than scheduled merit, tenure
and cost of living increases in the ordinary course of
business;
(xviii) make any other material change in employment
terms for any of its directors, officers, and employees; and
(xix) make or pledge to make any charitable or other
capital contribution outside the ordinary course of
business.
Notwithstanding anything to the contrary contained in this '5(c),
the Parties hereto agree that, with respect to the period between
the execution of this Agreement and the Closing, the Seller may,
without obtaining the prior consent of the Buyer: (A) contribute
to the Accurate Coatings & Dispersions, Inc. Employee Profit
Sharing Plan; provided, however, that the amount of such
contributions, together with all contributions to such plan which
have been made by the Seller since December 31, 1997, do not
exceed $75,000 and (B) make payments to third parties to complete
its research laboratory project; provided, however, that the
amount of such payments, together with all such payments made by
the Seller since December 31, 1997 do not exceed $100,000.
(d) Preservation of Business. The Seller will keep its
business and properties substantially intact, including its
present operations, physical facilities, working conditions, and
relationships with lessors, licensers, suppliers, customers, and
employees.
(e) Full Access. Upon the Buyer's request and under
reasonable conditions, the Seller shall continue to provide to
the Buyer and its Representatives access to the Seller's
facilities, books and records and shall cooperate with the Buyer
and its Representatives in connection with the Buyer's
acquisition review of the Seller and its assets, contracts,
liabilities, operations, records and other aspects of its
business. However, it is understood that access by the Buyer and
its Representatives to the Seller's facilities, books and records
shall be controlled by the Seller so as to maintain the
confidentiality of all aspects relating to the transactions
contemplated by this Agreement and to preserve the
confidentiality of the Seller's and its customers' trade secrets
and similar proprietary information. In furtherance of this
consideration, all requests for information about the Seller or
access to the Seller's facilities, books and records shall be
directed to Bruce G. Wilson at Jenner & Block, counsel to the
Seller, or James L. Valukas.
(f) Notice of Developments. Each Party will give prompt
written notice to the other Parties of any breach of any of its
own representations and warranties in '3 and '4 above. No
disclosure by any Party pursuant to this '5(f), however, shall be
deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
(g) Exclusivity. None of the Seller or any Principal
Stockholder shall, directly or indirectly, through any
Representative or otherwise, solicit offers from, negotiate with,
or in any manner encourage, discuss, or accept any proposal of
any other person relating to the acquisition of any shares of
capital stock of the Seller, any of the Acquired Assets or
Seller's business, in whole or in part, whether through direct
purchase, merger, consolidation, or other business combination
(other than sales of inventory and other properties in the
ordinary course) and the Seller and the Principal Stockholders
shall promptly disclose to the Buyer an such offers,
negotiations, or proposals.
(h) Press Releases and Public Announcements. Except as and
to the extent necessary to complete the transactions contemplated
by this Agreement, without the prior written consent of the other
Parties, no Party shall, and each shall direct its
Representatives not to, directly or indirectly, make any comment,
statement, or communication with respect to, or otherwise
disclose or permit the disclosure of the existence of discussions
regarding, the transactions contemplated by this Agreement or any
of the terms, conditions or other aspects thereof or any
confidential information; provided, however, that the Buyer shall
be permitted to disclose the terms, conditions and other aspects
of the transactions contemplated hereby if required by law. In
the event that the Buyer or any of its Representatives are
required by law to disclose any of the terms, conditions or other
aspects of the transactions contemplated by this Agreement, the
Buyer will notify the Seller promptly so that the Seller may seek
a protective order or other appropriate remedy. In the event
that no such protective order or other remedy is obtained, the
Buyer will furnish only that portion of the requested information
which the Buyer is advised by its legal counsel is required by
law to be disclosed, and the Buyer will exercise all reasonable
efforts to obtain reliable assurances that confidential treatment
will be afforded the requested information by the recipients
thereof.
(i) Title Insurance and Surveys.
(i) Within 20 days after the date of this Agreement,
the Seller, at its sole cost and expense, shall obtain and
deliver to the Buyer commitments (the "Commitments"),
including all copies of all recorded documents disclosed
therein, issued by Ticor Title Insurance Company (the "Title
Company") and dated after the date hereof for the issuance
of ALTA Owners Policies of Title Insurance Form B (1992)
(the "Title Policies") for each parcel of real property
owned by the Seller. The Title Policies shall be in the
amount designated by the Buyer, showing fee simple title to
each parcel of Property in the Seller subject only to
current real estate Taxes not yet due and payable as of the
Closing Date and such other covenants, conditions,
easements, and exceptions to title as are set forth in '5(i)
of the Disclosure Schedule (collectively, the "Permitted
Exceptions"). The Commitments and the Title Policies to be
issued by the Title Company shall have all Standard and
General Exceptions deleted so as to afford full "extended
form coverage" and shall contain the following endorsements:
(A) survey, (B) access, (C) tax parcel, (D) ALTA Zoning
Endorsement 3.1 with parking, to the extent available, (E)
comprehensive, (F) location and (G) encroachment. The Title
Policies shall not contain so-called "creditors' rights"
exceptions. At the Closing, the Seller shall convey or
cause to be conveyed fee simple title to the Property to the
Buyer by recordable special warranty deed subject only to
the Permitted Exceptions. Seller shall execute such
affidavits or other instruments as the Title Company may
reasonably require to delete Standard and General Exceptions
and to provide the special endorsements required hereunder.
The Seller shall cause the Commitments to be later-dated to
cover the Closing and the recording of the deeds to be
delivered at the Closing and to cause the Title Company to
deliver the Title Policies (which may be in the form of a
"marked" title commitment for each parcel of the Property)
at the Closing as directed by the Buyer. Notwithstanding
anything to the contrary, Seller shall pay the entire
premium for the Title Policies at Closing.
(ii) Within 20 days after the date of this Agreement,
the Seller, at its sole cost and expense, shall deliver to
the Buyer and the Title Company an as-built plat of survey
of each parcel of Property owned by the Seller (the
"Surveys") prepared by a registered land surveyor or
engineer, licensed in the respective states in which the
real property owned by the Seller is located, dated on or
after the date hereof, certified to the Buyer, the Title
Company, and such other entities as the Buyer may designate
in writing to the Seller prior to the Closing, and in
accordance with the Minimum Standard Detail Requirements for
Land Title Surveys adopted by the American Land Title
Association and the American Congress of Surveyors and
Mappers, sufficient to cause the Title Company to delete the
standard printed survey exception. Each Survey shall show
access from the land to dedicated public roads and shall
include a flood plain certification. The Seller shall pay
the entire cost of obtaining the Surveys. Any Survey may be
a recertification of a prior survey, provided that it meets
the above-described criteria.
(iii) If (A) any Commitment discloses a title
exception other than a Permitted Exception (an "Unpermitted
Exception") or (B) any Survey discloses any encroachment,
overlap, or gap or any other matter which has not been
previously disclosed on '3(l)(i) of the Disclosure Schedule,
which renders title to any parcel of real property owned by
the Seller unmarketable or reflects that any utility service
to the improvements or access thereto does not lie wholly
within the applicable parcel of real property or an
unencumbered easement for the benefit of such parcel of real
property or reflects any other matter materially and
adversely affecting the use or improvements of the parcel of
real property (a "Survey Defect"), then the Seller, prior to
the Closing, shall have the Unpermitted Exception removed
from such Commitment or the Survey Defect corrected or
insured over by an appropriate title insurance endorsement,
all in a manner reasonably satisfactory to the Buyer. If,
after using all reasonable efforts, the Seller fails to have
any Unpermitted Exception removed or any Survey Defect
corrected or otherwise insured over to the reasonable
satisfaction of the Buyer prior to the Closing, the Buyer,
at its sole option may:
(y) Take title to the subject parcel as it
then is with the right to deduct from the
consideration to be paid pursuant to '2(c) an
amount equal to all liens, claims, encumbrances of
a definite or ascertainable amount; or
(z) Terminate this Agreement and all of the
Buyer's obligations hereunder.
(j) Employment Matters. Immediately prior to the Closing,
the Buyer shall extend to each employee of the Seller (other than
James L. Valukas, whom the Buyer shall have otherwise agreed to
employ) an offer of employment with the Buyer commencing as of
the Closing on terms and conditions of employment established by
the Buyer.
Section 6. 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 '3
above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) there shall not have occurred any material
adverse change in the Seller's business, financial
condition, assets or operations since the date of the Most
Recent Balance Sheet; provided, however, that the loss or
reduction of business of a customer of the Seller or the
threat of such loss or reduction of business shall not
constitute such a material adverse change;
(iii) the Seller shall have performed and complied
with all of its covenants hereunder in all material respects
through the Closing;
(iv) the Seller shall have procured all of the third
party consents specified on Exhibit E;
(v) no action, suit, or proceeding by any bona fide
third party shall be pending before any court or quasi-
judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of
the Buyer to own any of the Acquired Assets or to operate
the business of the Seller (and no such injunction,
judgment, order, decree, ruling, or charge shall be in
effect);
(vi) the Stockholders shall have duly authorized the
execution, delivery and performance of this Agreement by the
Seller and approved the transactions contemplated hereby;
(vii) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions
specified above in '6(a)(i)-(vi) is satisfied in all
respects;
(viii) the Buyer shall have received the opinion of
Jenner & Block addressed to the Buyer and dated the Closing
Date in the form attached to this Agreement as Exhibit F
subject to standard and customary qualifications and
exceptions;
(ix) the Seller shall have entered into the Escrow
Agreement with the Buyer and the escrow agent thereto and
the Escrow Agreement shall be in full force and effect as of
the Closing and shall not have been amended or modified;
(x) the Buyer and James L. Valukas shall have entered
into an employment agreement substantially in the form
agreed to by the Buyer and Mr. Valukas prior to the date
hereof;
(xi) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall
have expired or otherwise been terminated and each of the
Seller and the Buyer shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in '3(c) and '4(c) above;
and
(xii) all actions to be taken by the Seller in
connection with consummation of each of the transactions
contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in
form and substance to the Buyer.
The Buyer may waive any condition specified in this '6(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 '4
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) no action, suit, or proceeding by any bona fide
third party shall be pending before any court or quasi-
judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transact ions
contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions
specified above in '6(b)(i)-(iii) is satisfied in all
respects;
(v) the Buyer and James L. Valukas shall have entered
into an employment agreement substantially in the form
agreed to by the Buyer and Mr. Valukas prior to the date
hereof;
(vi) the Buyer shall have entered into the Escrow
Agreement with the Seller and the escrow agent thereto and
the Escrow Agreement shall be in full force and effect as of
the Closing and shall not have been amended or modified;
(vii) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall
have expired or otherwise been terminated and each of the
Seller and the Buyer shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in '3(c) and '4(c) above;
and
(viii) all actions to be taken by the Buyer in
connection with consummation of the transactions
contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in
form and substance to the Seller.
The Seller may waive any condition specified in this '6(b) if it
executes a writing so stating at or prior to the Closing.
Section 7. Termination.
(a) Termination of Agreement. Certain of 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 (A) in the event the Seller has breached any
representation, warranty, or covenant contained in this
Agreement in any material respect, and such breach has not
been cured or waived as of the Closing Date, or (B) if the
Closing shall not have occurred on or before May 1, 1998, by
reason of the failure of any condition precedent under '6(a)
hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant
in any material respect contained in this Agreement); and
(iii) 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, and such breach has not
been cured or waived as of the Closing Date, or (B) if the
Closing shall not have occurred on or before May 1, 1998, by
reason of the failure of any condition precedent under '6(b)
hereof (unless the failure results primarily from the Seller
itself breaching any representation, warranty, or covenant
in any material respect contained in this Agreement).
Notwithstanding the provisions of '7(a)(ii), subject to the
terms hereof, in the event that the Seller has breached any
representation, warranty, or covenant contained in this Agreement
in any material respect and by reason thereof the Buyer has a
right to terminate this Agreement pursuant to '7(a)(ii)(A) and
intends to exercise such right, the Buyer shall first give
written notice thereof to the Seller, and if the Adverse
Consequences to the Buyer attributable to such breach (x)
together with all other breaches, are reasonably expected to be
less than $1,000,000 in the aggregate and (y) can be cured by the
payment of money, the Buyer shall afford the Seller the right,
exercisable at any time within two business days after the Buyer
gives the Seller written notice of the Buyer's intent to exercise
its termination right under '7(a)(ii), to cure such breach by the
reduction in the Purchase Price by an amount equal to the Adverse
Consequences to the Buyer.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to '7(a) above, all rights and obligations of
the Parties hereunder shall terminate without any Liability of
any Party, except for any Liability of any Party then in breach
or as provided in '7(c) below.
(c) Specific Performance. Notwithstanding anything in this
Agreement to the contrary, if, on the Closing Date, the Buyer (i)
has complied with all of the conditions to Closing contained in
'6(b), (ii) has notified the Seller of its intention to
consummate the transactions contemplated under this Agreement,
and (iii) is ready and able to pay the Purchase Price and
furnishes evidence to that effect to the Seller, and if the
Closing does not then occur due to the refusal of the Seller to
so consummate the transactions contemplated under this Agreement,
the Buyer will be entitled to specifically enforce the terms of
this Agreement in a court of competent jurisdiction, it being
acknowledged that monetary damages due the Buyer in such case
cannot be adequately determined at law.
Section 8. Survival and Indemnification.
(a) Survival of Representations and Warranties. All of the
representations, warranties, covenants, and agreements contained
in this Agreement and in any certificate, schedule, document, or
other writing delivered pursuant hereto have been relied upon and
shall survive the Closing, provided, that any representation and
warranty contained in this Agreement or in any certificate,
schedule, document or other writing delivered pursuant hereto
(other than the representations and warranties contained in '3(k)
which shall survive for 90 days after the applicable statue of
limitations period provided for in the Code) shall be fully
effective and enforceable only for a period from the Closing Date
through and until the second anniversary of the Closing Date and
shall thereafter be of no further force or effect.
Notwithstanding the limitations set forth in the preceding
sentence, claims for indemnification timely made pursuant to this
'8 shall survive until resolved or judicially determined.
(b) Indemnification Provisions for the Benefit of the
Buyer.
(i) In the event of a misrepresentation or breach (or
in the event any third party alleges facts that, if true,
would mean a misrepresentation or breach) of any of the
Seller's or any Principal Stockholder's representations,
warranties, and covenants contained in this Agreement, and,
provided the Buyer makes a written claim for indemnification
against the Seller and/or such Principal Stockholders
pursuant to '10(f) below within the survival period set
forth in '8(a) above, then each of the Seller and the
Principal Stockholders, jointly and severally, agrees to
indemnify the Buyer from and against any Adverse
Consequences the Buyer may suffer through and after the date
of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the
misrepresentation or breach (or the alleged
misrepresentation or breach).
(ii) In addition, each of the Seller and the Principal
Stockholders, jointly and severally, 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 the Seller
which is not an Assumed Liability (including any Liability
of the Seller that becomes a Liability of the Buyer under
any bulk transfer law of any jurisdiction, under any common
law doctrine of de facto merger or successor liability, or
otherwise by operation of law).
(c) Indemnification Provisions for the Benefit of the
Seller.
(i) In the event of a misrepresentation or breach (or
in the event any third party alleges facts that, if true,
would mean a misrepresentation or breach) of any of the
Buyer's representations, warranties, and covenants contained
in this Agreement, and, provided the Seller makes written
claim for indemnification against the Buyer pursuant to
'10(f) below within the survival period set forth in '8(a)
above, then the Buyer agrees to indemnify the Seller from
and against any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification
(including any Adverse Consequences the Seller may suffer
after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) The Buyer agrees to indemnify the Seller from and
against any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature
of, or caused by any Assumed Liability.
(iii) The Buyer agrees to indemnify the Seller from
and against any liability under the Workers Adjustment and
Retraining Notification Act of 1988, as amended, resulting
from any act or omission of the Buyer.
(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 '8, then the Indemnified Party shall
promptly notify the Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim
with counsel of its choice satisfactory to the Indemnified
Party so long as (A) the Indemnifying Party notifies the
Indemnified Party in writing within ten business days after
the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the
Indemnified Party, to the extent provided in this Agreement,
from and against any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim,
(B) if the Seller is the Indemnifying Party, then the
Aggregate Indemnification Amount is sufficient in the
Buyer's good faith determination to defend against the Third
Party Claim and fulfill the Seller's indemnification
obligations hereunder, and (C) the Indemnifying Party
conducts the defense of the Third Party Claim actively and
diligently as is reasonably appropriate under the
circumstances.
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with
'8(d)(ii) above, (A) the Indemnified Party may retain
separate co-counsel at its sole cost and expense and
participate in (but not control without the Indemnifying
Party's consent) the defense of the Third Party Claim, (B)
the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and
(C) 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).
(iv) In the event that all of the conditions in
'8(d)(ii) above are satisfied except subclause (B) thereof,
then the Indemnified Party and the Indemnifying Party shall
jointly have the right to defend against the Third Party
Claim with counsel chosen jointly by them; provided,
however, that if (x) either the Indemnified Party or the
Indemnifying Party reasonably objects to the control by one
counsel of the defense of the Third Party Claim on the
grounds that such counsel cannot represent both the
Indemnified Party and the Indemnifying Party because such
representation would be reasonably likely to result in a
conflict of interest or because there may be defenses
available to one party which are not available to the other
party or (y) such counsel does not feel that it can
represent both the Indemnified Party and the Indemnifying
Party in such claim, due to a conflict of interest or
otherwise, then each of the Indemnified Party and the
Indemnifying Party shall have the right to select counsel,
neither of which shall alone have the right to control such
Third Party claim but which together shall have joint
control. Each of the Indemnified Party and the Indemnifying
Party hereby agrees to cooperate with the other and, if
applicable, with counsel for the other in connection with
any such Third Party Claim. So long as the Indemnified
Party and Indemnifying Party are jointly controlling a Third
Party Claim (A) the Indemnified 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 Indemnifying Party, and (B) 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.
(v) In the event any of the conditions in '8(d)(ii)(A)
or (C) above is or becomes unsatisfied, however, (A) the
Indemnified Party may thereafter defend against, and consent
to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party
need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (B) the
Indemnifying Party will reimburse the Indemnified Party
promptly and periodically for the costs of defending against
the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this '8.
(e) Indemnity Limitations for the Seller and the Principal
Stockholders. The Buyer shall not have any right to
indemnification hereunder or otherwise with respect to
misrepresentations hereunder, unless and until the Buyer shall
have incurred on a cumulative basis, aggregate Adverse
Consequences for which the Buyer is otherwise entitled to
indemnification under '8(b)(i) in an amount exceeding $100,000,
in which event the right to be so indemnified shall apply only to
the extent that such Adverse Consequences exceed $100,000. The
sum of all Adverse Consequences pursuant to which indemnification
is payable by the Seller and/or the Principal Stockholders under
'8(b)(i) shall not exceed $3,950,000 in the aggregate (the
"Aggregate Indemnification Amount").
(f) Adjustment to Purchase Price. All indemnification
payments, whether made through reductions in the Escrow Amount or
otherwise, shall be deemed adjustments to the Purchase Price.
(g) Recourse Limited. The foregoing indemnification
provisions under this '8 are the exclusive remedy available to
the Parties for money damages for any Adverse Consequences
attributable to any facts or circumstances that constitute or are
alleged to constitute a misrepresentation or breach of any of the
Parties' representations, warranties or covenants contained in
this Agreement or in any certificate, schedule, document, or
other writing delivered pursuant hereto; provided, however, that
recourse shall not be limited if and to the extent that a Party
is held to have engaged in conduct constituting fraud under the
common law of the State of Illinois.
Section 9. Other Agreements and Covenants.
(a) Seller's Use of Proceeds. Promptly after the Closing
the Seller shall satisfy or make provision for all of its known
obligations and Liabilities not included within the Assumed
Liabilities before paying any dividend or making any distribution
with respect to its capital stock, or redeeming, purchasing, or
otherwise acquiring any of its capital stock.
(b) Consent Regarding Redevelopment Agreements. Promptly
following the Closing Date, the Seller and the Principal
Stockholders shall use their best efforts to obtain the approval
of the Village of South Holland and any other appropriate
governmental authorities for the transfer to the Buyer of all
rights and benefits of the Seller under those certain South
Holland Tax Increment Financing Redevelopment Agreements dated
December 20, 1993 and September 16, 1996 between the Village of
South Holland and the Seller. The Buyer shall cooperate with the
Seller and the Principal Stockholders in obtaining such approval
and the Seller shall keep the Buyer informed as to the status of
such approval, including the status of all deliberations and
meetings in connection therewith.
(c) Records and Documents. Following the Closing Date, the
Buyer shall grant to the Seller, at the Seller's request (and
subject to the Seller's reimbursement of the Buyer's reasonable
out-of-pocket expenses), access to and the right to make or
obtain copies of those records and documents related to the
Acquired Assets, possession of which is transferred to the Buyer,
as may be reasonably necessary for the Seller's tax or financial
reporting obligations or other investigation required by law or,
for the Seller's dealing with, handling or discharging of any
debt, obligation or liability which is an Excluded Liability. If
the Buyer elects to dispose of such records, the Buyer shall
first give the Seller 60 days written notice, during which period
the Seller shall have the right to obtain the records without
further consideration.
Section 10. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the
documents referred to herein) constitutes the entire agreement
among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject
matter hereof including, but not limited to, the Letter of Intent
and the Secrecy Agreement.
(c) Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein
and their respective successors and permitted assigns. No Party
may assign either this Agreement or any of its rights, interests,
or obligations hereunder without the prior written approval of
the other Party; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more
of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of
which cases the Buyer nonetheless shall remain responsible for
the performance of all of its obligations hereunder); and
provided, further, that the Seller may (i) assign any or all of
its rights and interests hereunder to its Stockholders in
connection with the liquidation and dissolution of the Seller and
(ii) designate one or more of the Principal Stockholders to
perform the Seller's obligations (other than the Seller's
indemnification obligations) hereunder; and provided, further,
that the rights and interests of any Stockholder hereunder shall
inure to the benefit of and be binding upon such Stockholder and
his, her or its heirs or legal representatives.
(d) 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.
(e) 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.
(f) 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 upon receipt if it is sent by facsimile or
reputable express courier, and addressed or otherwise sent to the
intended recipient as set forth below:
If to the Seller or Principal Stockholders:
Accurate Coatings & Dispersions, Inc.
192 West 155th Street
South Holland, IL 60473-1205
Attention: James L. Valukas
Facsimile: (708) 333-0476
Copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Bruce G. Wilson
Facsimile: (312) 840-7731
If to the Buyer:
McWhorter Technologies, Inc.
400 East Cottage Place
Carpentersville, Illinois 60110
Attention: John R. Stevenson
Facsimile: (847) 428-9440
Copy to:
McDermott, Will & Emery
227 West Monroe Street, Suite 5500
Chicago, Illinois 60606
Attention: Timothy R.M. Bryant
Facsimile: (312) 984-3669
email: [email protected]
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address
or facsimile number set forth above using any other means
(including personal delivery, messenger service, 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 or facsimile number
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.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of
Illinois without giving effect to any choice or conflict of law
provision or rule (either of the State of Illinois or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Illinois.
(h) Amendments and Waivers. No amendment of any provision
of this Agreement shall be valid unless the same shall be in
writing and signed by each of the Parties hereto. The Seller may
consent to any such amendment at any time prior to the Closing
with the prior authorization of its board of directors. No
waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(i) 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.
(j) Expenses and Related Transaction Costs.
Notwithstanding anything to the contrary contained herein, each
of the Buyer, the Seller and the Principal Stockholders will bear
its or their own costs and expenses (including any broker's or
finder's fees and the expenses of its or their Representatives)
incurred at any time in connection with this Agreement and the
transactions contemplated hereby; provided, however, that (i) the
Seller shall bear no more than $50,000 of the costs and expenses
(including the expenses of Representatives) incurred in
connection with this Agreement and the consummation of the
transactions contemplated hereby (and the Principal Stockholders
shall bear all costs and expenses in excess of such $50,000),
(ii) the Buyer shall pay one-half and the Principal Stockholders
shall pay one-half of the Hart-Scott-Rodino Act filing fee, and
(iii) the Principal Stockholders shall bear no more than $30,000
of the costs and expenses for (x) the title insurance and surveys
required under '5(i) hereof and (y) any transfer, sales, use, and
other Taxes (other than income Taxes) and any assessments,
charges, or other expenses relating to the Property, in each case
in clause (y) arising in connection with the consummation of the
transactions contemplated hereby (and the Seller shall bear all
costs and expenses in excess of such $30,000).
(k) Construction. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean
including without limitation. Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure
Schedule identifies the exception with reasonable particularity
and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or
inclusion of a copy of a document or other item) shall not be
deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has
to do with the existence of the document or other item itself).
The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance.
If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract
from or mitigate the fact that the Party is in breach of the
first representation, warranty, or covenant.
(l) Incorporation of Exhibits and Schedules. The Exhibits
and Schedules (including the Disclosure Schedule) identified in
this Agreement are incorporated herein by reference and made a
part hereof.
(m) 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 as of the date first above written.
McWHORTER TECHNOLOGIES, INC. ACCURATE COATINGS &
DISPERSIONS, INC.
By: By:
Name: Name:
Title: Title:
PRINCIPAL STOCKHOLDERS
James L. Valukas
Anton R. Valukas
Robert A. Lopp
Steve S. Hoglund
Phillip J. Luciani
Linda Valukas Blum
Linda Blum Lopp, as Custodian
for Jason Blum under the
Illinois Uniform Gifts to
Minors Act
Marcel J. Fournier, as Trustee
under the Declaration of Trust
dated 12/18/80, as amended
6/1/90
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This restated financial data schedule contains summary financial information
extracted from the financial statements of McWhorter Technologies, Inc. for the
quarter ended April 30, 1997, as set forth in its Form 10-Q for such quarter and
is qualified in its entirety by reference to such financial statements.
Restatement reflected herein is the result of adoption of a new Accounting
Policy SFAS No. 128, "Earnings Per Share."
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 1,461
<SECURITIES> 0
<RECEIVABLES> 46,479
<ALLOWANCES> 0
<INVENTORY> 23,242
<CURRENT-ASSETS> 77,089
<PP&E> 111,495
<DEPRECIATION> 38,247
<TOTAL-ASSETS> 159,744
<CURRENT-LIABILITIES> 43,536
<BONDS> 19,123
0
0
<COMMON> 110
<OTHER-SE> 83,220
<TOTAL-LIABILITY-AND-EQUITY> 159,744
<SALES> 152,416
<TOTAL-REVENUES> 152,416
<CGS> 128,831
<TOTAL-COSTS> 128,831
<OTHER-EXPENSES> 13,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 661
<INCOME-PRETAX> 9,879
<INCOME-TAX> 3,489
<INCOME-CONTINUING> 6,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,390
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
