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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 14, 1996
POLYMER GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-14330 57-1003983
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4838 Jenkins Ave., North Charleston, SC 29405
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 566-7293
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This Instrument contains 5 pages.
The Exhibit Index is located on page 5.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 14, 1996, PGI Polymer, Inc. ("PGI Polymer"), a Delaware
corporation and the wholly owned subsidiary of Polymer Group, Inc.,
completed its acquisition of the business of FNA Polymer Corp.
(formerly known as Fitesa North America Corporation), a North Carolina
corporation, pursuant to the terms of the Stock Purchase Agreement,
dated as of July 15, 1996 among Petropar S.A., a corporation
incorporated under the laws of the Federative Republic of Brazil (the
"Parent"), Alicorno Comercio e Servicos Lda., a corporation
incorporated under the laws of Madeira (the "Seller"), and PGI Polymer
(the "Stock Purchase Agreement"). The following discussion is only a
summary and is qualified in its entirety by reference to the Exhibits
to this Current Report on Form 8-K.
Pursuant to the Stock Purchase Agreement, PGI Polymer acquired all of
the issued and outstanding capital stock of PNA Corp. (formerly known
as Petropar North America Corp.), a North Carolina corporation, which
in turn owns all of the issued and outstanding capital stock of FNA
Polymer Corp. The Seller received a cash payment of $48 million,
subject to a working capital adjustment. The amount of consideration
was determined as a result of negotiations among the Parent, the
Seller and PGI Polymer. Prior to the acquisition, there was no
relationship among Seller and the registrant or any of its affiliates,
any director or officer of the registrant, or any associate of any
such director or officer. The source of the consideration was
borrowings under the registrant's existing credit facility.
FNA Polymer Corp. has in the past, and is expected to continue to
produce polypropylene fabrics for the nonwovens industry utilizing
spunbond and spunbond/meltblown/spunbond technologies. It competes
primarily in three markets: hygienic products, including adult
incontinence products and feminine hygiene products; disposable
products, including landscape and agricultural applications; and
durable products, including products for home furnishings.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
To be filed by amendment. Pursuant to Item 7(a)(4) of Form 8-K,
the registrant hereby indicates that the filing of the financial
statements required in response to this item within 15 calendar
days of the acquisition is impracticable, and undertakes to file
such information on an amendment to this Form 8-K no later than 60
days after August 29, 1996.
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(b) Pro forma financial information.
To be filed by amendment. Pursuant to Item 7(b)(2) of Form 8-K,
the registrant hereby indicates that the filing of the financial
statements required in response to this item within 15 calendar
days of the acquisition is impracticable, and undertakes to file
such information on an amendment to this Form 8-K no later than 60
days after August 29, 1996.
(c) Exhibits
4.1 Fourth Supplemental Indenture, dated as of August 14, 1996,
among Polymer Group, Inc., Harris Trust and Savings Bank, as
Trustee, Petropar North America Corp., as Guarantor and
Fitesa North America Corporation, as Guarantor.
10.1 Stock Purchase Agreement, dated as of July 15, 1996, among
Petropar S.A., Alicorno Comercio e Servicos Lda., and PGI
Polymer, Inc.
2
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SIGNATURE
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 hereunto duly authorized.
POLYMER GROUP, INC.
Dated: August 28, 1996 By: /s/ Jerry Zucker
----------------------------------
Jerry Zucker
Chairman, President and
Chief Executive Officer
By: /s/ James G. Boyd
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James G. Boyd
Executive Vice President, Treasurer
and Secretary
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EXHIBIT INDEX
Exhibit No. Description Page No.
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4.1 Fourth Supplemental Indenture, dated as of
August 14, 1996, among Polymer Group, Inc.,
Harris Trust and Savings Bank, as Trustee,
Petropar North America Corp., as Guarantor and
Fitesa North America Corporation, as Guarantor.
10.1 Stock Purchase Agreement, dated as of July 15,
1996, between Petropar S.A., Alicorno Comercio e
Servicos Lda. and PGI Polymer, Inc.
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Exhibit 4.1
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated as of
August 14, 1996, between Polymer Group, Inc., a Delaware corporation (the
"Company"), Harris Trust and Savings Bank, an Illinois banking corporation, as
Trustee (the "Trustee"), Petropar North America Corp., a North Carolina
corporation, as Guarantor ("Petropar N.A.") and Fitesa North America
Corporation, a North Carolina corporation, as Guarantor ("Fitesa").
W I T N E S S E T H :
WHEREAS, the Company, the Trustee and the Guarantors (as defined therein)
are parties to that certain Indenture, dated as of June 24, 1994, as
supplemented by the First Supplemental Indenture, dated as of March 15, 1995,
the Second Supplemental Indenture, dated as of September 14, 1995 and the Third
Supplemental Indenture, dated as of April 9, 1996 (as so amended, the
"Indenture"), relating to the 12 1/4% Senior Notes due 2002 of the Company;
WHEREAS, pursuant to the Stock Purchase Agreement, dated as of July 15,
1996, PGI Polymer, Inc., a wholly owned subsidiary of the Company, agreed to
acquire the capital stock of Petropar N.A.;
WHEREAS, Fitesa is the wholly owned subsidiary of Petropar N.A.;
WHEREAS, the Company, the Trustee, Petropar N.A. and Fitesa desire,
pursuant to Section 901 of the Indenture, to execute this Supplemental Indenture
to add Fitesa and Petropar N.A. as Guarantors pursuant to Article 13 of the
Indenture in order to comply with Section 1017 of the Indenture; and
WHEREAS, the Company, Petropar N.A. and Fitesa have duly authorized the
execution and delivery of this Supplemental Indenture in order for Petropar N.A.
and Fitesa to assume all the obligations of a Guarantor under the Securities and
the Indenture.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree for the equal and proportionate benefit
of all Holders of the Securities as follows:
SECTION 1. All capitalized terms used herein without definition herein
shall have the meanings ascribed thereto in the Indenture.
SECTION 2. Each of Petropar N.A. and Fitesa hereby assumes all of the
obligations of a Guarantor under the Securities and the Indenture; and each of
Petropar N.A. and Fitesa may exercise every right and power of a Guarantor under
the Indenture with the same effect as if it had been named as a Guarantor
therein.
SECTION 3. This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the state of New York applicable to contracts to
be performed entirely in that State.
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SECTION 4. This Supplemental Indenture may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 5. In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 6. Except as expressly supplemented hereby, each provision of the
Indenture shall remain in full force and effect and, as supplemented hereby, the
Indenture is in all respects agreed to, ratified and confirmed by each of the
Company and the Trustee.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
POLYMER GROUP, INC.
By: /s/ Jerry Zucker
---------------------------------
Title: President & CEO
Attest: /s/ M. Jerry Garfinkle
----------------------------
Title: Asst. Secretary
PETROPAR NORTH AMERICA CORP.,
as Guarantor
By: /s/ Jerry Zucker
---------------------------------
Title: President & CEO
Attest: /s/ M. Jerry Garfinkle
----------------------------
Title: Asst. Secretary
FITESA NORTH AMERICA
CORPORATION, as Guarantor
By: /s/ Jerry Zucker
---------------------------------
Title: President & CEO
Attest: /s/ M. Jerry Garfinkle
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Title: Asst. Secretary
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: /s/ C. Potter
---------------------------------
Title: A.V.P.
Attest: /s/ A. Kala
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Title: Asst. Secretary
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Exhibit 10.1
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STOCK PURCHASE AGREEMENT
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dated July 15, 1996
among
PETROPAR S.A.,
ALICORNO COMERCIO E SERVICOS, LDA.
and
PGI POLYMER, INC.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms................................................ 1
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale.................................................... 5
2.02. Purchase Price....................................................... 5
2.03. Closing.............................................................. 5
2.04. Purchase Price Adjustment............................................ 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
3.01. Incorporation and Authority of Parent and Seller..................... 8
3.02. Ownership of the Shares.............................................. 8
3.03. Incorporation and Qualification of Petropar N.A. and Fitesa.......... 9
3.04. Articles of Incorporation and By-Laws................................ 9
3.05. No Conflict.......................................................... 9
3.06. Consents and Approvals............................................... 10
3.07. Financial Statements; Absence of Undisclosed Liabilities............. 10
3.08. Absence of Certain Changes or Events................................. 11
3.09. Litigation........................................................... 11
3.10. Compliance with Applicable Laws...................................... 11
3.11. Environmental Matters................................................ 12
3.12. Title to Properties.................................................. 14
3.13. Trademarks, Etc...................................................... 14
3.14. Insurance............................................................ 15
3.15. Employee Benefit Matters............................................. 15
3.16. Labor Matters........................................................ 17
3.17. Transactions with Affiliates......................................... 17
3.18. Taxes................................................................ 18
3.19. Material Contracts................................................... 18
3.20. Accounts Receivable.................................................. 19
3.21. Inventories.......................................................... 19
3.22. Petropar N.A......................................................... 19
3.23. Brokers.............................................................. 19
3.24. Subsidiaries......................................................... 20
3.25. Product Warranty..................................................... 20
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.01. Incorporation and Authority of Purchaser............................. 20
4.02. No Conflict.......................................................... 20
4.03. Consents and Approvals............................................... 21
4.04. Absence of Litigation................................................ 21
4.05. Investment Purpose................................................... 21
4.06. Financing............................................................ 21
4.07. Brokers.............................................................. 21
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Conduct of Business Prior to the Closing............................. 22
5.02. Access to Information................................................ 23
5.03. Books and Records.................................................... 23
5.04. Governmental Approvals and Consents.................................. 24
5.05. Confidentiality...................................................... 24
5.06. Use of the "Fitesa" or "Petropar" Names.............................. 25
5.07. Investigation........................................................ 25
5.08. Further Action....................................................... 26
ARTICLE VI
EMPLOYEE MATTERS
6.01. Employees............................................................ 26
6.02. WARN Act............................................................. 27
6.03. Survival............................................................. 27
ARTICLE VII
TAX MATTERS
7.01. Tax Indemnities...................................................... 27
7.02. Refunds and Tax Benefits............................................. 28
7.03. Contests............................................................. 29
7.04. Preparation of Tax Returns........................................... 30
7.05. Cooperation and Exchange of Information.............................. 31
7.06. Conveyance Taxes..................................................... 31
7.07. Miscellaneous........................................................ 32
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ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to Obligations of All Parties............................. 32
8.02. Conditions to Obligations of Parent and Seller....................... 32
8.03. Conditions to Obligations of Purchaser............................... 33
ARTICLE IX
INDEMNIFICATION
9.01. Survival............................................................. 34
9.02. Indemnification by Purchaser......................................... 34
9.03. Indemnification by Parent............................................ 35
9.04. Indemnification Procedures, Etc...................................... 37
9.05. Conduct of Certain Litigation........................................ 38
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.01. Termination.......................................................... 39
10.02. Effect of Termination................................................ 39
10.03. Waiver............................................................... 39
ARTICLE XI
GENERAL PROVISIONS
11.01. Expenses............................................................. 40
11.02. Notices.............................................................. 40
11.03. Public Announcements................................................. 41
11.04. Headings............................................................. 41
11.05. Severability......................................................... 41
11.06. Entire Agreement..................................................... 42
11.07. Assignment........................................................... 42
11.08. No Third-Party Beneficiaries......................................... 42
11.09. Amendment............................................................ 42
11.10. Governing Law........................................................ 42
11.11. Counterparts......................................................... 43
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STOCK PURCHASE AGREEMENT, dated July 15, 1996 (this "Agreement"), among
PETROPAR S.A., a corporation incorporated under the laws of the Federative
Republic of Brazil ("Parent"), ALICORNO COMERCIO E SERVICOS, LDA., a corporation
incorporated under the laws of Madeira and a wholly owned subsidiary of Parent
("Seller"), and PGI POLYMER, INC., a Delaware corporation ("Purchaser").
WHEREAS, Seller owns all the issued and outstanding shares of common stock,
no par value (the "Shares"), of Petropar North America Corp., a North Carolina
Corporation ("Petropar N.A."), which, in turn, owns all the issued and
outstanding shares of common stock, no par value, of Fitesa North America
Corporation, a North Carolina corporation ("Fitesa"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser wishes to
purchase from Seller, the Shares, upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, Parent, Purchaser and Seller
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. (a) As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" of a specified Person means a Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with, such specified Person.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by law to be closed in the City of New
York or Porto Alegre, Brazil or Funchal, Madeira.
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as a trustee or executor
(in each case, acting in a fiduciary capacity), of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ownership of voting securities, as trustee or executor (in each case, acting in
a fiduciary capacity), by contract or credit arrangement or otherwise.
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2
"Current Assets" means, at any time, the accounts receivable, prepaid
deposits, raw materials, work-in-progress, finished goods and inventory
allowance of Fitesa calculated in accordance with GAAP, excluding accounts
receivable from affiliated parties.
"Current Liabilities" means, at any time, the accounts payable and accrued
expenses of Fitesa calculated in accordance with GAAP, excluding accounts
payable to affiliated parties.
"Disclosure Schedule" means the Disclosure Schedule dated as of the date
hereof delivered to Purchaser by Seller.
"Encumbrance" means a pledge, lien, security interest, mortgage, charge,
adverse claim of ownership or use, or other encumbrance of any kind.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles in
effect from time to time applied consistently throughout the period involved.
"GECC Credit Agreement" means the Credit Agreement dated September 25,
1995, between General Electric Capital Corporation and Fitesa.
"Governmental Authority" means any government, any governmental entity,
department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial or arbitral body, whether federal, state, local or
foreign.
"Governmental Order" means any order, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder.
"Intellectual Property Rights" means all (a) patent and patent
applications, (b) trademarks, service marks, logos, trade dress, trade names and
corporate names and registrations and applications for registration thereof, (c)
copyrights, whether registered or unregistered, and registrations and
applications for registration thereof and (d) trade secrets, formulas,
inventions, invention disclosures, know-how, manufacturing and production
processes and techniques, business and marketing plans, customer and supplier
lists, computer software and other proprietary business and intellectual
property rights that are employed in the conduct of the business of Fitesa as it
is now being conducted.
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3
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"knowledge of Parent" or "Parent's knowledge" means the actual knowledge of
the executive officers of Parent, including without limitation Wilson Ling and
William Ling, and, when such knowledge relates to Fitesa, after due inquiry of
the executive officers of Fitesa.
"Losses" of a Person means any and all claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing)
actually suffered or incurred by such Person.
"Material Adverse Effect" means, with respect to any Person, any change in,
or effect on, the business of such Person that is materially adverse to the
business, operations, results of operations or the financial condition thereof.
"Morgan Guaranty Credit Agreement" means the Credit Agreement dated
December 31, 1993, between Morgan Guaranty Trust Company of New York and Fitesa.
"Person" means an individual, corporation, partnership, joint venture,
person (including, without limitation, a "person" as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended), trust, association or
another entity.
"Reference Working Capital" means $2,867,100, which is the average of the
Working Capital of Fitesa at the end of each of the months December 1995 through
May 1996.
"Selling Parties" means Parent, Seller, Petropar N.A. and Fitesa.
"Tax" or "Taxes" means all income, gross receipts, sales, use, employment,
franchise, profits, property, transfer or other taxes, fees, stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority with respect thereto.
"Working Capital" means, at any time, the excess of Current Assets over
Current Liabilities.
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4
(b) Each of the following terms is defined in the section set forth
opposite such terms below:
<TABLE>
<CAPTION>
Term Section
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<S> <C>
Agreement Recitals
Authorized Agent 11.10
Accounting Procedures 2.04(b)
CERCLA 3.11(g)
Closing 2.03(a)
Closing Date 2.03(a)
Closing Date Working Capital 2.04(b)
Closing Date Working Capital Statement 2.04(b)
Confidentiality Agreement 5.05
Contest 7.03(b)
Continuation Period 6.01(a)
Designated Amount 2.04(c)(i)
Environmental Laws 3.11(g)
Environmental Permits 3.11(g)
Financial Statements 3.07
Fitesa Recitals
Goldman Sachs 3.23
Hazardous Materials 3.11(g)
Indemnified Party 9.04
Indemnifying Party 9.04
Independent Accounting Firm 2.04(d)(ii)
Interim Summary Reports 3.07(b)
IRS 3.15(a)
Material Contracts 3.19(a)
Parent Recitals
Parent's Accountants 2.04(b)
Petropar Recitals
Plans 3.16(a)
Post-Closing Date Tax Benefit 7.02(b)
Purchaser Recitals
Purchase Price 2.02
Purchaser's Accountants 2.04(b)
RCRA 3.11(g)
Retained Names and Marks 5.06(a)
Securities Act 4.05
Seller Recitals
Shares Recitals
Starnes Litigation 9.03(a)
Transferred Employees 6.01(a)
</TABLE>
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5
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase from Seller, on the Closing Date, the Shares.
SECTION 2.02. Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Shares shall be $48,000,000 in cash subject to
adjustment in accordance with Section 2.04. The Purchase Price shall be payable
as provided in Section 2.03(c).
SECTION 2.03. Closing. (a) Subject to the terms and conditions of
this Agreement, the sale and purchase of the Shares contemplated hereby shall
take place at a closing (the "Closing") to be held at 10:00 a.m., New York City
time, on the third Business Day following the later to occur of (i) the
expiration or termination of the applicable waiting periods under the HSR Act
and (ii) the satisfaction or waiver of all other conditions to the obligations
of the parties set forth in Article VIII. The Closing will occur at the offices
of Shearman & Sterling, 599 Lexington Avenue, New York, New York, or at such
other time or on such other date or at such other place as Parent and Purchaser
may mutually agree upon in writing (the day on which the Closing takes place
being the "Closing Date").
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser stock certificates evidencing the Shares duly endorsed in blank or
accompanied by stock powers duly executed in blank, in proper form for transfer.
(c) At the Closing, Purchaser shall deliver to Seller the Purchase
Price, by wire transfer in immediately available funds, to an account or
accounts designated at least two Business Days prior to the Closing Date by
Seller in a written notice to Purchaser.
SECTION 2.04. Purchase Price Adjustment. (a) The Purchase Price
shall be subject to adjustment after the Closing Date as specified in this
Section 2.04.
(b) As soon as practicable (but in no event later than 60 calendar
days following the Closing Date), Purchaser shall prepare and deliver to Parent
a statement (the "Closing Date Working Capital Statement") setting forth the
Working Capital of Fitesa as of the Closing Date (the "Closing Date Working
Capital"), which will be determined in accordance with the procedures set forth
in Sections 2.04(a) and (b) of the Disclosure Schedule (the "Accounting
Procedures"). The Closing Date Working Capital Statement shall be prepared
based on Fitesa's books and records as of the Closing Date and shall be verified
by review by, and shall be accompanied by the statement thereon of, Ernst &
Young L.L.P.,
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6
accountants of Purchaser ("Purchaser's Accountants"), stating that the Closing
Date Working Capital has been determined in accordance with the Accounting
Procedures. Parent and Purchaser agree that the physical inventory of Fitesa's
raw materials, work-in progress and finished goods shall be conducted on the
Closing Date in accordance with the procedures set forth in Section 2.04(a) of
the Disclosure Schedule. During the preparation of the Closing Date Working
Capital Statement by Purchaser and the period of any dispute provided for in
Section 2.04(d), Purchaser shall provide Parent and Coopers & Lybrand L.L.P.
("Parent's Accountants") access to the books, records, facilities and employees
of Fitesa, and, if agreed by Purchaser's Accountants, the work papers of
Purchaser's Accountants, and Purchaser shall cooperate fully with Parent's
Accountants, in each case to the extent required by Parent and Parent's
Accountants in order to review the Closing Date Working Capital Statement and to
investigate the basis for any such dispute.
(c) Subject to the limitations set forth in Section 2.04(d), if
Purchaser has not received a notice of dispute from Parent in accordance with
Section 2.04(d) within 35 Business Days after the date of receipt by Parent of
the Closing Date Working Capital Statement:
(i) If the amount of the Closing Date Working Capital shown on
the Closing Date Working Capital Statement is less than the amount of the
Reference Working Capital by at least $50,000 (the "Designated Amount"),
Seller shall pay to Purchaser, as an adjustment to the Purchase Price, an
amount equal to such difference less the Designated Amount; and
(ii) If the amount of the Closing Date Working Capital shown on
the Closing Date Working Capital Statement is greater than the amount of
the Reference Working Capital by at least the Designated Amount, Purchaser
shall pay to Seller, as an adjustment to the Purchase Price, an amount
equal to such excess over the Designated Amount.
All payments to be made under this subsection (c) shall be made by wire transfer
of immediately available funds to an account designated by the receiving party.
(d) (i) If not disputed by Parent in accordance with this Section
2.04(d), the Closing Date Working Capital Statement delivered by Purchaser to
Parent shall be final, binding and conclusive on the parties hereto. Parent may
dispute any amounts reflected on the Closing Date Working Capital Statement to
the extent that the net effect of such disputed amounts in the aggregate would
be to change the Closing Date Working Capital by more than the Designated
Amount; provided, however, that Parent shall notify Purchaser and Purchaser's
Accountants in writing of each disputed item, specifying the amount thereof in
dispute and setting forth, in detail, the basis for such dispute, within 30
Business Days of Parent's receipt of the Closing Date Working Capital Statement.
In the
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7
event of such a dispute, each of Parent and Purchaser shall negotiate in good
faith to reconcile their differences.
(ii) If Purchaser and Parent are unable to reach a resolution,
leaving in dispute amounts the net effect of which in the aggregate would change
the Closing Date Working Capital by at least the Designated Amount, Purchaser
and Parent shall submit the items remaining in dispute that Parent shall be
entitled to dispute by the terms of this Section 2.04(d) for resolution to the
Charlotte, North Carolina office of Arthur Andersen L.L.P. or such other
independent accounting firm as may be mutually acceptable to Parent and
Purchaser (the "Independent Accounting Firm"), which shall, within 30 Business
Days of such submission, determine and report to Parent, Seller and Purchaser
upon such remaining disputed items, and such report shall have the legal effect
of an arbitral award and shall be final, binding and conclusive on Parent,
Seller and Purchaser. The fees and disbursements of the Independent Accounting
Firm shall be allocated between Parent and Purchaser in the same proportion that
the aggregate amount of such remaining disputed items so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such party
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such remaining disputed items so submitted.
(iii) No adjustment to any amount payable by Seller or Purchaser
pursuant to Section 2.04(c) shall be made with respect to amounts disputed by
Parent pursuant to this Section 2.04(d), unless the net effect of the amounts
successfully disputed by Parent in the aggregate is to change the Closing Date
Working Capital by at least the Designated Amount, in which case such adjustment
shall only be made in an amount equal to any excess over the Designated Amount.
(iv) Any amount that is payable under Section 2.04(c), including,
without limitation, any portion thereof that is subject to dispute under this
Section 2.04(d) shall be paid by Seller or Purchaser, as the case may be, by
wire transfer in immediately available funds, within five Business Days
following the resolution of such dispute and in an amount in accordance with
such resolution.
(e) In acting under this Agreement, Parent's Accountants,
Purchaser's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(f) Any payment required to be made by Seller or Purchaser
pursuant to Section 2.04(c) shall bear interest from the Closing Date through
the date of payment on the basis of the average of the daily rate of interest
publicly announced by Citibank N.A. in New York, New York from time to time as
its base rate from the Closing Date to the date of such payment.
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8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Purchaser as follows:
SECTION 3.01. Incorporation and Authority of Parent and Seller.
Parent is a corporation duly incorporated and validly existing under the laws of
the Federative Republic of Brazil. Seller is a corporation duly incorporated and
validly existing under the laws of Madeira. Each of Parent and Seller is duly
qualified as a foreign corporation to do business in each jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failures to be so
qualified that would not have a Material Adverse Effect on Parent or Seller.
Each of Parent and Seller has all necessary corporate power and authority to
enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by each of Parent and Seller, the performance by each of them of
its obligations hereunder and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Parent and Seller, respectively. This Agreement
has been duly executed and delivered by each of Parent and Seller, and (assuming
due authorization, execution and delivery by Purchaser) this Agreement
constitutes a legal, valid and binding obligation of each of Parent and Seller
enforceable against it in accordance with its terms, subject to the effect of
any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.02. Ownership of the Shares. (a) The Shares constitute
all the issued and outstanding capital stock of Petropar N.A. The Shares have
been duly authorized and validly issued and are fully paid and nonassessable and
were not issued in violation of any preemptive rights. Except for Fitesa, all of
whose issued and outstanding capital stock is owned beneficially and of record
by Petropar N.A., Petropar N.A. does not own, directly or indirectly, any equity
or similar interest in any corporation or other legal entity or other interest
convertible or exchangeable into or exercisable for any equity or similar
interest, and Petropar N.A. is not, directly or indirectly, a participant in any
joint venture or other business association with any third party.
(b) There are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Petropar N.A. or Fitesa or obligating either of them to issue
or sell any shares of capital stock thereof, or other equity interests therein.
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9
(c) The entire authorized capital stock of Petropar N.A. consists of
1,000 shares of common stock, par value $1.00 per share, of which 100 shares are
issued and outstanding. All of the issued and outstanding shares of capital
stock of Petropar N.A. are owned of record and beneficially by Seller, free and
clear of any Encumbrance. The entire authorized capital stock of Fitesa
consists of 100,000 shares of common stock, of which 3,050 shares are issued and
outstanding. All of the issued and outstanding shares of capital stock of
Fitesa are owned of record and beneficially by Petropar N.A., free and clear of
any Encumbrance, except as set forth in Section 3.02 of the Disclosure Schedule.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of Petropar N.A. or Fitesa.
SECTION 3.03. Incorporation and Qualification of Petropar N.A. and
Fitesa. Each of Petropar N.A. and Fitesa is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of North
Carolina and has the corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to conduct the
business now conducted by it. Each of Petropar N.A. and Fitesa is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except for such failures to be so qualified or in good standing that would not
have a Material Adverse Effect on Petropar N.A. or Fitesa.
SECTION 3.04. Articles of Incorporation and By-Laws. Parent has
heretofore furnished to Purchaser a complete and correct copy of the Articles of
Incorporation and the By-laws, each as amended to date, of each of Petropar N.A.
and Fitesa. Such Articles of Incorporation and By-laws are in full force and
effect. Neither Petropar N.A. nor Fitesa is in violation of any provision of
its Articles of Incorporation or By-laws.
SECTION 3.05. No Conflict. Assuming all consents, approvals,
authorizations and other actions described in Section 3.06 have been obtained,
and except as may result from any facts or circumstances relating solely to
Purchaser or as described in Section 3.05 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by each of Parent and
Seller do not and will not (a) violate or conflict with the organizational
documents of any of the Selling Parties, (b) conflict with or violate any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to the Selling Parties, except for such conflicts or violations
as would not have a material adverse effect on the ability of Petropar N.A. or
Fitesa to conduct its business as currently conducted or as currently
contemplated to be conducted or have a material adverse effect on the ability of
Parent or Seller to consummate the transactions contemplated by this Agreement
or (c) result in any breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the
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10
creation of any Encumbrance on any of the assets or properties of any of the
Selling Parties pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument relating to
such assets or properties to which any of the Selling Parties is a party or by
which any of such assets or properties is bound or affected, except as would not
have a material adverse effect on the ability of Petropar N.A. or Fitesa to
conduct its business as currently conducted or as currently contemplated to be
conducted or have a material adverse effect on the ability of Parent or Seller
to consummate the transactions contemplated by this Agreement.
SECTION 3.06. Consents and Approvals. The execution and delivery of
this Agreement by Parent and Seller do not, and the performance of this
Agreement by Parent and Seller will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
Governmental Authority, except (a) the notification requirements of the HSR Act,
(b) where failure to obtain such consent, approval, authorization or action, or
to make such filing or notification, would not prevent Parent or Seller from, or
delay Parent or Seller in, performing any of its material obligations under this
Agreement and would not have a material adverse effect on the ability of
Petropar N.A. or Fitesa to conduct its business as currently conducted or as
currently contemplated to be conducted and (c) as may be necessary as a result
of any facts or circumstances relating solely to Purchaser.
SECTION 3.07. Financial Statements; Absence of Undisclosed
Liabilities. (a) Parent has delivered to Purchaser true and correct copies of
the balance sheets of Fitesa as of December 31, 1995, December 31, 1994 and
December 31, 1993 and the related statements of income and cash flow for the
years then ended, which have been audited by Coopers & Lybrand L.L.P. (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with GAAP (except as may be indicated in the notes thereto) and
fairly present in all material respects the financial position of Fitesa as of
the dates thereof and the results of its operations and cash flows for the
periods then ended.
(b) Parent has delivered to Purchaser true and correct copies of the
summary financial reports of Fitesa for the months of January 1996 through May
1996 (the "Interim Summary Reports"). The Interim Summary Reports, which are
unaudited, fairly present in all material respects the financial position of
Fitesa as of the dates thereof and the results of its operations for the periods
then ended, and include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information included
therein.
(c) Except as set forth in Section 3.07 of the Disclosure Schedule,
and except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1995, neither Petropar
N.A. nor Fitesa has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a balance sheet.
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11
SECTION 3.08. Absence of Certain Changes or Events. Except as set
forth in Section 3.08 of the Disclosure Schedule, since June 30, 1995, each of
Petropar N.A. and Fitesa has conducted its business only in the ordinary course,
and there has not been (i) any Material Adverse Effect on either of them, (ii)
any declaration, setting aside or payment of any dividend or other distribution
with respect to its capital stock, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iv) (x) any granting by
Petropar N.A. or Fitesa to any of its officers of any increase in compensation,
except in the ordinary course of business consistent with prior practice, (y)
any granting by Petropar N.A. or Fitesa to any such officer of any increase in
severance or termination pay, except as part of a standard employment package to
any individual promoted or hired, or (z) any entry by Petropar N.A. or Fitesa
into any employment, severance or termination agreement with any executive
officer, (v) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a Material Adverse
Effect on either Petropar N.A. or Fitesa, (vi) any change in accounting methods,
principles or practices by Petropar N.A. or Fitesa materially affecting its
assets, liabilities or business, except insofar as may have been required by a
change in GAAP, (vii) any sale, lease, transfer, or assignment of any material
assets other than in the ordinary course of business, (viii) any material
capital expenditures other than in the ordinary course of business, (ix) any
material capital investment in, or loan to, any other Person outside the
ordinary course of business, or (x) any loan to, or other material transaction
with, any directors, officers and employees of Fitesa outside the ordinary
course of business.
SECTION 3.09. Litigation. Except as set forth in Section 3.09 of the
Disclosure Schedule, as of the date of this Agreement, there are no claims,
actions, proceedings or investigations pending, or to the knowledge of Parent,
threatened against either Petropar N.A. or Fitesa or any of their respective
assets or properties, before any court, arbitrator or administrative,
governmental or regulatory authority or body that are reasonably likely to have
a Material Adverse Effect on Petropar N.A. or Fitesa. Except as set forth in
Section 3.09 of the Disclosure Schedule, neither Petropar N.A. nor Fitesa nor
any of its assets and properties is subject to any order, writ, judgment,
injunction, decree, determination or award. Except as otherwise set forth in
Section 3.09 of the Disclosure Schedule, each of the matters listed on Section
3.09 of the Disclosure Schedule is covered by insurance, and the insurer has
acknowledged coverage of each such matter without reservation.
SECTION 3.10. Compliance with Applicable Laws. Except as set forth in
Section 3.10 of the Disclosure Schedule, within the preceding three years
neither Petropar N.A. nor Fitesa has violated or failed to comply with any
statute, law, regulation, rule, judgment, decree or order of any Governmental
Authority applicable to its business or operations, except for violations and
failures to comply that would not, individually or in the
<PAGE>
12
aggregate, have a material adverse effect on the ability of Petropar N.A. or
Fitesa to conduct its business as currently conducted or as currently
contemplated to be conducted, and there is no action pending against Petropar
N.A. or Fitesa charging failure to so comply. The conduct of the business of
each of Petropar N.A. and Fitesa is in conformity with all federal, state and
local governmental and regulatory requirements applicable to its business and
operations, except where such nonconformities would not, in the aggregate, have
a material adverse effect on the ability of Petropar N.A. or Fitesa to conduct
its business as currently conducted or as currently contemplated to be
conducted. Each of Petropar N.A. and Fitesa has all permits, licenses,
franchises and certificates of occupancy from Governmental Authorities required
to conduct its business as now being conducted, except for such permits,
licenses, franchises and certificates the absence of which would not, in the
aggregate, have a material adverse effect on the ability of Petropar N.A. or
Fitesa to conduct its business as currently conducted or as currently
contemplated to be conducted.
SECTION 3.11. Environmental Matters. Except as set forth in Section
3.11 of the Disclosure Schedule:
(a) Except as would not have a material adverse effect on the ability
of Petropar N.A. or Fitesa to conduct its business as currently conducted
or as currently contemplated to be conducted, each of Petropar N.A. and
Fitesa (i) is in compliance with all applicable Environmental Laws and (ii)
holds all Environmental Permits necessary for its operations and properties
and is in compliance with the terms and conditions of all such
Environmental Permits.
(b) Neither Petropar N.A. nor Fitesa has received any written claim,
demand, notice or complaint alleging violation of, or liability (including
without limitation any liability for site investigation, cleanup or
corrective action) under, any Environmental Laws.
(c) Except as would not have a material adverse effect on the ability
of Petropar N.A. or Fitesa to conduct its business as currently conducted
or as currently contemplated to be conducted, none of the following exists
at any property or facility owned or operated by Fitesa: (i) asbestos-
containing material in any form or condition; (ii) materials containing
polychlorinated biphenyls; (iii) underground storage tanks or surface
impoundments; or (iv) landfills, surface impoundments or disposal areas.
(d) Except as would not have a material adverse effect on the ability
of Petropar N.A. or Fitesa to conduct its business as currently conducted
or as currently contemplated to be conducted, Fitesa has not treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any Hazardous Material, or owned or
operated any facility or property, so as to give rise to liabilities
<PAGE>
13
for response costs, natural resource damages or attorneys fees pursuant to
CERCLA or other Environmental Laws.
(e) No written notice of a release of a Hazardous Material has been
filed by or on behalf of Fitesa, and no property or facility now or
previously owned or operated by Fitesa is on the CERCLA National Priorities
List (or proposed for such listing), the Comprehensive Environmental
Response, Compensation, and Liability Information System list or any
similar state list.
(f) Fitesa has not, either expressly or by operation of law, assumed
or undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental Laws.
(g) For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Environmental Laws" means any federal, state, local or foreign
statute, law, ordinance, regulation, rule or code, including any
judicial or administrative order, consent decree or judgment, relating
to pollution or protection of the environment or worker health and
safety, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge, investigation or cleanup of Hazardous Materials, in effect
as of the date hereof.
"Environmental Permits" means any permit, approval,
identification number, license or other authorization required of
Fitesa under any applicable Environmental Law.
"Hazardous Materials" means (a) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls, (b) any
chemical, material or substance defined or regulated as toxic or
hazardous under any applicable Environmental Law or (c) anything that
is a "hazardous substance" pursuant to CERCLA, anything that is a
"solid waste" or "hazardous waste" pursuant to RCRA or any
"pesticide", "pollutant", "contaminant", "toxic chemical" or "noise".
"RCRA" means the Resource Conservation and Recovery Act, as
amended.
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14
SECTION 3.12. Title to Properties. (a) Fitesa has good and
marketable title to, or valid leasehold interests in, all the properties and
assets used by it or located on its premises that are material to the conduct of
its business, or which are shown on the Financial Statements except for such as
are no longer useful in the conduct of its business or as have been disposed of
in the ordinary course of business and except for defects in title, easements,
restrictive covenants and similar impediments that, in the aggregate, would not
have a material adverse effect on the ability of Fitesa to conduct its business
as currently conducted or as currently contemplated to be conducted and, as to
the real property owned by Fitesa, would not have a material effect on the value
of such property. All such assets and properties, other than assets and
properties in which Fitesa has leasehold interests, are free and clear of all
Encumbrances except for (i) liens for taxes not yet due or being contested in
good faith by appropriate procedures, (ii) mechanics, carriers, workmen's,
repairmen's or other like liens arising or incurred in the ordinary course of
business for amounts that are not delinquent and which are not, individually or
in the aggregate, material to Fitesa's business, or (iii) liens arising under
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business. All such assets
are in good operating condition, ordinary wear and tear excepted, and are usable
in the ordinary course of Fitesa's business.
(b) With respect to real property owned or leased by Fitesa, (i) all
buildings, structures and other improvements located on such real property are
suitable for the uses for which they are currently used and (ii) such properties
have customary access to the utilities serving such properties sufficient to
allow the conduct of Fitesa's business as currently conducted or as currently
contemplated to be conducted, except for interruptions in utility service beyond
Fitesa's control.
(c) Fitesa has complied in all material respects with the terms of
the real property lease to which it is a party and under which it is in
occupancy, such lease is in full force and effect and no party to such lease is
in material breach thereof. Fitesa enjoys peaceful and undisturbed possession
under such lease.
(d) The real property used in the conduct of Fitesa's business
consists of the real property owned by Fitesa and located at 10 Panasonic Way in
Mooresville, North Carolina and the property leased by Fitesa pursuant to the
lease described in item 9 of Section 3.19 of the Disclosure Schedule.
SECTION 3.13. Trademarks, Etc. Fitesa does not own any patented or
registered Intellectual Property Rights and there are no pending patent
applications and applications for the registration of any Intellectual Property
Rights owned by Fitesa. Section 3.13 of the Disclosure Schedule contains a
complete and accurate list of (i) all trade names and unregistered trademarks
owned by Fitesa; and (ii) all computer software owned and/or used by Fitesa
other than commercially available software with an annual license fee of less
<PAGE>
15
than $1,000. Fitesa has not granted any licenses to any Person with respect to
Intellectual Property Rights and, other than with respect to computer software,
no Person has granted any such licenses to Fitesa. The Intellectual Property
Rights are sufficient to allow Fitesa to conduct, and continue to conduct, its
business as currently conducted in all material respects. Except as set forth
in Section 3.13 of the Disclosure Schedule, Fitesa owns (free and clear of all
Encumbrances) or has sufficient unrestricted right to use the Intellectual
Property Rights in order to allow it to conduct, and continue to conduct, its
business as currently conducted in all material respects, and the consummation
of the transactions contemplated hereby will not alter or impair such ability in
any respect. Fitesa has not infringed, misappropriated or is otherwise not in
conflict with any intellectual property right of any Person in any material
respect, and the conduct of the business of Fitesa as currently conducted or as
currently contemplated to be conducted does not and will not conflict in any
material respect with any license, trademark, trademark right, tradename,
tradename right, patent, patent right, invention, industrial model, service mark
or copyright of any third Person. No claims are pending or, to the knowledge of
Parent, threatened by any Person contesting or challenging the ownership,
validity, enforceability or use of any such Intellectual Property Rights. To
the knowledge of Parent, there are no claims pending or threatened by any Person
against S.T.P. Impianti alleging infringement of any intellectual property
rights relating to the technology used in Fitesa's manufacturing lines. Fitesa
has not made a claim of a violation or infringement by others of its rights to
or in connection with the Intellectual Property Rights. Fitesa has taken all
necessary and desirable action to maintain and protect the Intellectual Property
Rights (including, without limitation, taken steps reasonable under the
circumstances to maintain the confidentiality of and protect against the
disclosure of trade secrets and know-how).
SECTION 3.14. Insurance. Section 3.14 of the Disclosure Schedule
sets forth a complete list of all material insurance policies (including
policies providing property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) with respect to which Fitesa is a
party, a named insured or otherwise the beneficiary of coverage. With respect
to each such insurance policy: (i) such policy is in full force and effect;
(ii) neither Fitesa nor, to the knowledge of Parent, any other party to such
policy is in material breach or default thereunder, and no event has occurred
which, with or without notice or the lapse of time, would constitute such a
material breach or default, or permit termination, modification or acceleration
under such policy; and (iii) no party to such policy has repudiated any material
provision thereof.
SECTION 3.15. Employee Benefit Matters. (a) Section 3.15 of the
Disclosure Schedule contains a true and complete list of all employee benefit
plans (within the meaning of Section 3(3) of ERISA) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements with respect to which Fitesa has any
<PAGE>
16
obligation or which are maintained, contributed to or sponsored by Fitesa for
the benefit of any current employee, officer or director of Fitesa or any former
employee of Fitesa who was previously employed by it, or with respect to which
Fitesa has any liability or reasonable expectation of liability (the "Plans").
Except as disclosed in Section 3.15 of the Disclosure Schedule, each Plan is in
writing and Parent has previously made available to Purchaser a true and
complete copy of each Plan and a true and complete copy of each of the following
documents, to the extent applicable, prepared in connection with each such Plan:
(i) a copy of each trust or other funding arrangement, (ii) the three most
recently filed Internal Revenue Service ("IRS") Forms 5500, (iii) the most
recently received IRS determination letter, (iv) the most recently prepared
actuarial report and financial statement and (v) all governmental rulings,
determinations, and opinions (and pending requests for governmental rulings.
determinations, and opinions).
(b) Each Plan is now and has been operated in all material respects in
accordance with the requirements of all applicable laws, including, without
limitation, ERISA and the Internal Revenue Code. All prior contributions,
premiums or payments made with respect to any Plan have been deducted for income
tax purposes and no such deduction previously claimed has been, or is reasonably
expected to be challenged by any Governmental Authority. The Financial
Statements accurately reflect accruals of all amounts of employer contributions
and premiums accrued but unpaid with respect to the Plans as of the date
thereof.
(c) None of the Plans is subject to Title IV of ERISA or the minimum
funding requirements of Section 412 of the Internal Revenue Code or Section 302
of ERISA, and Fitesa has not incurred any material liability under, arising out
of or by operation of Title IV of ERISA. Fitesa has no liability or reasonable
expectation of liability with respect to any (i) multiemployer plan (as such
term is defined in Section 3(37) of ERISA), (ii) employee benefit plan of the
type described in Sections 4063 and 4064 of ERISA or in Section 413(c) of the
Internal Revenue Code (and regulations promulgated thereunder), or (iii) plan
which provides health, life insurance, accident or other "welfare-type" benefits
to current or future retirees or current or future former employees, their
spouses or dependents, other than in accordance with Section 4980B of the
Internal Revenue Code or applicable state continuation coverage law.
(d) Except as disclosed in Section 3.15 of the Disclosure Schedule,
none of the Plans obligates Fitesa to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change in control," as such term is
contemplated in Section 280G of the Code.
(e) Each Plan, which is intended to be qualified under Section 401(a)
of the Internal Revenue Code, has received a favorable determination letter from
the IRS that such plan is so qualified, and the related trust which is intended
to be exempt from federal
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17
income tax pursuant to Section 501(a) of the Internal Revenue Code has received
a determination letter from the IRS that such trust is so exempt and nothing has
occurred since the date of such determination letter that could reasonably be
expected to adversely affect the qualification of such Plan or the tax-exempt
status of such related trust.
(f) No transaction or omission has occurred with respect to any Plan
that could subject Fitesa, any trustee or administrator of any Plan, any party
dealing with any Plan or Purchaser to any material tax or penalty imposed by
ERISA or the Internal Revenue Code. No actions, suits, claims, complaints,
charges, proceedings, hearings, investigations, or demands with respect to the
Plans (other than routine claims for benefits) are pending or to Parent's
knowledge, threatened, and Parent has no knowledge of any facts that could
reasonably be expected to give rise to any actions, suits, claims, complaints,
charges, proceedings, hearings, investigations, or demands. None of the assets
of Fitesa or Petropar N.A. is the subject of any lien arising under Section
302(f) of ERISA or Section 412(n) of the Internal Revenue Code, neither Fitesa
nor Petropar N.A. has been required to post any security pursuant to Section 307
of ERISA or Section 401(a)(29) of the Internal Revenue Code, and Parent has no
knowledge of any facts which could reasonably be expected to give rise to such
lien or such posting of security.
(g) Neither Fitesa nor Petropar N.A. has any liability or reasonable
expectation of liability with respect to any employee benefit plan, program,
policy or arrangement, whether or not covering U.S. employees or former
employees, whether or not terminated, whether or not subject to ERISA, and
whether or not presently or formerly maintained by any member of the controlled
group of companies (within the meaning of Internal Revenue Code Section 414) of
which Fitesa or Petropar N.A. is or was a member, other than the Plans.
(h) Any bonuses, incentive fees, or other amounts payable to employees
of Fitesa solely as a result of the consummation of the transactions
contemplated by this Agreement will be paid by Seller or Parent.
SECTION 3.16. Labor Matters. (a) There are no material controversies
pending or, to the knowledge of Parent, threatened, between Fitesa and any of
its employees; (b) Fitesa is not a party to any collective bargaining agreement
or other labor union contract applicable to Persons employed by Fitesa under any
such agreement or contract; (c) during the past three years, there have been no
unfair labor practice complaints pending against Fitesa before the National
Labor Relations Board; and (d) during the past three years, there have been no
strikes, slowdowns, work stoppages, lockouts, or, to Parent's knowledge, threats
thereof, by or with respect to any employees of Fitesa.
SECTION 3.17. Transactions with Affiliates. Except as set forth in
Section 3.17 of the Disclosure Schedule, neither Petropar N.A. nor Fitesa has
been within the last
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18
three years a party to any material contract, lease, agreement or arrangement
with Parent (or any Affiliate of Parent), including any material contract,
lease, agreement or arrangement pursuant to which either of them is obligated to
pay money or provide goods, services or property for use in or in connection
with its business.
SECTION 3.18. Taxes. Except as set forth in Section 3.18 of the
Disclosure Schedule, (a) each of Petropar N.A. and Fitesa has timely filed or
been included in, or will timely file or be included in, all returns required to
be filed by it or in which it is to be included with respect to Taxes for any
period ending on or before the Closing Date, taking into account any extension
of time to file granted to or obtained on behalf of Petropar N.A. or Fitesa, (b)
all Taxes shown to be payable on such returns have been paid or will be paid and
(c) no deficiency for any material amount of Tax has been asserted or assessed
by a taxing authority against either Petropar N.A. or Fitesa.
SECTION 3.19. Material Contracts. (a) Section 3.19(a) of the
Disclosure Schedule lists the following contracts (collectively, the "Material
Contracts") to which Fitesa is a party or by which its assets may be bound:
(i) any commitment, contract, agreement, note, loan, evidence of
indebtedness, purchase order or letter of credit (other than intercompany
debt contemplated by Section 5.01(c) and purchase orders issued in the
ordinary course of business) that Parent reasonably anticipates will, in
accordance with its terms, involve aggregate payments by or to Fitesa of
more than $20,000 within the 12 month period following the date hereof and
that is not cancelable without liability within 60 days;
(ii) any lease of real or personal property involving any annual
expense in excess of $20,000;
(iii) any contract or agreement containing covenants limiting
in any respect the freedom of Fitesa to engage in any line of business or
compete with any Person;
(iv) any agreement (or group of related agreements) under which
Fitesa has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligations, in excess of $50,000,
or under which it has imposed an Encumbrance on any of its assets (other
than any lien of the type described in the second to last sentence of
Section 3.12(a));
(vi) any contract or agreement not entered into in the ordinary
course of Fitesa's business; and
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(v) any employment agreement involving payments of base
compensation annually by Fitesa in excess of $60,000.
(b) Fitesa is not (and, to the knowledge of Parent, no other party is)
in breach or violation of, or default under, any of the Material Contracts.
Each Material Contract is a valid agreement, arrangement or commitment of
Fitesa, enforceable against Fitesa in accordance with its terms except where
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and except where enforceability is subject
to the application of equitable principles or remedies.
SECTION 3.20. Accounts Receivable. The accounts receivable reflected
in the balance sheet of Fitesa dated December 31, 1995, and all accounts
receivable of Fitesa arising since such date, are valid receivables not subject
to setoff or counterclaim, are current and collectible subject only to the
reserve for bad debts set forth on the face of the balance sheet included in the
Financial Statements (rather than in any notes thereto) and adjusted for
operations and transactions through the Closing Date in accordance with past
practice, represent bona fide claims against debtors for sales, services
performed or other charges arising on or before the date thereof, and all the
services performed that gave rise to such accounts were delivered or performed
in all material respects in accordance with the applicable orders, contracts or
customer requirements.
SECTION 3.21. Inventories. Fitesa's inventory of supplies, raw
materials, work in process and finished goods consists only of items of quality
and quantity commercially usable and salable in the ordinary course of business,
except for any items of obsolete material or material below standard quality,
all of which have been written down to realizable market value, or for which
adequate reserves have been provided in accordance with GAAP, and the current
amount of such inventory is reasonable in the present circumstances of Fitesa's
business.
SECTION 3.22. Petropar N.A. Petropar N.A. was organized to hold the
shares of Fitesa and, except for engaging in activities relating to such stock
ownership and, except as set forth in Section 3.22 the Disclosure Schedule, has
not engaged in any business activities, conducted any operations, entered into
any contracts or had any employees since the date of its organization.
SECTION 3.23. Brokers. Except for Goldman, Sachs & Co. ("Goldman
Sachs"), no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
any of the Selling Parties. Parent is solely responsible for the fees and
expenses of Goldman Sachs.
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SECTION 3.24 Subsidiaries. Fitesa does not have, and has not had
during the last five years, any subsidiaries, nor does it have (or has it had
during the last five years) any investment in any other Person.
SECTION 3.25 Product Warranty. To the knowledge of Parent, since
June 30, 1995, the products sold in the conduct of Fitesa's business have been
in compliance in all material respects with any warranties made with respect
thereof, and, except as set forth in Section 3.25 of the Disclosure Schedule,
there is not currently pending any customer claim alleging any material breach
of warranty with respect to such products.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Parent and Seller as follows:
SECTION 4.01. Incorporation and Authority of Purchaser. Purchaser is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Purchaser, the performance by Purchaser of its
obligations hereunder and the consummation by Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of Purchaser. This Agreement has been duly executed and delivered
by Purchaser, and (assuming due authorization, execution and delivery by Parent
and Seller) constitutes a legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.02. No Conflict. Except as may result from any facts or
circumstances relating solely to Parent or Seller, the execution, delivery and
performance of this Agreement by Purchaser do not and will not (a) violate or
conflict with the Certificate of Incorporation or By-laws (or other similar
applicable documents) of Purchaser, (b) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to Purchaser or (c) result in any breach of, or constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or
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21
properties of Purchaser pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which Purchaser or any of its
subsidiaries is a party or by which any of such assets or properties is bound or
affected, except as would not, individually or in the aggregate, have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated by this Agreement.
SECTION 4.03. Consents and Approvals. The execution and delivery of
this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or other action
by, or filing with or notification to, any Governmental Authority, except (a) as
described in a writing delivered to Parent by Purchaser on the date hereof, (b)
the notification requirements of the HSR Act, (c) where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent Purchaser from, or delay Purchaser in,
performing any of its material obligations under this Agreement and (d) as may
be necessary as a result of any facts or circumstances relating solely to Parent
or Seller.
SECTION 4.04. Absence of Litigation. No claim, action, proceeding or
investigation is pending before any court, arbitrator or administrative,
governmental or regulatory authority or body that seeks to delay or prevent the
consummation of the transactions contemplated hereby or that would be reasonably
likely to materially and adversely affect or restrict Purchaser's ability to
consummate the transactions contemplated hereby.
SECTION 4.05. Investment Purpose. Purchaser is acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof. The Purchaser acknowledges
that the Shares are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), and that the Shares may not be transferred or sold
except pursuant to the registration provisions of the Securities Act or pursuant
to an applicable exemption therefrom and subject to state securities laws and
regulations, as applicable.
SECTION 4.06. Financing. Purchaser has, and will have at the
Closing, all funds necessary to consummate the transactions contemplated by this
Agreement.
SECTION 4.07. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
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22
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (a) Unless
Purchaser otherwise agrees in writing (which agreement will not be unreasonably
withheld) and except as otherwise set forth in Section 5.01 of the Disclosure
Schedule, between the date of this Agreement and the Closing Date, Parent will
cause Fitesa to (i) conduct its business only in the ordinary course, provided,
however, that all trade payables that are stated to be payable on a certain date
will be paid no later than five days following such date, (ii) use reasonable
efforts to preserve intact Fitesa's business organization and assets, subject to
the conduct of its business in the ordinary course, (iii) use reasonable efforts
to keep available to Purchaser the services of the present officers and key
employees of Fitesa and (iv) use reasonable efforts to preserve the current
relationships of Fitesa with its respective customers, suppliers, distributors
and other Persons with which Fitesa has significant business relationships.
(b) Purchaser acknowledges that Parent intends to cancel, or cause the
cancellation of, prior to or at the Closing, the intercompany arrangements
identified in Section 5.01(b) of the Disclosure Schedule, copies of which have
been delivered to Purchaser, and that such cancellations (including, without
limitation, any consequences of such cancellations) will not result in a breach
of this Agreement; provided, however, that all obligations of Fitesa under such
agreements shall terminate completely and neither Petropar N.A. nor Fitesa shall
have any liability to any Person with respect thereto.
(c) Parent agrees to cause intercompany accounts between Parent or its
Affiliates, on the one hand, and Fitesa, on the other hand, including the
promissory note dated September 26, 1995 executed by Fitesa in favor of Fitesa
Overseas Ltd., a British Virgin Islands corporation and a wholly owned
subsidiary of Parent, in the amount of $4,231,948.13 to be settled in cash at or
prior to Closing. Notwithstanding any other provisions of this Agreement,
Parent will indemnify and hold harmless Purchaser, Petropar N.A. and Fitesa from
and against any and all withholding taxes and reasonable out-of-pocket expenses
arising as a result of Purchaser, Petropar N.A. or Fitesa paying, settling or
being deemed to pay or settle any amount at the Closing under this subsection
(c).
(d) Immediately upon receipt by Seller of the Purchase Price, Parent
agrees to cause Seller to pay all outstanding amounts owing from Fitesa to its
creditors under (i) the GECC Credit Agreement, including any and all prepayment
penalties and other fees owing thereunder and (ii) the Morgan Guaranty Credit
Agreement, including any and all prepayment penalties and other fees owing
thereunder and (iii) all other indebtedness of Fitesa for borrowed money.
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23
SECTION 5.02. Access to Information. (a) From the date hereof until
the Closing, upon reasonable notice, Parent shall, and shall cause the officers,
directors, employees, auditors and agents of each of Petropar N.A. and Fitesa to
(i) afford the officers, employees and authorized agents and representatives of
Purchaser access, during normal business hours, to its offices, properties,
books and records and (ii) furnish to the officers, employees and authorized
agents and representatives of Purchaser such additional financial and operating
data and other information regarding its assets, properties, goodwill and
business as Purchaser may from time to time reasonably request; provided,
however, that such investigation shall not unreasonably interfere with any of
the businesses or operations of Fitesa or any of its Affiliates.
(b) Notwithstanding the foregoing, neither Petropar N.A. nor Fitesa
shall be required, prior to the Closing, to disclose, or cause the disclosure
of, to the officers, employees or authorized agents or representatives of
Purchaser (or provide access to any of its offices, properties, books and
records that could result in the disclosure to such Persons or others of) any
information that it has a legal obligation not to disclose or which would
contravene any applicable law, rule or regulation, nor shall Petropar N.A. or
Fitesa be required to permit or cause others to permit the officers, employees
or authorized agents or representatives of Purchaser to copy or remove from its
offices or properties any documents, drawings, electronic media or other
materials that might reveal any such confidential information or to photograph
or sketch any part of its assets or properties.
(c) After the Closing, upon reasonable notice, Purchaser shall (i)
afford Parent, and authorized agents and representatives of Parent, reasonable
access, during normal business hours, to the offices, properties, books and
records of Petropar N.A., Fitesa and Purchaser (but only with respect to the
business of Petropar N.A. and Fitesa), (ii) furnish to Parent, and authorized
agents and representatives of Parent, such additional financial and other
information regarding Petropar N.A. and Fitesa and its business as Parent may,
from time to time, reasonably request and (iii) make available to Parent any
employees of Fitesa whose assistance, testimony or presence is necessary to
assist Parent in evaluating any claims and in defending any claims involving
Fitesa or its business, including the presence of such Persons as witnesses in
hearings or trials for such purposes; provided, however, that such investigation
shall be for a bona fide business purpose and shall not unreasonably interfere
with the business or operations of Purchaser, Petropar N.A., Fitesa or any of
their respective Affiliates; provided further, that Parent shall reimburse
Purchaser for Purchaser's reasonable out-of-pocket expenses incurred in
connection with such investigation.
SECTION 5.03. Books and Records. (a) Each of Parent and Purchaser
agrees that it shall preserve and keep all books and records relating to
Petropar N.A. and Fitesa for a period of at least seven years from the Closing
Date. During such seven-year period, Parent, Purchaser and their respective
representatives shall, upon reasonable notice,
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24
have access thereto during normal business hours to examine, inspect and copy
such books and records.
(b) If, in order properly to prepare its financial statements or
documents required to be filed with Governmental Authorities, it is necessary
that any party hereto or any successors be furnished with additional information
relating to Petropar N.A. or Fitesa or its business, and such information is in
the possession of another party hereto, such party agrees to use its best
efforts to furnish such information to such other party, at the cost and expense
of the party being furnished such information.
SECTION 5.04. Governmental Approvals and Consents. (a) Each party
hereto will use its best efforts to obtain all authorizations, consents, orders
and approvals of all Governmental Authorities that may be or become necessary
for the performance of its obligations pursuant to this Agreement and will
cooperate fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Each party hereto agrees to
make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act with respect to the transactions contemplated hereby within five Business
Days of the date hereof and to supply promptly any additional information and
documentary material that may be requested pursuant to the HSR Act. The parties
hereto will not take any action that will have the effect of delaying, impairing
or impeding the receipt of any required approvals.
(b) Without limiting the generality of the parties' undertakings
pursuant to Section 5.04(a), each of the parties hereto shall use all reasonable
efforts to (i) respond to any inquiries by any Governmental Authority regarding
antitrust or other matters with respect to the transactions contemplated by this
Agreement, (ii) avoid the imposition of any order or the taking of any action
that would restrain, alter or enjoin the transactions contemplated by this
Agreement and (iii) in the event any Governmental Order adversely affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement has been issued, to have such Governmental Order vacated or lifted.
SECTION 5.05. Confidentiality. The terms of the letter agreement
dated March 27, 1996 (the "Confidentiality Agreement") between Parent and
Purchaser are hereby incorporated herein by reference and shall continue in full
force and effect until the Closing, at which time such Confidentiality Agreement
and the obligations of Purchaser under this Section 5.05 shall terminate;
provided, however, that the Confidentiality Agreement shall terminate only in
respect of that portion of the Proprietary Information (as defined in the
Confidentiality Agreement) exclusively relating to the transactions contemplated
by this Agreement. If this Agreement is, for any reason, terminated prior to
the Closing, the Confidentiality Agreement shall continue in full force and
effect.
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25
SECTION 5.06. Use of the "Fitesa" or "Petropar" Names. (a) No
interest in or right to use the names "Fitesa" or "Petropar" or any derivation
thereof or any logo, trademark or trade name of Parent (collectively, the
"Retained Names and Marks") is being transferred to Purchaser pursuant to the
transactions contemplated hereby and such rights of Fitesa and Petropar N.A.
shall terminate as of the Closing Date. Purchaser will, immediately following
the Closing Date, cause Fitesa and Petropar N.A. to remove or obliterate all the
Retained Names and Marks from its signs, purchase orders, invoices, sales
orders, labels, letterheads, shipping documents, and other items and materials,
and not to put into use after the Closing Date any such items and materials not
in existence on the Closing Date that bear any Retained Name or Mark or any
name, mark or logo similar thereto. Notwithstanding the foregoing, Fitesa may,
until the earlier of nine months following the Closing Date or such time as such
materials have been consumed in the ordinary course of business, use any
purchase orders, invoices, sales orders, labels, letterheads, or shipping
documents existing on the Closing Date that bear the name "Fitesa" or any
derivation thereof or any name, mark or logo similar thereto, where the removal
of any such name, similar name, mark or logo would be impractical; provided,
that Purchaser shall place, or cause to be placed, a stamp, mark or other
notation on any such item that identifies Fitesa as an Affiliate or business of
Purchaser (and not of Parent or Seller). Purchaser agrees that Parent and
Seller shall have no responsibility for claims by third parties arising out of,
or relating to, the use by Purchaser, Fitesa, Petropar N.A. or any Affiliate
thereof of any Retained Name or Mark after the Closing Date, and Purchaser
agrees to indemnify and hold harmless Parent and Seller from any and all claims
that may arise out of the use thereof by Purchaser, Fitesa or Petropar N.A. or
any Affiliate thereof.
(b) As soon as practicable after the Closing Date, but in any event no
later than 10 days after the Closing Date, Purchaser shall cause Fitesa and
Petropar N.A. to file with the Secretary of State of the State of North Carolina
amended Articles of Incorporation changing the corporate names of Fitesa and
Petropar N.A. to names that do not contain the words "Fitesa" or "Petropar", or
any derivation thereof or any name similar thereto.
SECTION 5.07. Investigation. (a) Purchaser acknowledges and agrees
that it (i) has made its own inquiry and investigation into, and, based thereon,
has formed an independent judgment concerning, Petropar N.A. and Fitesa, (ii)
has been furnished with or given adequate access to such information about
Petropar N.A. and Fitesa as it has requested and (iii) will not assert any claim
against Parent or any of its directors, officers, employees, agents,
stockholders, Affiliates, consultants, counsel, accountants, investment bankers
or representatives, or hold Parent or any such Persons liable, for any
inaccuracies, misstatements or omissions with respect to information (other than
the representations and warranties contained in this Agreement with respect to
the Selling Parties) furnished by Parent or such Persons concerning Petropar
N.A. or Fitesa.
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26
(b) In connection with Purchaser's investigation of Fitesa, Purchaser
has received from Fitesa certain projections and other forecasts for Fitesa,
including, without limitation, projected income statement and balance sheet
information. Purchaser acknowledges that there are uncertainties inherent in
attempting to make such projections, forecasts, plans and budgets, that
Purchaser is familiar with such uncertainties, that Purchaser is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
estimates, projections, forecasts, plans and budgets so furnished to it, and
that Purchaser will not assert any claim against Parent or any of its directors,
officers, employees, agents, stockholders, Affiliates, consultants, counsel,
accountants, investment bankers or representatives, or hold Parent or any such
Persons liable, with respect thereto. Accordingly, none of the Selling Parties
makes any representation or warranty with respect to any estimates, projections,
forecasts, plans or budgets referred to in this Section 5.07, or any other
representation or warranty with respect to the business, operations, assets,
liabilities or financial condition of Petropar N.A. or Fitesa other than as
specifically set forth in this Agreement.
SECTION 5.08. Further Action. Each of the parties hereto shall
execute and deliver such documents and other papers and take such further
actions as may be reasonably required to carry out the provisions hereof and
give effect to the transactions contemplated hereby.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Employees. (a) For the one-year period commencing on
the Closing Date (the "Continuation Period"), Purchaser agrees to provide, or to
cause Fitesa to provide, those Persons employed by Fitesa immediately prior to
the Closing, including those employees on vacation, leave of absence, disability
(work-related or otherwise) or sick leave or layoff (whether or not such
employees return to active employment with Fitesa) (the "Transferred
Employees"), with employee benefits that, in the aggregate per employee, are
substantially equivalent to those provided to such Transferred Employees
immediately prior to the Closing.
(b) To the extent that service is relevant for purposes of
eligibility, vesting or benefit accrual under any employee benefit plan, program
or arrangement established or maintained by Purchaser or Fitesa for the benefit
of the Transferred Employees, such plan, program or arrangement shall credit
such Transferred Employees for service on or prior to the Closing with Fitesa or
any of its Affiliates.
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27
(c) Following the Closing, Purchaser shall cause Fitesa to provide the
benefits accrued under, and perform all its obligations arising under, the Plans
listed in Section 3.15 of the Disclosure Schedule.
SECTION 6.02. WARN Act. In the event that Purchaser does not
continue all the operations of Fitesa and/or does not employ all of the
Transferred Employees after the Closing, Purchaser shall be liable and
responsible for any notification required to be provided under the Worker
Adjustment and Retraining Notification Act (or under any similar state or local
law), and Purchaser shall indemnify Parent and its Affiliates for any claims
arising out of a breach of this covenant or otherwise arising from any such
discontinuance of operations or decision not to employ, or to terminate the
employment of, any Transferred Employees.
SECTION 6.03. Survival. The covenants and agreements of the parties
hereto contained in this Article VI shall survive the Closing and shall remain
in full force and effect until the expiration of all statutes of limitations
with respect to the respective matters set forth herein.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities. (a) From and after the Closing
Date, Parent and Seller jointly and severally agree to indemnify Purchaser,
Petropar N.A. and Fitesa against all Taxes (i) imposed on Seller or any member
of an affiliated group with which Seller files a consolidated or combined income
tax return (other than Petropar N.A. or Fitesa) with respect to any taxable
period and (ii) imposed on Petropar N.A. or Fitesa with respect to any taxable
period or portion thereof that ends on or before the Closing Date, in excess of
the amount reserved for Taxes in the books and records of Petropar N.A. or
Fitesa as of the Closing Date (other than amounts that represent timing
differences between book and tax accounting methods); provided, however, that no
indemnity shall be provided under this Agreement for any Tax resulting from (i)
a reduction in any net operating loss, capital loss or tax credit carryover
allocable to Fitesa; or (ii) any transaction of Petropar N.A. or Fitesa
occurring on the Closing Date but after the Closing that is not in the ordinary
course of business.
(b) From and after the Closing Date, Purchaser, Petropar N.A. and
Fitesa shall indemnify Seller and its Affiliates against all (i) Taxes imposed
on or with respect to Petropar N.A. or Fitesa with respect to any taxable period
or portion thereof beginning after the Closing Date, and (ii) Taxes resulting
from any transaction of Petropar N.A. or Fitesa occurring on the Closing Date
but after the Closing that is not in the ordinary course of business.
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(c) Payment by the indemnitor of any amount due under this Section
7.01 shall be made within ten days following written notice by the indemnitee
that payment of such amounts to the appropriate tax authority is due, provided
that the indemnitor shall not be required to make any payment earlier than two
days before it is due to the appropriate tax authority. If Seller receives an
assessment or other notice of Tax due with respect to Petropar N.A. or Fitesa
for any period ending on or before the Closing Date for which Seller is not
responsible, in whole or in part, pursuant to paragraph (a) of this Section 7.01
because all or a part of such Tax does not exceed the amount reserved for Taxes
in the books and records of Fitesa as of the Closing Date (other than amounts
that represent timing differences between book and tax accounting methods), and
Seller pays such Tax, then Purchaser, Petropar N.A. or Fitesa shall pay to
Seller, in accordance with the first sentence of this Section 7.01(c), the
amount of such Tax for which Seller is not responsible. In the case of a Tax
that is contested in accordance with the provisions of Section 7.03, payment of
the Tax to the appropriate tax authority will not be considered to be due
earlier than the date a final determination to such effect is made by the
appropriate taxing authority or a court.
(d) For purposes of this Agreement, in the case of any Tax that is
imposed on a periodic basis and is payable for a period that begins before the
Closing Date and ends after the Closing Date, the portion of such Taxes payable
for the period ending on the Closing Date shall be (i) in the case of any Tax
other than a Tax based upon or measured by income, the amount of such Tax for
the entire period multiplied by a fraction, the numerator of which is the number
of days in the period ending on the Closing Date and the denominator of which is
the number of days in the entire period and (ii) in the case of any Tax based
upon or measured by income, the amount which would be payable if the taxable
year ended on the Closing Date. Any credit shall be prorated in the same manner
as the Tax to which such credit relates would be prorated, as described in the
preceding sentence. In the case of any Tax based upon or measured by capital
(including net worth or long-term debt) or intangibles, any amount thereof
required to be allocated under this Section 7.01(d) shall be computed by
reference to the level of such items on the Closing Date.
SECTION 7.02. Refunds and Tax Benefits. (a) Purchaser shall
promptly pay to Seller any refund or credit (including any interest paid or
credited with respect thereto) received by Purchaser, Petropar N.A. or Fitesa of
Taxes (i) imposed on Petropar N.A. or Fitesa relating to taxable periods or
portions thereof ending on or before the Closing Date or (ii) attributable to an
amount paid by Seller under Section 7.01 hereof. Purchaser shall, if Seller so
requests and at Seller's expense, cause the relevant entity to file for and
obtain any refund to which Seller is entitled under this Section 7.02.
Purchaser shall permit Seller to control (at Seller's expense) the prosecution
of any such refund claimed, and shall cause the relevant entity to authorize by
appropriate power of attorney such Persons as Seller shall designate to
represent such entity with respect to such refund claimed provided, however,
that Seller shall not take any action in the prosecution of such refund claims
which may be materially detrimental to the Purchaser, Petropar N.A. or Fitesa
(including for this purpose
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29
the tax positions of such entities) without the written consent of Purchaser.
In the event that any refund or credit of Taxes for which a payment has been
made pursuant to this Section 7.02(a) is subsequently reduced or disallowed,
Seller shall indemnify and hold harmless the payor for any Tax liability,
including interest and penalties, assessed against such payor by reason of the
reduction or disallowance.
(b) Any amount otherwise payable by Seller under Section 7.01 shall be
reduced by any Tax benefit realized by Purchaser, Petropar N.A. or Fitesa for a
period or portion thereof beginning after the Closing Date (a "Post-Closing Date
Tax Benefit") that arose in connection with any underlying adjustment resulting
in the obligation of Purchaser, Petropar N.A. or Fitesa to pay Taxes for which
Seller is responsible under Section 7.01 (such as a timing adjustment resulting
in a Tax deduction for Petropar N.A. or Fitesa for a period after the Closing
Date). If a payment is made by Seller in accordance with Section 7.01, and if
in a subsequent taxable year a Post-Closing Date Tax Benefit is realized by
Purchaser, Petropar N.A. or Fitesa (that was not previously taken into account
pursuant to the preceding sentence to reduce an amount otherwise payable by
Seller under Section 7.01), Purchaser, Petropar N.A. or Fitesa shall pay to
Seller at the time of such realization the amount of such Post-Closing Date Tax
Benefit to the extent that the Post-Closing Date Tax Benefit would have resulted
in a reduction in the amount paid by Seller under Section 7.01 if the Post-
Closing Date Tax Benefit had been obtained in the year of such payment. A Post-
Closing Date Tax Benefit will be considered to be realized for purposes of this
Section 7.02 as and when it reduces the amount of Tax payable by Purchaser or
Fitesa.
SECTION 7.03. Contests. (a) After the Closing, Purchaser shall
promptly notify Seller in writing of the commencement of any Tax audit or
administrative or judicial proceeding or of any demand or claim on Purchaser,
Petropar N.A. or Fitesa which, if determined adversely to the taxpayer or after
the lapse of time would be grounds for indemnification under Section 7.01. Such
notice shall contain factual information (to the extent known to Purchaser or
Fitesa) describing the asserted Tax liability in reasonable detail and shall
include copies of any notice or other document received from any taxing
authority in respect of any such asserted Tax liability. If Purchaser fails to
give Seller prompt notice of an asserted Tax liability as required by this
Section 7.03, then (a) if Seller is precluded by the failure to give prompt
notice from contesting the asserted Tax liability in both the administrative and
judicial forums, then Seller shall not have any obligation to indemnify for any
loss arising out of such asserted Tax liability and (b) if Seller is not so
precluded from contesting but such failure to give prompt notice results in a
material detriment to Seller, then any amount which Seller is otherwise required
to pay Purchaser pursuant to Section 7.01 with respect to such liability shall
be reduced by the amount of such detriment.
(b) Seller may elect to direct, through counsel of its own choosing
and at its own expense, any audit, claim for refund and administrative or
judicial proceeding involving any asserted liability with respect to which
indemnity may be sought under
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30
Section 7.01 (any such audit, claim for refund or proceeding relating to an
asserted Tax liability is referred to herein as a "Contest"); provided however,
that Purchaser may participate in any Contest that Seller has elected to direct;
provided, further that Seller shall not settle any claim without written
approval from Purchaser, which approval shall not be unreasonably withheld, if
the terms of such settlement could reasonably be expected to have a material
adverse effect on Purchaser. If Seller elects to direct a Contest, it shall
within 30 calendar days of receipt of the notice of asserted Tax liability
notify Purchaser of its intent to do so, and Purchaser shall cooperate and shall
cause Fitesa or its successor to cooperate, at the expense of Seller, in each
phase of such Contest. If Seller elects not to direct the Contest, fails to
notify Purchaser of its election as herein provided or contests its obligation
to indemnify under Section 7.01, Purchaser, Petropar N.A. or Fitesa may pay,
compromise or contest, at its own expense, such asserted liability. However, in
such case, none of Purchaser, Petropar N.A. or Fitesa may settle or compromise
any asserted liability over the objection of Seller; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld. In any
event, Seller may participate, at its own expense, in the Contest. If Seller
chooses to direct the Contest, Purchaser shall promptly empower and shall cause
Petropar N.A. or Fitesa or its successor, as applicable, promptly to empower (by
power of attorney and such other documentation as may be appropriate) such
representatives of Seller as it may designate to represent Purchaser, Petropar
N.A. or Fitesa or its successor in the Contest insofar as the Contest involves
an asserted Tax liability for which Seller would be liable under Section 7.01.
SECTION 7.04. Preparation of Tax Returns. Seller shall prepare and
file United States federal, state and local income and franchise tax returns and
schedules relating to Petropar N.A. and Fitesa for any Tax period ending on or
prior to the Closing Date and which are required to be filed after the Closing
Date and shall use its best efforts to provide such returns and schedules to
Purchaser for its review and comment no later than 15 Business Days prior to the
date on which such returns are required to be filed. With respect to any
returns for which Seller has filing responsibility pursuant to the preceding
sentence, Petropar N.A. and Fitesa will be included in the consolidated,
combined or unitary tax returns of Seller or an Affiliate of Seller on a basis
consistent with prior tax years unless a different treatment is required by an
intervening change in law. The parties agree that if Petropar N.A. and Fitesa
are permitted, but not required, under applicable state or local income or
franchise tax laws to treat the Closing Date as the last day of a Tax period,
they will treat such Tax period as ending on the Closing Date. Seller shall
prepare and file all other returns of Taxes for any period ending on or prior to
the Closing Date to the extent Seller or an Affiliate of Seller (other than
Petropar N.A. or Fitesa) previously was responsible for the preparation and
filing of such returns for the immediately preceding Tax period and shall use
its best efforts to provide such returns and schedules to Purchaser for its
review and comment no later than 15 Business Days prior to the date on which
such returns are required to be filed. Purchaser shall prepare and timely file
or cause Petropar N.A. and Fitesa to prepare and timely file all returns of
Taxes for which Seller is not responsible
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31
pursuant to this Section 7.04. To the extent permitted by law, such returns
shall be prepared on a basis consistent with those prepared for prior tax years,
including depreciation methods and other accounting methods which may be elected
or adopted annually. Purchaser agrees to notify Seller in writing prior to
filing any return that reports any material item in a manner that is
inconsistent with prior years and to consider all comments made by Seller with
respect thereto in good faith. Purchaser will deliver to Seller a complete and
accurate copy of each return required to be filed by Purchaser, Petropar N.A. or
Fitesa under this Section 7.04 for Tax periods that include the Closing Date,
and any amendment to such return, within 10 days of the date such return is
filed with the appropriate tax agency.
SECTION 7.05. Cooperation and Exchange of Information. Seller and
Purchaser will provide each other with such cooperation and information as any
of them reasonably may request of another in filing any Tax return, amended
return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes or participating in or conducting any audit or other proceeding
in respect of Taxes. Such cooperation and information shall include providing
copies of relevant Tax returns or portions thereof, together with accompanying
schedules and related work papers and documents relating to rulings or other
determinations by taxing authorities. Each party shall make its employees
available on a mutually convenient basis to provide explanations of any
documents or information provided hereunder. Each party will retain all
returns, schedules and work papers and all material records or other documents
relating to Tax matters of each of Petropar N.A. and Fitesa for its taxable
period first ending after the Closing Date and for all prior taxable periods
until the later of (i) the expiration of the statute of limitations of the
taxable periods to which such returns and other documents relate, without regard
to extensions except to the extent notified by another party in writing of such
extensions for the respective Tax periods or (ii) six years following the due
date (without extension) for such returns. Any information obtained under this
Section 7.05 shall be kept confidential, except as may be otherwise necessary in
connection with the filing of returns or claims for refund or in conducting an
audit or other proceeding.
SECTION 7.06. Conveyance Taxes. All sales, transfer, stamp, real
property transfer or gains and similar Taxes incurred as a result of the sale of
the Shares contemplated hereby shall be shared equally by Parent and Purchaser,
provided, however, that Purchaser shall have no liability for any such Taxes
payable to any national, state, provincial, regional or local taxing authority
in Brazil or Madeira. In addition, Parent agrees to indemnify Purchaser for any
and all liabilities, losses, damages, claims, costs, expenses, interest, awards,
judgments and penalties (including, without limitation, attorneys' and
consultants' fees and expenses) incurred by Purchaser arising out of Parent's or
Seller's failure to make timely or full payments of Taxes payable to such
Brazilian or Madeiran taxing authorities.
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SECTION 7.07. Miscellaneous. (a) The parties agree to treat all
payments made under Article IX or this Article VII as adjustments to the
purchase price for Tax purposes.
(b) Except as expressly provided otherwise and except for the
representations contained in Section 3.18 of this Agreement, this Article VII
shall be the sole provision governing Tax matters and indemnities therefor under
this Agreement.
(c) For purposes of this Article VII, all references to Purchaser,
Seller, Petropar N.A. and Fitesa include successors thereto.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of All Parties. The
obligations of each party hereto to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the Closing,
of each of the following conditions:
(a) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated; and
(b) No Order. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Governmental Order which is in effect
and has the effect of making the transactions contemplated by this
Agreement illegal or otherwise restraining or prohibiting consummation of
such transactions; provided, however, that each party hereto shall have
complied with its obligations under Section 5.04.
SECTION 8.02. Conditions to Obligations of Parent and Seller. The
obligations of Parent and Seller to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects as of the date hereof
and as of the Closing, with the same force and effect as if made as of the
Closing, other than such representations and warranties as are made as of
another date, which shall be true and correct in all material respects as
of such date, (ii) the covenants contained in this Agreement to be complied
with by
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33
Purchaser on or before the Closing shall have been complied with in all
material respects and (iii) Parent shall have received a certificate of
Purchaser to such effect signed by a duly authorized officer thereof;
(b) Resolutions. Parent shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary of Purchaser (or
equivalent officer), of the resolutions, if any, duly and validly adopted
by the Board of Directors of Purchaser evidencing its authorization of the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and
(c) Incumbency Certificate. Seller shall have received a certificate
of the Secretary or an Assistant Secretary (or equivalent officer) of
Purchaser certifying the names and signatures of the officers of Purchaser
authorized to sign this Agreement and the other documents to be delivered
hereunder.
SECTION 8.03. Conditions to Obligations of Purchaser. The
obligations of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
representations and warranties of Parent contained in this Agreement shall
be true and correct in all material respects as of the date hereof and as
of the Closing, with the same force and effect as if made as of the
Closing, other than such representations and warranties as are made as of
another date, which shall be true and correct in all material respects as
of such date, (ii) the covenants contained in this Agreement to be complied
with by any of the Selling Parties on or before the Closing shall have been
complied with in all material respects and (iii) Purchaser shall have
received a certificate of Parent to such effect signed by a duly authorized
officer thereof;
(b) Resolutions. Purchaser shall have received a true and complete
copy, certified by the Secretary or an Assistant Secretary (or equivalent
officer) of each of Parent and Seller, of the resolutions duly and validly
adopted by the Board of Directors of each of them evidencing its
authorization of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and
(c) Incumbency Certificate. Purchaser shall have received a
certificate of the Secretary or an Assistant Secretary (or equivalent
officer) of each of Parent and Seller certifying the names and signatures
of the officers of each of them authorized to sign this Agreement and the
other documents to be delivered hereunder.
(d) Resignations of Directors. The members of the Board of Directors
of each of Petropar N.A. and Fitesa shall have resigned.
<PAGE>
34
(e) Release of Encumbrances. Purchaser shall have received executed
Forms UCC-3 evidencing the release of all Encumbrances on the shares of
capital stock of Fitesa and Fitesa's assets in connection with the
indebtedness described in Section 5.01(d).
(f) FIRPTA. Seller shall have provided Purchaser with a certificate
pursuant to Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h)
that the Shares are not a United States real property interest within the
meaning of Section 897 of the Internal Revenue Code.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival. Subject to the limitations and other
provisions of this Agreement, the representations, warranties, covenants and
agreements of the parties contained herein shall survive the Closing and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of Parent, Seller or Purchaser, until 18 months following the Closing
Date; provided, however, that the covenants and agreements set forth in Sections
2.04, 5.03, 5.05, 5.06, 5.07, and 5.08 and in Articles VI, and XI and this
Article IX shall remain in full force and effect for the applicable periods
specified in the respective Sections or Articles or, if no such period is
specified, indefinitely; provided further that the representations and
warranties set forth in Sections 3.15 (in so far as they relate to compliance
with ERISA) and 3.18 and the agreements in Article VII shall remain in full
force and effect until the expiration of all statutes of limitations as extended
by agreement or otherwise with respect to any matters discussed therein;
provided further that the representations and warranties set forth in Section
3.02 shall survive the Closing without limitation as to time.
SECTION 9.02. Indemnification by Purchaser. (a) Purchaser agrees,
subject to the other terms and conditions of this Agreement, to indemnify Seller
and its Affiliates and the officers, directors, employees and agents of each of
the foregoing (all such Persons being included within the definition of "Seller"
for purposes of this Section 9.02) against and hold Seller harmless from all
Losses arising out of (i) the breach of any representation, warranty, covenant
or agreement of Purchaser herein (other than Article VII, it being understood
that the sole remedy for breach thereof shall be pursuant to Article VII) and
(ii) the conduct of the business of Petropar N.A. or Fitesa by Purchaser
following the Closing. Anything in Section 9.01 to the contrary
notwithstanding, no claim may be asserted nor may any action be commenced
against Purchaser for breach of any representation, warranty, covenant or
agreement contained herein, unless written notice of such claim or action is
received by Purchaser describing in detail the facts and circumstances with
respect to the subject matter
<PAGE>
35
of such claim or action on or prior to the date on which the representation,
warranty, covenant or agreement on which such claim or action is based ceases to
survive as set forth in Section 9.01, irrespective of whether the subject matter
of such claim or action shall have occurred before or after such date.
(b) Payments by Purchaser pursuant to Section 9.02(a) shall be limited
to the amount of any liability or damage that remains after deducting therefrom
any Tax benefit to Seller and any insurance proceeds and any indemnity,
contribution or other similar payment recoverable by Seller from any third party
with respect thereto. A Tax benefit will be considered to be recognized by
Seller for purposes of this Section 9.02 in the tax period in which the
indemnity payment occurs, and the amount of the Tax benefit shall be determined
by assuming that Seller is in the maximum applicable statutory tax bracket after
any deductions or other allowances reportable with respect to a payment
hereunder.
(c) Except as set forth in this Agreement, Purchaser is not making any
representation, warranty, covenant or agreement with respect to the matters
contained herein. Anything herein to the contrary notwithstanding, no breach of
any representation. warranty, covenant or agreement contained herein shall give
rise to any right on the part of Seller, after the consummation of the purchase
and sale of the Shares contemplated by this Agreement, to rescind this Agreement
or any of the transactions contemplated hereby.
SECTION 9.03. Indemnification by Parent. (a) Parent agrees, subject
to the other terms and conditions of this Agreement, to indemnify Purchaser and
its Affiliates and the officers, directors, employees and agents of each of the
foregoing (all such Persons being included in the definition of "Purchaser" for
purposes of this Section 9.03) against and hold it harmless from all Losses
arising out of (i) the breach of any representation, warranty, covenant or
agreement of Parent herein (other than Article VII, it being understood that the
sole remedy for breach thereof shall be pursuant to Article VII) and (ii) the
proceeding entitled Vicki Starnes, Administratrix of the Estate of David Allen
Starnes, Jr. vs. Fitesa North America Corporation (the "Starnes Litigation")
and any other proceeding brought against Purchaser, Petropar N.A., Fitesa or any
of their respective directors, officers or employees in connection with the
subject matter of such proceeding. Anything in Section 9.01 to the contrary
notwithstanding, no claim may be asserted nor any action commenced against
Parent for breach of any representation, warranty, covenant or agreement
contained herein, unless written notice of such claim or action is received by
Parent describing in detail the facts and circumstances with respect to the
subject matter of such claim or action on or prior to the date on which the
representation, warranty, covenant or agreement on which such claim or action is
based ceases to survive as set forth in Section 9.01, irrespective of whether
the subject matter of such claim or action shall have occurred before or after
such date.
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36
(b) No claim may be made against Parent for indemnification pursuant
to Section 9.03(a)(i) with respect to any individual item of liability or
damage, unless the aggregate of all such Losses of Purchaser with respect to
Section 9.03(a)(i) shall exceed $500,000, and Parent shall be required to pay or
be liable only for amounts in excess of such amount. Purchaser shall not be
indemnified pursuant to Section 9.03(a)(i) with respect to any individual item
of liability or damage if the aggregate of all liabilities and damages of
Purchaser for which Purchaser has received indemnification pursuant to Section
9.03(a)(i) shall have exceeded $5,000,000, provided, however, that this
limitation shall not apply with respect to the representations and warranties
contained in Sections 3.02, 3.11 and 3.18 hereof. For the purposes of this
Section 9.03(b), in computing such individual or aggregate amounts of claims,
the amount of each claim shall be deemed to be an amount (i) net of any Tax
benefit to Purchaser, (ii) net of any insurance proceeds and any indemnity,
contribution or other similar payment recoverable by Purchaser from any third
party with respect thereto, (iii) net of any reserves provided for the item in
question in the Financial Statements and (iv) net of any adjustments to the
Purchase Price paid pursuant to Section 2.04 with respect to the subject matter
in dispute.
(c) Payments by Parent pursuant to this Section 9.03 shall be limited
to the amount of any liability or damage that remains after deducting therefrom
(i) any Tax benefit to Purchaser, (ii) any insurance proceeds and any indemnity,
contribution or other similar payment recoverable by Purchaser from any third
party with respect thereto, (iii) any reserves provided for the item in question
in the Financial Statements and (iv) any adjustments to the Purchase Price paid
pursuant to Section 2.04 with respect to the subject matter in dispute. A Tax
benefit will be considered to be recognized by Purchaser for purposes of this
Section 9.03 in the tax period in which the indemnity payment occurs, and the
amount of the Tax benefit shall be determined by assuming that Purchaser is in
the maximum applicable statutory tax bracket after any deductions or other
allowances reportable with respect to a payment hereunder.
(d) Except as set forth in this Agreement, Parent is not making any
representation, warranty, covenant or agreement with respect to the matters
contained herein, including, but not limited to, any warranty of merchantability
or fitness for a particular purpose as to any of Fitesa's products. Anything
herein to the contrary notwithstanding, no breach of any representation,
warranty, covenant or agreement contained herein shall give rise to any right on
the part of Purchaser, after the consummation of the purchase and sale of the
Shares contemplated hereby, to rescind this Agreement or any of the transactions
contemplated hereby.
(e) Parent shall have no liability under any provision of this
Agreement for any liabilities and damages to the extent that such liabilities
and damages relate to actions taken by Purchaser or its Affiliates, including,
without limitation, Petropar N.A. and Fitesa, after the Closing Date.
<PAGE>
37
(f) Solely for purposes of this Section 9.03, in determining whether
there has been a breach of any representation or warranty contained in Article
III hereof, such representations and warranties shall not be qualified by the
term "material adverse effect" or any phrase using such term.
SECTION 9.04. Indemnification Procedures, Etc. (a) Each of
Purchaser and Parent (for purposes of this Section 9.04(a), an "Indemnified
Party") agrees to give the indemnifying party under Section 9.02 or 9.03, as
applicable (for purposes of this Section 9.04(a), an "Indemnifying Party")
prompt written notice of any claim, assertion, event or proceeding by or in
respect of a third party of which it has knowledge concerning any liability or
damage as to which it may request indemnification under Section 9.02 or 9.03, as
applicable, or any liability or damage as to which the $500,000 amount referred
to in Section 9.03(b) may be applied. The Indemnifying Party shall have the
right to direct, through counsel of its own choosing, the defense or settlement
of any such claim or proceeding at its own expense. If the Indemnifying Party
elects to assume the defense of any such claim or proceeding, the Indemnified
Party may participate in such defense, but in such case the expenses of the
Indemnified Party shall be paid by it; provided, however, that if there exists
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the Indemnified Party for the same
counsel to represent both the Indemnified Party and the Indemnifying Party, then
the Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. The Indemnified Party shall provide the
Indemnifying Party with access to its records and personnel relating to any such
claim, assertion, event or proceeding during normal business hours and shall
otherwise cooperate with the Indemnifying Party in the defense or settlement
thereof, and the Indemnifying Party shall reimburse the Indemnified Party for
all its reasonable out-of-pocket expenses in connection therewith. If the
Indemnifying Party elects to direct the defense of any such claim or proceeding,
the Indemnified Party shall not pay, or permit to be paid, any part of any claim
or demand arising from such asserted liability unless the Indemnifying Party
consents in writing to such payment or unless the Indemnifying Party, subject to
the penultimate sentence of this Section 9.04(a), withdraws from the defense of
such asserted liability or unless a final judgment from which no appeal may be
taken by or on behalf of the Indemnifying Party is entered against the
Indemnified Party for such liability. If the Indemnifying Party shall fail to
defend, or if after commencing or undertaking any such defense, fail to
prosecute or withdraws from such defense, the Indemnified Party shall have the
right to undertake the defense or settlement thereof, at the expense of the
Indemnifying Party. If the Indemnified Party assumes the defense of any such
claim or proceeding pursuant to this Section 9.04(a) and proposes to settle such
claim or proceeding prior to a final judgment thereon or to forego any appeal
with respect thereto, then the Indemnified Party shall give the Indemnifying
Party prompt written notice thereof and the Indemnifying Party shall have the
right to participate in the settlement or assume or reassume the defense of such
claim or proceeding. Neither the Indemnified Party nor the Indemnifying Party
shall
<PAGE>
38
settle any claim or proceeding without the written approval of the Indemnifying
Party (in the case of a settlement by the Indemnified Party) or of the
Indemnified Party (in the case of a settlement by the Indemnifying Party), which
approval shall not be unreasonably withheld, if the terms of such settlement
could reasonably be expected to have a material adverse effect on the
Indemnifying Party or the Indemnified Party, as the case may be.
(b) Neither Parent nor Purchaser shall have any liability to the
other under this Article IX for consequential damages. Each of Parent and
Purchaser shall take, and shall cause to be taken, all reasonable steps to
mitigate any Losses for which it might be entitled to indemnification under this
Article IX upon and after becoming aware of any event that could reasonably be
expected to give rise to such Losses.
(c) Each of Parent and Purchaser hereby acknowledges and agrees
that its sole and exclusive remedy with respect to any and all claims relating
to the subject matter of this Agreement shall be pursuant to the indemnification
provisions set forth in this Article IX and in Article VII. In furtherance of
the foregoing, each of Purchaser and Parent hereby waives, to the fullest extent
permitted under applicable law, any and all rights, claims and causes of action
it (or, after the Closing, any subsidiary) may have against the other (other
than pursuant to this Article IX or Article VII, as applicable) relating to the
subject matter of this Agreement arising under or based upon any law, rule,
regulation, order, judgment or decree applicable to it or by which any of the
properties of it or any of its subsidiaries is bound or affected.
(d) Neither Parent nor Purchaser shall be entitled to indemnification
under this Agreement with respect to the breach of any representation or
warranty, or the failure to comply with a covenant or agreement to be performed
prior to the Closing if, on or prior to the Closing Date, a senior executive
officer of the Person seeking such indemnification had actual knowledge of the
existence of such breach or failure, and, in such event, the sole remedy of such
Person shall be to not close the transactions contemplated by this Agreement if
such breach or failure would have resulted in the failure of the condition
contained in Section 8.02(a) or 8.03(a), as applicable.
SECTION 9.05 Conduct of Certain Litigation. Without limiting the
generality of Section 9.04, the parties hereto agree that (a) Parent shall
direct the defense or settlement of the Starnes Litigation and any other
proceedings brought against Purchaser, Petropar N.A., Fitesa or any of their
respective directors, officers or employees in connection with the subject
matter of such litigation, including, without limitation, the proceeding,
described in Item 2 of Section 3.09 of the Disclosure Schedule and (b) Purchaser
will cooperate, and use its best efforts to cause all officers and employees of
Fitesa to cooperate with Parent and its agents in the defense or settlement of
any such litigation or proceedings; provided that Parent shall reimburse
Purchaser and Fitesa for all reasonable out-of-pocket expenses incurred by them
after the Closing Date in connection with such defense.
<PAGE>
39
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by the mutual written consent of Parent and Purchaser; or
(b) by either Parent or Purchaser, if the Closing shall not have
occurred prior to September 30, 1996; provided, however, that the right to
terminate this Agreement under this Section 10.01(b) shall not be available
to a party whose failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of the
Closing to occur prior to such date.
Time shall be of the essence in this Agreement.
SECTION 10.02. Effect of Termination. In the event of termination of
this Agreement as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto (a)
except as set forth in Section 5.05 and Article XI hereof and (b) nothing herein
shall relieve any party hereto from liability for any willful breach hereof.
SECTION 10.03. Waiver. At any time prior to the Closing, each of the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby.
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40
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. Except as otherwise expressly provided
herein, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 11.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in Person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
11.02):
(a) if to Parent:
Petropar S.A.
Rua Sigueira Campos
1163 - 6. andar
CEP 90010-001
Attention: Wilson Ling
Telecopier: (011) 55-51-225-9236
and if to Seller:
Alicorno Comercio e Servicos, Lda.
Av. Arriaga, n.50
3/rd/ Floor, Room 2-Se
9000 Funchal
Madeira
Attention: Baltazar Goncalves
Telecopier: (011) 091-226120
<PAGE>
41
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Clare O'Brien
Telecopier: (212) 848-7179
(b) if to Purchaser:
PGI Polymer, Inc.
4838 Jenkins Avenue
North Charleston, South Carolina 29405
Attention: Jerry Zucker and James G. Boyd
Telecopier: (803) 747-4092
with a copy to:
Kirkland & Ellis
200 East Randolph Dr.
Chicago, Illinois 60601
Attention: Kevin Evanich and Laurie T. Gunther
Telecopier: (312) 861-2200
SECTION 11.03. Public Announcements. Unless otherwise required by
applicable law or stock exchange requirements, no party to this Agreement shall
make any public announcements in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without prior
notification to the other parties, and the parties will cooperate as to the
timing and contents of any such announcement.
SECTION 11.04. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of
<PAGE>
42
the parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated hereby be consummated as originally contemplated
to the greatest extent possible.
SECTION 11.06. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, other
than the Confidentiality Agreement, among Parent, Seller and Purchaser with
respect to the subject matter hereof and except as otherwise expressly provided
herein.
SECTION 11.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 11.08. No Third-Party Beneficiaries. Except as provided in
Section 6.01 and Article IX, this Agreement is for the sole benefit of the
parties hereto and their permitted assigns and nothing herein, express or
implied, is intended to or shall confer upon any other Person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 11.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by Parent, Seller and
Purchaser.
SECTION 11.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State. Parent and Seller
hereby agree and consent to the exclusive jurisdiction of, and service of
process and venue in, the United States District Court for the Southern District
of New York and the courts of the State of New York located in the County of New
York, State of New York and waive any objection with respect thereto, for the
purpose of any action, suit or proceeding arising out of or relating to this
Agreement. Furthermore, Parent and Seller waive any objections or immunities to
jurisdiction to which they may otherwise be entitled or become entitled
(including sovereign immunity, immunity to pre-judgment attachment, post-
judgment attachment and execution) in any legal suit, action or proceeding
against them arising out of or relating to this Agreement which is instituted in
any such court. Parent and Seller hereby appoint CT Corporation, New York, New
York, as their authorized agent (the "Authorized Agent") upon whom process may
be served in any such action arising out of or relating to this Agreement which
may be instituted in the United States District Court for the Southern District
of New York or the courts of the State of New York by any other party hereto.
Such appointment shall be irrevocable. Service of process upon the Authorized
Agent and written notice of such service to Parent or Seller, as the case may
be, shall be deemed, in every respect, effective service of process upon Parent
or Seller, as the case may be.
<PAGE>
43
SECTION 11.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, Parent, Seller and Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
PETROPAR S.A.
By /s/ William Ling
------------------------------
Name: William Ling
Title: Presidente
By /s/ Wilson Ling
------------------------------
Name: Wilson Ling
Title: Vice-Presidente
ALICORNO COMERCIO E SERVICOS, LDA
By /s/ William Ling
------------------------------
Name: William Ling
Title: Gerente
By /s/ Wilson Ling
------------------------------
Name: Wilson Ling
Title: Gerente
PGI POLYMER, INC.
By /s/ Jerry Zucker
------------------------------
Name: Jerry Zucker
Title: Chairman, President and
Chief Executive Officer
<PAGE>
Disclosure Schedule 2.04 (a) - 1
PHYSICAL INVENTORY INSTRUCTIONS
GENERAL INSTRUCTIONS
- --------------------
1. Seller will provide personnel at all locations to take physical inventory
and answer questions of Purchaser or Purchaser's Accountants during the
inventory.
2. Receiving or shipping of merchandise until the physical inventory is
completed will not be done unless a customer emergency exists.
3. Merchandise cannot be moved during the physical inventory without the
approval of Purchaser.
4. All inventory, except scrap and sample raw materials, must be counted.
There will be no exceptions. This applies to all locations of Fitesa.
5. A designated Purchaser representative will ensure that all inventory has
been counted before completion of the physical inventory.
6. The Purchaser will have the right to have a recount on all inventory items
that do not agree with its test counts.
7. To ensure that proper receiving and shipping cut-offs are achieved,
merchandise receiving and shipping documents for all receipts and shipments
three days prior to and three days after the physical inventory should be
kept in a separate folder available for review.
8. The physical inventory will be taken on Closing Date.
USE OF COLORED STICKERS
- -----------------------
Red stickers will be issued to each Seller inventory team and must be used
during the physical inventory. These tags will be affixed to each inventory item
as it is counted. Each individual item should receive a sticker to ensure that
all items are counted and that none are double counted.
Blue stickers will be affixed to non-inventoried items such as: scrap rolls, raw
material samples, and finished goods samples without part numbers. Blue stickers
can be affixed prior to the actual physical counts. These items will not be
entered on the pre-numbered count sheets.
USE OF PRE-NUMBERED COUNT SHEETS
- --------------------------------
Pre-numbered count sheets will be issued to each Seller inventory team and must
be used during the inventory count. These count sheets provide spaces for the
part number, serial number, unit of measure, and quantity of each inventory item
counted. All count sheets, used or not, will be returned to the accounting
manager to ensure that no items are omitted from the count. An example of a
count sheet is attached.
<PAGE>
Disclosure Schedule 2.04 (a) - 2
CUT-OFFS ON RECEIPTS ON SHIPMENTS
- ---------------------------------
Any shipments and receipts of raw material and finished goods occurring before
the cut-off time should be dated as a current month transaction.
WORK-IN-PROCESS
- ---------------
All finished goods rolls that are slit and package on or before the cut-off date
will be recorded as production and inventory. Team coordinators on duty at the
cut-off time will be responsible for recording the yardage on jumbo rolls in
process. A jumbo roll count sheet will be available in the coordinators' office
for this purpose.
POLYMER INVENTORY INSTRUCTIONS
- ------------------------------
[] On the 1st day of each month, polymer in each rail car on hand as of
midnight on the last day of the preceding month should be counted.
[] To do this, make a schedule of the rail car numbers that are on hand at the
time of the count.
[] The contents of each car will be checked.
[] This is done by determining if each compartment on each car has been used.
[] Level of partially empty/full compartments can be estimated by measuring
the depth of the polymer from the top of the compartment with a tape
measure. A railcar is 13 ft. deep. Therefore, measuring how far down the
polymer is at the count time provides information to estimate the quantity
of polymer left in the compartment.
[] A drawing of each railcar made at the time of the count is helpful in
calculating the quantity of polymer in each car.
[] The quantity of polymer in each railcar varies by car. The weight of
polymer in each car is kept on records kept by the production planner.
[] Once this information is obtained, the polymer on hand at the time of the
count will be calculated as follows.
<PAGE>
Disclosure Schedule 2.04 (a) - 3
HPIX 55808
----------------------------------------------------
7 FT.
--------------
11 FT.
------------
total wt. 160,000 lb. FULL EMPTY
Used on line 1 ----------------------------------------------------
28% 22% 22% 28%
<TABLE>
<CAPTION>
% IN % LEFT IN LBS IN
LBS IN FULL CAR COMPARTMENT COMPARTMENT COMPARTMENT
================================================================================
<S> <C> <C> <C> <C>
Compartment 1 160,000 .28 (13-0)/13 44,800
Compartment 2 160,000 .22 0 0
Compartment 3 160,000 .22 (13-7)/13 16,246
Compartment 4 160,000 .28 (13-11)/13 6,892
------- --- --------- ------
TOTAL IN CAR 67,938
================================================================================
</TABLE>
[] If this count was performed at 8 a.m. on the 1st of the month, then 8 hours
of polymer might have been used since midnight.
[] Estimate the lbs. of polymer used since midnight by multiplying the number
of hours the line ran during that time x the average thruput lbs. for that
line.
[] For example: Line 1 is running 1,200 lbs./hr. and ran 6 hours between
midnight and the time of the count.
[] Therefore 7,200 lbs. is added to the count at 8 a.m. to estimate that
75,138 lbs. of polymer was in railcar HPIX 55808 at midnight.
[] Adjust polymer inventory to reflect this quantity.
[] Perform this procedure for each railcar.
<PAGE>
INVENTORY TAKING PROCEDURES
RAW MATERIAL INVENTORY PROCEDURES
- ---------------------------------
. Polymer-Railcar
. Polymer-Holding Tank
. Polymer Gaylords/Pigment Boxes/Pigment Barrels/Cores/Headers/Stretch Wrap/UV
Treatment
. Surfactant Tanks
Polymer Railcar
---------------
Use previously provided "Polymer Inventory" instructions
Polymer-Holding Tank
--------------------
Three (3) spunbond polymer hoppers with 10,000 pound capacity and one (1)
meltblown polymer hopper with 5,000 pound capacity are assumed one-half
full for physical inventory purposes.
Surfactant Tanks/Polymer & Pigment Boxes/Pigment Barrels/Cores/Headers/
------------------------------------------------------------------------
Stretch Warp/UV Treatment
-------------------------
All of the above items are physically inventoried and the appropriate
identifying information is listed on the attached "Raw Material Count
Sheet". See attached sheet.
WIP INVENTORY PROCEDURES
- ------------------------
The Work-In-Process Inventory (Jumbo Rolls) is calculated as follows:
Jumbo Rolls-Unweighed
---------------------
At midnight on the cutoff day the linear yardage on each unweighed Jumbo
Roll is placed on the "Work-In-Process Inventory Count" sheet. This
information is provided by the Team Coordinator on duty at cutoff time and
given to the accounting manager. This linear yardage in combination with
the part number information (width) is used to calculate square yards.
These square yards are then multiplied by the standard cost per square yard
to determine inventory value using the "Jumbo WIP Inventory Value"
worksheet.
Weighed Rolls-Unslit
--------------------
The accounting department determines the linear yardage for these rolls
from the production reporting system. Using this linear yardage in
combination with width the square yards of product are calculated. Square
yards are then multiplied by standard cost to determine inventory value.
This information is determined by the accounting department. See attached
"Jumbo WIP Inventory Value" sheets.
Weighed Rolls-Partially Slit
----------------------------
The square yardage of "slit rolls" (produced prior to cutoff) attributed to
each partially slit Jumbo Roll is subtracted from the calculated square
yardage of the Jumbo Roll. This square yardage is then multiplied by the
standard cost per square yard to determine inventory value. See attached
"Jumbo WIP Inventory Value" sheets.
<PAGE>
Disclosure Schedule 2.04 (a) - 5
FINISHED GOODS INVENTORY PROCEDURES
- -----------------------------------
Pre-numbered count sheets will be issued to each inventory team and must be used
during the inventory count. These count sheets provide spaces for the part
number, serial number, unit of measure, and quantity of each inventory item
counted. All count sheets, used or not, will be returned to the accounting
manager to ensure that no items are omitted from the count. An example of a
Finished Goods count sheet is attached.
<PAGE>
Disclosure Schedule 2.04 (a) - 6
RAW MATERIAL COUNT SHEET Sheet # 1
-------
Inventory Type Pigment
------------
- ------------------------------------------------
Part # Quantity UOM Container type Container Types
- ------------------------------------------------ ---------------
12010 300 lbs BARREL Box
- ------------------------------------------------
12040 1000 lbs BOX Barrel
- ------------------------------------------------
Surfactant Tank
- ------------------------------------------------
- ------------------------------------------------
Inventory Types
- ------------------------------------------------ ---------------
Polymer
- ------------------------------------------------
Pigment
- ------------------------------------------------
Cores
- ------------------------------------------------
Headers
- ------------------------------------------------
Stretch Wrap
- ------------------------------------------------
UV Treatment
- ------------------------------------------------
Surfactant
- ------------------------------------------------
- ------------------------------------------------
UOM
- ------------------------------------------------ ---
Lb
- ------------------------------------------------
Each
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
<PAGE>
Disclosure Schedule 2.04 (a) - 7
WORK-IN-PROCESS INVENTORY COUNT
DATE: May 31, 1996 TIME: 12:00 Midnight
Please return this form to Brant Davis when completed. Thank you!
- --------------------------------------------------------------------------------
Line 1
Linear Yards on
Position Jumbo Part # Jumbo Lot Jumbo Roll Initials
Winding |______________| |_______| |_____________| |_______|
Middle |_______|
Slitter |_______|
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Line 2
Linear Yards on
Position Jumbo Part # Jumbo Lot Jumbo Roll Initials
Winding |______________| |_______| |_____________| |_______|
Middle |_______|
Slitter |_______|
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Line 3
Linear Yards on
Position Jumbo Part # Jumbo Lot Jumbo Roll Initials
Winding |______________| |_______| |_____________| |_______|
Middle |_______|
Slitter |_______|
- --------------------------------------------------------------------------------
1 Prior to the last day of the month, determine which Team Coordinator will
be on duty at month-end 12 midnight.
2 If possible, talk to Team Coordinator to verify understanding of procedure.
3 Prior to inventory, leave blank inventory Count Sheet with instructions in
Team mailbox.
4 Completed count sheet should be returned to Accounting Department.
5 Determine Standard Cost of Jumbo Roll in Winding position
6 Determine Standard Cost of Jumbo Roll in Middle position
7 Determine Standard Cost of Jumbo Roll in Slitting position
8 Determine Standard Cost of Product which has been slit from the Jumbo in
Slitting position as of midnight on the last day of the month.
9 The total of 5, 6, & 7, minus 8 is the value of WIP for the line.
10 Repeat for the other line.
11 Make a journal entry to record WIP and MUV adjustment.
<PAGE>
LINE 1 JUMBO WIP INVENTORY VALUE 8/30/96 Disclosure Schedule 2.04(a) - 8
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WINDING LINE 1 good
Jumbo Part # Lot # Linear Yds Yds2 width
------------ ----- ---------- ----
yardage counter 3527 11,800 38,833 120
a. 51292 3027 11,800 38,833 120
b. 120
c. 0 0 0
d. 0 0 0
Full width=126"
std cost a std cost b std cost c std cost #
Polymer 0.034061 0 0
Masterbatch 0.002373 0 0
Treatment 0 0
Cores 0 0
Headers 0 0
Wrap 0 0
Overhead 0.0282 0 0
---------
0.0664824 0
Total Cost a Total Cost b Total Cost c Total Cost d Total
Polymer 1,339.34 0 0 0 1,339.34
Masterbatch 93.34 0 0 0 93.34
Treatment - 0 0 0 -
Cores - 0 0 0 -
Headers - 0 0 0 -
Wrap - 0 0 0 -
Overhead 1,109.20 0 0 0 1,109.20
-----------------------------------------------------------------
2,541.88 0 0 0 2,541.88
MIDDLE LINE 1 good
Jumbo Part # Lot # Linear Yds Yds2 PWT # width
------------ ----- ---------- ---- ----- -----
0 118
e. 0 0 120
f. 0 0 120
g. 0 0 0
h. 0 0 0
----------
0
std cost e std cost f std cost g std cost h
Polymer 0 0 0
Masterbatch 0 0 0
Treatment 0 0 0
Cores 0 0 0
Headers 0 0 0
Wrap 0 0 0
Overhead 0 0 0
0
Total Cost e Total Cost f Total Cost g Total Cost h
Polymer - - - - -
Masterbatch - - - - -
Treatment - - - - -
Cores - - - - -
Headers - - - - -
Wrap - - - - -
Overhead - - - - -
-----------------------------------------------------------------
- - - - -
SLTTER LINE 1
good
Jumbo Part # Lot # Linear Yds Yds2 - width
------------ ----- ---------- ---- -----
e. 71113 8525 49,480 4,128.83 3
f. 81287 5526 10,160 10,150.00 36
g. 61386 3528 49,900 88,711.11 64
h. -
----------
109,540
std cost e std cost f std cost g std cost h
Polymer 0.034051 0.034051 0.035471
Masterbatch 0.002373 0.002373 0.002472
Treatment
Cores
Headers
Wrap
Overhead 0.0282 0.0282 0.0284
------ ------ ------
0.0664824 0.0640 0.067343 0
Total Cost e Total Cost f Total Cost g Total Cost h
Polymer 140.40 345.96 3,146.87 - 3,833.00
Masterbatch 9.78 21.11 218.29 253.19
Treatment - - - - -
Cores - - - - -
Headers - - - - -
Wrap - - - - -
Overhead 115.28 360.51 2,408.11 - 3,010.90
-----------------------------------------------------------------
200.47 850.58 5,974.07 - 8,897.12
Total slit rolls in this lot which were slit before the end of the month
Part # Yd2 Part # Yd2
<S> <C>
1 0 6 0
2 0 7 0
3 0 8 0
4 0 9 0
5 0 10 0
std. cost 1 std. cost 2 std. cost 3 std. cost 4
Polymer 0 0 0 0
Masterbatch 0 0 0 0
Treatment 0 0 0 0
Cores 0 0 0 0
Headers 0 0 0 0
Wrap 0 0 0 0
Overhead 0 0 0 0
Total Cost 1 Total Cost 2 Total Cost 3 Total Cost 4
Polymer - - - -
Masterbatch - - - -
Treatment - - - -
Cores - - - -
Headers - - - -
Wrap - - - -
Overhead - - - -
--------------------------------------------------
- - - -
</TABLE>
1
<PAGE>
Disclosure Schedule 2.04 (a) - 9
Finished Goods Count Sheet Location: C.D.S. | Morrisville Sheet # | 1 |
(Circle One) -------
12/29/1995
SAMPLE
meters
Part Number Serial Number yds meters(M)/roll (M)
- --------------------------------------------------------------------------
1 |6|1|0|5|0| |2|0|0|0|1|5|3|2| | |4|0|0|0| | |
- --------------------------------------------------------------------------
2 |6|1|0|5|0| |2|0|0|0|1|5|3|3| | |4|0|0|0| | |
- --------------------------------------------------------------------------
3 |6|1|0|5|0| |2|0|0|0|1|5|3|5| | |4|0|0|0| | |
- --------------------------------------------------------------------------
4 |6|1|0|5|0| |2|0|0|0|1|5|3|7| | |4|0|0|0| | |
- --------------------------------------------------------------------------
5 |6|1|0|5|0| |2|0|0|0|1|5|3|6| | |4|0|0|0| | |
- --------------------------------------------------------------------------
6 |6|1|0|5|0| |2|0|0|0|1|5|3|9| | |4|0|0|0| | |
- --------------------------------------------------------------------------
7 |6|1|0|5|0| |2|0|0|0|1|5|4|0| | |4|0|0|0| | |
- --------------------------------------------------------------------------
8 |6|1|0|5|0| |2|0|0|0|1|5|9|2| | |4|0|0|0| | |
- --------------------------------------------------------------------------
9 |6|1|0|5|0| |2|0|0|0|1|5|9|3| | |3|9|0|0| | |
- --------------------------------------------------------------------------
10 |6|1|0|4|9| |1|0|0|1|3|2|1|1| | |6|2|5|0| | |
- --------------------------------------------------------------------------
11 | | | | | | | | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------
12 | | | | | | | | | | | | | | | | | | | | | | |
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13 | | | | | | | | | | | | | | | | | | | | | | |
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14 | | | | | | | | | | | | | | | | | | | | | | |
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15 | | | | | | | | | | | | | | | | | | | | | | |
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16 | | | | | | | | | | | | | | | | | | | | | | |
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17 | | | | | | | | | | | | | | | | | | | | | | |
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18 | | | | | | | | | | | | | | | | | | | | | | |
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19 | | | | | | | | | | | | | | | | | | | | | | |
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20 | | | | | | | | | | | | | | | | | | | | | | |
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21 | | | | | | | | | | | | | | | | | | | | | | |
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22 | | | | | | | | | | | | | | | | | | | | | | |
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23 | | | | | | | | | | | | | | | | | | | | | | |
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24 | | | | | | | | | | | | | | | | | | | | | | |
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25 | | | | | | | | | | | | | | | | | | | | | | |
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26 | | | | | | | | | | | | | | | | | | | | | | |
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27 | | | | | | | | | | | | | | | | | | | | | | |
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29 | | | | | | | | | | | | | | | | | | | | | | |
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30 | | | | | | | | | | | | | | | | | | | | | | |
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31 | | | | | | | | | | | | | | | | | | | | | | |
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32 | | | | | | | | | | | | | | | | | | | | | | |
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33 | | | | | | | | | | | | | | | | | | | | | | |
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34 | | | | | | | | | | | | | | | | | | | | | | |
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35 | | | | | | | | | | | | | | | | | | | | | | |
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36 | | | | | | | | | | | | | | | | | | | | | | |
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37 | | | | | | | | | | | | | | | | | | | | | | |
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38 | | | | | | | | | | | | | | | | | | | | | | |
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39 | | | | | | | | | | | | | | | | | | | | | | |
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40 | | | | | | | | | | | | | | | | | | | | | | |
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41 | | | | | | | | | | | | | | | | | | | | | | |
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42 | | | | | | | | | | | | | | | | | | | | | | |
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43 | | | | | | | | | | | | | | | | | | | | | | |
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44 | | | | | | | | | | | | | | | | | | | | | | |
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45 | | | | | | | | | | | | | | | | | | | | | | |
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46 | | | | | | | | | | | | | | | | | | | | | | |
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47 | | | | | | | | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------
48 | | | | | | | | | | | | | | | | | | | | | | |
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49 | | | | | | | | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------
50 | | | | | | | | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------
Counted by: Brant Davis
-------------------------
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 2.04(B)
WORKING CAPITAL
---------------
ACCOUNTING PRINCIPLES & PRACTICES
---------------------------------
The Closing Date Working Capital, as defined in the Agreement is to be
calculated in accordance with GAAP as set forth below.
ACCOUNTS RECEIVABLE-TRADE
- -------------------------
This represents the dollar value of invoices issued to customers but as yet
uncollected. It includes as a deduction a reserve for those accounts thought to
be uncollectible. This figure also excludes any amount associated with product
either imported from or exported to Fitesa S.A.
ACCOUNTS RECEIVABLE-OTHER
- -------------------------
This is the value of prepaid income taxes and employee receivables. It is
recorded at actual cost.
PREPAID DEPOSITS
- ----------------
This represents the dollar value of prepaid insurance, software maintenance and
deposits (utility, car and apartment leases). It is recorded at actual vendor
invoice amounts.
RAW MATERIAL/WIP/FINISHED GOODS INVENTORY
- -----------------------------------------
All inventory is valued at a standard cost which approximates actual cost. Raw
material and finished goods inventory are further reduced for any inventory
either imported from or intended to be exported to Fitesa S.A.
INVENTORY ALLOWANCE
- -------------------
This item represents management's estimate of the difference between standard
cost and actual cost used to value raw material and finished goods inventory.
ACCOUNTS PAYABLE TRADE
- ----------------------
This item represents the actual dollar value of vendor invoices. It has been
reduced for any items owed to any Petropar company.
ACCRUED EXPENSES
- ----------------
This represents dollar value accrued for payroll, corporate income tax, and OSHA
fines.
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 3.02 - OWNERSHIP OF SHARES
The shares of Fitesa are subject to a lien securing indebtedness of Fitesa under
the GECC Credit Agreement.
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 3.05(C) - NO CONFLICT
1. The subordination agreement dated as of September 26, 1995 (the "GECC
Subordination Agreement"), among Parent, Petropar N.A., Fitesa Overseas Ltd.,
a British Virgin Islands corporation and a wholly owned subsidiary of Parent
("FOL") and General Electric Capital Corporation, a New York corporation
("GECC"), provides for acceleration of any subordinated debt of Fitesa to FOL
in the event the debt owed by Fitesa to GECC is accelerated pursuant to a
change in control of Fitesa.
2. The subordination agreement dated as of September 26, 1995 (the "Morgan
Subordination Agreement") by and among Morgan Guaranty Trust Company of New
York ("Morgan"), Fitesa and GECC provides for the acceleration of any
subordinated debt of Fitesa to Morgan in the event the debt owed by Fitesa to
GECC is accelerated pursuant to a change in control of Fitesa.
3. Pursuant to the GECC Credit Agreement, an Event of Default (as defined
therein) shall occur upon the acquisition after the date thereof by any
person (other than Parent or a wholly-owned subsidiary thereof) or by any two
or more such persons acting in concert of beneficial ownership (within Rule
13d-3 promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of 20% or more of the Shares or of the outstanding Voting
Stock (as defined therein) of Petropar N.A. Without the prior written
consent of GECC, in the event of a change of control of Fitesa, all debt owed
by Fitesa to GECC may be accelerated.
4. Pursuant to the Morgan Guaranty Credit Agreement, an Event of Default (as
defined therein) shall occur (i) upon the acquisition by any person or group
of persons (within the meaning of Section 13 or 14 of the Exchange Act of
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Commission under the Exchange Act) of 20% or more of the outstanding Shares
or, (ii) if during any period of twelve consecutive calendar months,
individuals who were directors of Fitesa on the first day of such period
cease to constitute a majority of the Board of Directors of Fitesa. Without
the prior written consent of Morgan, in the event of a change of control of
Fitesa, all debt owed by Fitesa to Morgan shall be forthwith due and payable
together with interest accrued thereon.
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 3.07 - FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED
LIABILITIES
See Section 3.09 of the Disclosure Schedule.
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 3.08(V) - ABSENCE OF CERTAIN CHANGES OR EVENTS
See Section 3.09 and Section 3.17 of the Disclosure Schedule.
<PAGE>
DISCLOSURE SCHEDULE
-------------------
SECTION 3.09 - LITIGATION
1. Vicki Starnes, Administratrix of the Estate of David Allen Starnes, Jr. vs.
Fitesa North America Corporation. Pursuant to a Complaint dated February 5,
1996, and filed in the Superior Court of Mecklenburg County, North Carolina,
Plaintiff is suing Fitesa for the alleged wrongful death of Mr. Starnes, who
was killed on May 30, 1995 while cleaning machinery in the course of his
employment with Fitesa. The Complaint alleges negligence by Fitesa and seeks
the following damages: (a) compensatory damages in excess of $10,000; (b)
punitive damages to be determined at trial; and (c) prejudgment and
postjudgment interest and Plaintiff's costs. Fitesa has received a
"reservation of rights" letter dated March 28, 1996 from its insurer in
respect of such litigation, a copy of which letter has been furnished to
Purchaser.
2. Commissioner of Labor v. Fitesa NA (OSHANC No. 95-3339). Pursuant to a
Citation and Notification of Penalty dated August 16, 1995, the North
Carolina Department of Labor, Division of Occupational Safety and Health
("OSHA") has cited Fitesa for three violations of the Occupational Safety and
Health Act, and imposed penalties totalling $87,900. Fitesa is not insured
in respect of such liabilities.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.10 - COMPLIANCE WITH APPLICABLE LAWS
Commissioner of Labor v. Fitesa NA (OSHANC No. 95-3339). Pursuant to a Citation
and Notification of Penalty dated August 16, 1995, OSHA has cited Fitesa for
three violations of the Occupational Safety and Health Act, and imposed
penalties totalling $87,900.
By letter dated September 15, 1995, Fitesa notified OSHA that it is contesting
each citation, proposed penalty and abatement date.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.11 - ENVIRONMENTAL MATTERS
See Section 3.10 of the Disclosure Schedule
An anonymous complaint was made in November 1994 to the South Iredell Community
Development Corporation, owners of the business park in which Fitesa is located,
that excessive noise levels were being generated by the Fitesa plant.
A test of noise levels conducted by Triangle Environmental on January 24, 1996
showed noise levels within regulatory limits at the Fitesa plant.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.13 - TRADEMARKS, ETC.
In addition to its full name, Fitesa uses the names Fitesa North America and
Fitesa N.A. in the conduct of its business.
The intellectual property of Fitesa is subject to a lien securing indebtedness
under the GECC Credit Agreement.
See the attached list of all computer software used or owned by Fitesa.
<PAGE>
FITESA SOFTWARE LISTING
- AS OF JULY 10, 1996 -
SEQUENT UNIX SOFTWARE
- ---------------------
OPERATING SYSTEM - Sequent Dynix/ptx v.2.0.5
DATABASE AND DATABASE APPLICATIONS - Oracle RDBMS Products
RDBMS v.6.0.36.7.1
SQL *Forms v.3.0.16.12.4
SQL *Plus v.3.0.12.4.1
PL/SQL v.1.0.36.2.2
Oracle *Financials v9.0.36
Order Entry / Distribution
Inventory
General Ledger
Accounts Payable
Accounts Receivable / Revenue Accounting
Purchasing
(Personnel -- replaced)
(Fixed Assets -- replaced)
Cadence (100 screen forms, 70 reports, 50 + support files, 100 data
structures)
Menu, Navigational, and Administrative structures
Systemwide and Module Specific Lookup Tables and Forms
Work Orders
Production Reporting
Winder
Slitter
Finished Goods Labeling
Scrap
Product Labeling
Recycling
Repelletizing
Shipping / Transfers / RMAs
Finished Goods
Scrap
Laboratory Information
Company Quality Measurement
OTHER UNIX APPLICATIONS
Lotus for Unix System V v.1.0 (Accounting dept use only -- Standard Cost
Spreadsheet)
WordPerfect 5.0 for Unix (Obsolete -- not used)
Syntax LMServer for Sequent (Systems admin use only)
PC AND NETWORK SOFTWARE
- -----------------------
MICROSOFT PRODUCTS
Windows NT Advanced Server
Windows NT Workstation
Windows for Workgroups
DOS
Office
Excel
Word
Mail
Schedule Plus
<PAGE>
PowerPoint
Project
Technet CD (Systems admin use only)
OTHER PC APPLICATIONS
AT&T Mail Gateway
Reflection for Windows
FAS (Fixed Assets)
AutoCad for Windows
Intermec Label Design
Wizcon Production Line Control
WordScan (OCR package)
McAfee Virus Scan
Procomm Plus (DOS)
DacEasy Rolowin
ADP Payroll & Personnel
REFERENCE CDs
US Patent
Dunn and Bradstreet
ProPhone
ComputerSelect
Thomas Registry
McMaster Carr Catalog
Nonwovens Marketplace
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.14 - INSURANCE
1. Fitesa and several other companies periodically contribute funds to an
insurance pool pursuant to which such companies fund their obligations under
workmen's compensation laws.
2. Fitesa is a party to, a named insured under, or otherwise the beneficiary of
the following insurance policies:
<TABLE>
<CAPTION>
Coverage Policy Carrier
-------- ------ -------
<S> <C> <C>
Auto BAP(97)7320-97-86 Federal Insurance (Chubb)
Commercial General Liability 3531-60-75CCG Federal Insurance (Chubb)
Workers Compensation-NC W128573552B Key Risk Management
Workers Compensation G.A. WC1-355-303674-016 Liberty Mutual
Workers Compensation P.A. 040844680961 State Workmans Insurance
Fund
Umbrella Liability (97)7970-97-69-CCG Federal Insurance (Chubb)
Property 3531-60-75CCG Federal Insurance (Chubb)
Crime 3531-60-75CCG Federal Insurance (Chubb)
Ocean Cargo R38090 Continental Casualty
Company
International Liability 7320-56-67CCG Vigil Insurance Co.
(Chubb)
</TABLE>
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.15 - EMPLOYEE BENEFIT MATTERS
A. EMPLOYEE BENEFIT PLANS
1. Written Plans
a. Retirement Benefits Plans:
(i) Fitesa N.A. 401(k) Plan
b. Welfare Benefits Plans:
(i) Fitesa N.A. Cafeteria Plan
(ii) Severance Plan
(iii) Medical and Dental
(iv) Life Insurance Plan
(v) Accidental Death and Dismemberment
2. Unwritten Plans
a. Welfare Benefits Plans:
(i) Fitesa Bonus Plan
(ii) Short-term Disability Plan (as included in the Fitesa Policy and
Procedure Manual)
(iii) Long-term Disability Plan (as included in the Fitesa Policy and
Procedure Manual)
B. AGREEMENTS
1. Employment Agreements
a. John Sumner
2. Severance Agreements
a. Ron Brooker
b. Eugene Konczal
<PAGE>
C. EMPLOYMENT ARRANGEMENTS
1. Marcio Muller--expatriate compensation package
2. Herminio Freitas--employment outline
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.17 - TRANSACTIONS WITH AFFILIATES
1. On February 24, 1994, Fitesa and Parent entered into a guarantee fee
agreement (the "Parent Guarantee Agreement") pursuant to which Parent has
agreed to guarantee certain indebtedness of Fitesa. Pursuant to this
agreement Fitesa is obligated to pay Parent a guarantee fee equal to 1 1/2%
of the weighted average borrowings subject to this agreement during each
calendar year. This agreement was effective retroactively commencing January
1, 1993.
2. On April 1, 1991, Fitesa and Fitesa S.A., a corporation organized under the
laws of the Federative Republic of Brazil, entered into a royalty payment
agreement (the "Royalty Agreement") pursuant to which Fitesa has agreed to
pay Fitesa S.A. royalty payment fees in exchange for technological and other
assistance and services regarding the manufacture of polypropylene nonwoven
textile fabrics used in consumer goods, provided by Fitesa S.A.
3. Fitesa periodically purchases and ships spare parts and supplies on behalf of
Parent and certain of Parent's Affiliates, which transactions are conducted
on an "arms' length" basis. The aggregate amount of receivables owing to
Fitesa at any one time outstanding in respect of such transactions is less
than $50,000.
4. See Section 3.19 of the Disclosure Schedule for a description of debt
agreements between Fitesa and its Affiliates.
5. Promissory Note dated September 26, 1995 executed by Fitesa in favor of
Fitesa Overseas Ltd. ("FOL"), a wholly owned subsidiary of Parent, in the
amount of $4,231,948.13.
6. On August 30, 1994, Fitesa paid a dividend to Petropar S.A. in the form of
a promissory note in the amount of $2,949,000. The amount owed under such
promissory note was forgiven by Petropar S.A. and treated as a capital
contribution to Fitesa on April 17, 1996.
7. Since December, 1994, Fitesa has entered into loan agreements with various
lenders for an aggregate amount of approximately $9.7 million and has loaned
the proceeds thereof to FOL. All of such amounts have since been repaid or
assumed by FOL.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.18 - TAXES
1. Extension request filed by Petropar N.A. and Fitesa in respect of the 1995
tax year.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.19 - MATERIAL CONTRACTS
Section 3.19(a)(i) - 1. A promissory note dated September 26, 1995 in favor of
FOL in the amount of $4,231,948.13, which loan amount is due and payable no
later than February 1, 2001. Payments under this promissory note are
subordinated to certain senior debt of Fitesa as set forth in the GECC
Subordination Agreement.
2. The GECC Credit Agreement, pursuant to which GECC agreed to advance Fitesa
an aggregate of $12.5 million, consisting of Term Loan A in the amount of $7.5
million and Term Loan B in the amount of $1 million, and revolving loans in an
aggregate amount of $4 million. The total amount of each term loan is currently
outstanding. There was $535,165 outstanding under the revolving credit agreement
with GECC at December 31, 1995. The maturity date of the term loans and
revolving loans is October 1, 2000. These loans are secured by a pledge by
Petropar N.A. of all of the outstanding common stock of Fitesa and a security
interest in all personal and real property of Fitesa.
3. Pursuant to the GECC Credit Agreement, Fitesa has entered into a Pledged
Account Agreement dated as of September 26, 1995, pursuant to which Fitesa has
granted to GECC a security interest in certain pledged bank accounts of Fitesa.
4. The GECC Subordination Agreement.
5. The Morgan Subordination Agreement.
6. The Morgan Guaranty Credit Agreement, pursuant to which Morgan has agreed
to advance to Fitesa $9,052,000 in revolving loans. Amounts outstanding under
the agreement are evidenced by a promissory note executed on December 31, 1993.
$9,052,000 was outstanding at December 31, 1995. The maturity date is October 1,
1997. Borrowings incurred under this agreement are guaranteed by Parent.
Payments under this agreement are subordinated to certain senior debt of Fitesa
as set forth in the Morgan Subordination Agreement.
7. The Parent Guarantee Agreement.
8. Agreement for the supply of a Polypropylene Spunbonded Nonwovens Pilot
Plant dated May 25, 1993 between Atlas Corp. and S.T.P. Impianti.
<PAGE>
9. Lease Agreement dated January 1, 1995 between Fitesa and Carolinas'
Distribution Services
10. Section 3.19(v)- 1. Marcio Muller
2. Herminio Freitas
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.22 - PETROPAR N.A.
See Section 3.05(c) of the Disclosure Schedule.
Petropar N.A. has entered into a pledge agreement pursuant to which the shares
of Fitesa beneficially owned by Petropar N.A. are subject to a lien securing
indebtedness of Fitesa under the GECC Credit Agreement.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 3.25 - PETROPAR N.A.
Fitesa has agreed to provide to Paper Pak free of charge approximately 60,000
to 70,000 pounds of rolled goods with an approximate retail value of between
$80,000 and $100,000 in settlement of a claim made by Paper Pak with respect
to the quality of product delivered by Fitesa to Paper Pak.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 5.01(a) - CONDUCT OF BUSINESS PRIOR TO CLOSING
1. In July 1996, Fitesa expects to pay a bonus in the aggregate amount of
approximately $160,000 to all of its employees.
2. Parent currently intends that each of Herminio Freitas and Marcio Muller will
return to Parent's employ in Brazil following the Closing.
3. Fitesa intends to lend to Parent a spare compression roll owned by Fitesa for
use by Parent in Brazil pending repair of a similar piece of equipment owned by
Parent.
<PAGE>
DISCLOSURE SCHEDULE
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SECTION 5.01(b) - CONDUCT OF BUSINESS PRIOR TO CLOSING
Parent Guarantee Agreement.
Royalty Agreement.
